Lost On The Shore

Don't Worry About the Slots...Yet

 
There's been a lot of public hand-wringing and breast-beating over the small number of bids received to operate slot machines in Maryland - only a total of six bids were received for the five possible sites.  Two of the bids came without the required deposit, suggesting that they might be less than serious and probably will be disqualified.  Many have said that the slots legislation needs to be changed already, before the first machine is in place or any bid has been accepted, to give the potential operators a bigger cut.

I say that's a bunch of rubbish.  In case anyone hasn't noticed, the economy is not doing too well these days and credit is tight.  It can't be easy for some to come up with the required deposit.  Further, there are still uncertainties about some of the sites that need to be cleared up.  But these problems will be solved eventually - the economy will improve, credit will loosen and the issues around a couple of the sites will be resolved.  There's absolutely no need to panic and start throwing more money at the potential slots operators.

We need to look no further than right here on the Shore where William Rickman, arguably the most experienced slots operator among all the bidders, submitted a bid to place 800 machines at his Ocean Downs race track.  Mr. Rickman, who is the principal in the Delaware Park slots operation just up the road is experienced, understands the cost and income from operating slot machines and has chosen to put up the required money, even given the relatively small share of proceeds that Maryland allocates to operators.  If he can do it down here, other operators can do it at the other sites.  It will just be a matter of time.

Similarly, Cordish, who has some experience in the business, submitted what seems to be a viable bid for the Anne Arundel County site.  It looks as though the bids for the Cecil County and the Baltimore City sites are also good.  All of the bids, except for Cordish's are for fewer slots than the legislation allows, but give them time and eventually the'll reach the cap. 

So don't panic and start throwing money at the slots operators.  They don't need it. 

[I've been offline for a while due to a combination of events.  I hope to get back to posting regularly soon!]

Stimulus That Will Benefit Us

It's good to hear that President-Elect Obama is planning on more fiscal stimulus for the American economy and even better to hear that he plans to stimulate the economy by investing in infrastructure rather than just sending out checks to everyone.  We have been ignoring our infrastructure requirements in this country for some time and the results are definitely showing.  So, since I know Barack is reading this blog, here are some suggestions:

High Speed Rail Most other industrialized countries are far ahead of us here.  Japan has been running their Shinkansen 'bullet trains' since 1964.  France began working on their TGV (train à grande vitesse, "high-speed train") in 1976 and the Paris-Lyon line opened in 1981.  The phenomenal success of the TGV has encouraged the French government to build six additional lines and other countries in Europe have built their own high speed networks - the Thalys in Germany, Belgium and the Netherlands, Eurostar linking Britain to France and Belgium as well as systems in Spain, Italy, Sweden and Norway.  High-speed rail networks are also being built in China, Taiwan and South Korea.

Here in the United States we don't have true high speed rail.  The Acela trains in the Northeast Corridor (Washington-New York-Boston) are called 'high-speed', but track conditions limit them to a top speed of about 125 mph rather than the 200 mph common on true high speed rail.

High speed rail doesn't make sense for much of the United states - the distances are too great to compete with air travel.  However, in the northeast corridor, the Chicago area and possibly the Dallas/Fort Worth/Houston area, high speed rail will produce city-to-city travel times that are considerably less than comparable air service while producing less pollution and being less subject to weather delays.  As an added bonus, the elimination of dozens of flights between Washington, Baltimore, Philadelphia, Boston and New York will do much to reduce air travel delays in the country by reducing congestion in the New York City area.

Construction of these lines will generate thousand of jobs and the construction of the trainsets, signalling equipment and other ancillary requirements will generate thousands more. A $50 billion commitment here will get us off to a good start. 

School Construction States and local jurisdictions have been falling behind on funding the expansion and replacement of existing school buildings.  Many existing school buildings were built in the 1950s and 1960s and need either replacement or substantial renovation.  Further, existing schools are being stretched well beyond capacity.  Temporary classroom buildings are a common sight throughout the country.  Finally, most of our existing schools do not meet today's technological requirements. 

The need is tremendous.  In 1995, the General Accounting Office estimated the backlog of school construction needs at $112 billion.  In 1999, the Education Department estimated the cost at $127 billion.  The National Education Association in 2002 came up with a number of $322 billion including technology improvements.  There's no doubt the backlog has grown.  Right here in my local jurisdiction of 50,000 people there are more than $100 million in unmet needs.  The State of New Jersey estimates a $30 billion backlog in that state alone. 

An investment of $400 billion will go a long way toward eliminating the backlog.  Further it will provide work for thousands of smaller construction firms around the country and for hundreds of thousands of construction workers who are out of work due to the housing slump.  As a bonus, the Department of Energy estimates that such a program would reduce energy costs for schools by some $2 billion a year.

Roads and Bridges We haven't done a good job of maintaining our road system let alone pay for the expansion needed to meet current demand.  Tens of thousands of bridges are deficient, pavement is crumbling all around the country and huge traffic backups are way of life.  A new commitment of $500 billion in Federal money will make a major dent in the backlog here, will stimulate the construction industry all across the country and put many Americans back to work.  There's no reason to delay here.

Mass Transit Along with expanded spending on roads and bridges must come renewed investment into mass transit.  We need our cities to work efficiently.  Like it or not, the vast majority of economic activity in the United States is generated in cities, not in rural areas.  An investment of $100 billion now will generate huge dividends in the future in terms of increased efficiency and lower energy use. In addition, of course, we'll see tens of thosuands of new jobs created. 

Let's start now.  We have no time to lose.

[The photo is of a Eurostar and a Thalys train in the Gare du Nord in Paris]

Don't Cut My Stuff!

The opening of the 2009 session of the Maryland General Assembly is less than two months away and, of course, the maneuvering has already started.  As expected, the early action is all about money.

Over at the Maryland Politics Watch, Adam Pagnucco reports that Rich Madaleno has become chairman of the Montgomery County State Senate delegation.  Madaleno wastes no time in setting out his priorities for the year - make sure Montgomery County doesn't lose any money in the upcoming session.  He wants to be sure that the state formula for funding teacher retirement (which primarily benefits Montgomery County) isn't changed and he wants to be sure that Montgomery County's school construction allocation is not less than the $46 million they receive this year.

The Baltimore Sun reports today that 'education advocates' including the Maryland State Teachers Association, the Maryland Association of Boards of Education and others are already running ads encouraging the General Assembly not to cut state education funding (which has increased by $1.3 billion over the past six years.  In fact, they go beyond advocating that funds not be cut, they want an increase.

Now, readers of this blog know that I support education - it's the key to success in a global economy and the source of much of the prosperity Maryland enjoys.  And certainly Montgomery County has a lot of needs, and their legislative caucus has the clout to get what they want, by and large.

But the state is facing a deficit of $1 billion or more in the coming fiscal year.  When the richest jurisdiction in the state announces that it won't accept any cuts to the largesse it gets from the state, what is the message to the poorer jurisdictions - curl up and die? 

I'm not thinking here of my own county.  Worcester has sufficient resources for the time being even though the county commissioner just postponed $100 million in school renovations due to falling revenue.  $100 million is nothing to sneeze at in a county with only 50,000 residents.  But I'm concerned about Somerset, Dorchester, Garrett, Queen Anne's, Allegany and Caroline counties.  

By and large these counties have average wages between 50% and 60% of the average wage in Montgomery County.  But if we protect the big, wealthy jurisdictions then I guess the small, poor jurisdictions will take it on the chin in the budget game.

It's the same situation with education funding.  Education is critically important.  But primary, secondary and higher education account for about 37% of the state budget.  Protecting the education budget, or even increasing it as the advocates demand would mean that all of the cuts would come somewhere else.  So I guess that means the education advocates want to slash funding for health services for the uninsured and underinsured, cut funding for natural resources and protection of the environment, reduce transportation funding even further and cut funding for public safety.

So let's stop drawing lines in the sand and trying to bully our way to getting a bigger piece of the state pie.  The Governor and the General Assembly are going to have a tough enough time trying to deal with the fiscal realities we are facing.  Don't make it harder.   

Going Down?

As the national and global economies continue to deteriorate, we're fortunate that Maryland is in a better position than most states.  We're relatively wealthy, our economy is largely service based and a steady stream of Federal government expenditures supports much of the state economy. 

Nevertheless, we're definitely going to feel the effects.  A glance at the newspapers over the past couple of days reveals that state tax revenues continue to fall, the unemployment rate continues to climb and foreclosures are still climbing.

Many local jursidictions are taking steps to reduce their expenditures in view of expected revenue reductions in the coming years.  Montgomery County is negotiating with the employee unions to see if they can reduce or defer the pay raises that had been negotiated for the coming year and the county executive has proposed cuts in services.  Baltimore mayor Dixon has announced she will propose up to $200 million in cuts and Prince George's County is looking at possible cuts.

It would be nice to see the jurisdictions here on The Shore being a bit more proactive in looking at cuts.  In less than two months the new legislative session begins and we can be sure that the state is going to further cut support to local governments in an attempt to close the projected state shortfall of $1 billion or more. 

With Maryland's peculiar three-year cycle of real estate appraisal, the local governments have been somewhat insulated from the effects of falling property values, but that's going to change soon.  Because increases in assessments are phased in over three years, assessed values in many jurisdictions appear to be still rising.  But properties assessed in 2006 when values were high will be assessed again in 2009 and it's very likely that there will be a decline in values most places.  Thus the property tax base will begin to decline. 

So keep an eye on the county governments and see what steps they are taking to deal with the issue.  The sooner they start, the better.

Still Ticking

The Bureau of Labor Statistics reported that Maryland's unemployment rate rose in September to 4.6% from a rate of 4.5% in August.  More than 138,000 Marylanders are looking for work but unable to find it - an increase of about 33% since the beginning of the year.

Yet, the unemployment rate in Maryland is still well below the national unemployment rate of 6.1% and far below the rate in some of the traditional industrial states like Michigan (8.9%), Illinois (7.3%) and Ohio (7.4%) and some of the 'new industrial' states like South Carolina (7.6%) and Mississippi (7.7%).

The basic reason for our performance, of course, is that Maryland shed its manufacturing jobs many years ago and the economy today is primarily a 'knowledge economy' focused on the health and government sectors. 

In the 1950s, the steel mill and shipyard at Sparrows Point (partially picured above) employed 31,000 people.  Today, employment there is 3,500.  The largest private employer in the state is now Johns Hopkins Medical Center.  In 1950, one out of three jobs in the Baltimore area was in manufacturing.  Today, it's one out of twenty and most of those are manufacturing high-tech items such as missiles and missile launchers, defense electronics and radar systems and medical devices. 

Many more in Maryland are employed in the thriving biotech industry along the I-270 corridor and in the new biotech parks outside of Baltimore.  The sector continues to grow - yesterday the Army dedicated it's new biodefense lab at Fort Detrich in Frederick.  The Baltimore area added 70,000 new jobs between 2000 and 2007.  At the same time, the Cleveland area lost almost as many and the Detroit area lost some 250,000. 

Of course, this hasn't come painlessly.  Tens of thousands of workers who spent their entire lives working for Bethlehem Steel at Sparrows Point ended up losing their health care, their life insurance and finally their pensions as the company failed.  Retired GM workers will lose their health benefits soon. 

While the knowledge economy has bought considerable income and some resistance to economic downturns, most of its jobs are not open to those with just a high school diploma or less.  A knowledge economy requires knowledge workers and that's where our education system comes in.

With the budget problems the state faces, it's tempting to make cuts to state aid to community colleges and higher education.  The Governor and the legislature will need to resist this temptation because it's the availability of skilled and productive workers that attract high-tech companies to Maryland. 

Much has been made of the Tax Foundation's rankings showing Maryland falling from 24th to 45th in its business tax climate rankings.  But, of course taxes only are one of the factors businesses consider when they decide where to locate.  To look at another perspective, the Milken Insitute publishes an annual State Science and Technology Index which ranks states in terms of their technology and science assets and their ability to leverage those assets to achieve economic growth.  Maryland ranked second this year, behind only Massachusetts. 

So yes, taxes are higher here than I would like.  But I'd rather be where we are economically than where Michigan, Ohio, South Carolina or Mississippi are. 

Budget Cutting...

The Maryland Board of Public Works (pictured above), consisting of Governor Martin O'Malley, Comptroller Peter Franchot and Treasurer Nancy Kopp, met last week to make cuts to the state's budget.

The cuts total either $300 million, $297 million, $348 million, $345 million or $280 million depending on where you get your news.  They are necessary to address smaller than expected tax receipts - a reflection of the slowing economy and falling home prices.  The cuts are certainly a precursor of more to come as the state struggles with a projected $1 billion deficit in the coming year.

The cuts that were approved span a wide variety of programs and functions with some setting the stage for the deeper cuts to come next year while others are one-time adjustments or changes in accounting which don't appear to have any real effect on state expenditures.  Let's take a look at some of the cuts.

About $16 million was cut from the University System of Maryland - a 1.5% reduction.  While this won't result in tuition increases this year it's almost certainly a harbinger of more cuts to come in next year's budget.  Another $6 million comes from reduction in grants to private colleges and universities in the state.  More than $8 million comes from reduced subsidies for Community Colleges.

About $21 million in savings will come from reductions in this year's rate increases for certain health care providers with another $22 million of 'savings' coming from using special funds rather than the general fund for some state Medicaid expenses. 

About $26 million in savings will come from abolishing 790 vacant positions including 181 in the Department of Health, 200 public safety positions (including 100 correctional officer positions), 100 positions in the Department of Human Services and 76 positions in the Departments of Natural Resources, Environment and Agriculture (these include 31 Natural Resource Police positions.)

In the category of funny money, $20 million was claimed as a savings by deferring a payment from the General Fund to the Transportation Fund for the ICC.  Another $46 million was 'saved' by eliminating a payment on the estimated $15 billion liability the state has for health benefits for retired employees.  Almost $7 million in 'savings' come from deferring spending on major IT projects and about $3 million in 'savings' comes from using the proceeds from the Regional Greenhouse Gas Initiative auctions in lieu of general funds.  

The one-time savings of almost $80 million are good, but will do little to help with cutting next year's budget.  The same is true of the $40 million in fund swaps.  They are essentially a one-time exercise in capturing excess amounts in some of the special funds which can't be replicated next year.  

I'm also concerned about just 'abolishing' vacant positions.  This kind of decision implies that every position is equally important to the functioning of the state government.  That's clearly not the case.  It would be good to see some actual analysis that identifies and eliminates lower priority functions and programs and preserves those that are considered more important.  I'm hoping I'll see that when the Governor submits his budget proposals for next year.

It's going to be a difficult budget and the legislature is going to have its hands full trying to assess the reductions.  Local jurisdictions in Maryland are already facing sharp reductions in their budgets.  Given the nature of the Maryland state budget it's almost impossible to craft the required budget reductions without significant reductions in aid to local jurisdictions.  Everyone had better be preparing for the pain ahead.

[The painting of A Woman and Two Men is by Jan Vermeer and was done in 1669 or 1670]

Winter Is Coming

We know both from the calendar and from the changes in the weather that winter is on the way.  On top of the economic problems we already face, the Energy Information Administration has already issued warnings that the cost of many heating fuels will be higher this winter than the last.  Homeowners that heat with oil will face bills that will be about $450 higher than last year and those who heat with electricity, natural gas or propane will also face increases.  On top of that, there are indications that this winter could be colder than last winter, particularly in the east.

We should begin planning now to prepare our homes for the winter so that we can keep our bills within reason and do what we can to conserve energy.  But many Marylanders lack the resources to weatherize their homes and may be faced with heating bills this winter that they cannot manage.

  Fortunately the state Office of Home Energy Programs offers assistance in a number of ways for low-income Marylanders.  The Maryland Energy Assistance Program offers assistance with home heating bills.  They also offer limited assistance in repairing or replacing broken furnaces.  The Electric Universal Service Program offers assistance to low income customers with electric bills.  The Weatherization Assistance Program offers help to certain low income residents for things such as weather stripping, caulking, plastic window covers, etc. 

Information on all these programs can be found here.  On the Lower Shore you can contact your local Shore Up! office.  Shore Up! is the coordinator of home energy programs for the Lower Shore.  You can also find information and apply for these programs at your county social services office. 

The economy is bad; lots of people are without work and energy costs are high.  But these shouldn't be a reason for going without heat this winter.  If it looks like you or your neighbor might not be able to afford to heat your house this winter, contact the Energy Assistance Program now.  Help is available.

[The painting was done in 1839 by Andreas Achenbach and is in the Hermitage Museum in St. Petersburg]

More Clowns

The financial resuce bill which was introduced in the House today represents a compromise that was negotiated between the Rebublican and Democratic leadership and which addresses most of the objections to the administration bill which I raised here earlier. 

Well, we saw more clowns today in the House vote on the financial rescue bill.  While the Democrats delivered the votes to pass the bill, Republicans, voted against the bill in large enough numbers to sink it.  Apparently and incredibly, they claim that they voted against the bill because Nancy Pelosi hurt their feelings by pointing out how badly the Bush administration had mismanaged the economy.  

Rather than do what is necessary to try and save the economy and the country, the Republicans decided, like spoiled children, to hold their breath until the economy turns blue.  And amazingly, they did this on a Monday after five large bank failures over the weekend - one in Belgium, one in Germany, one in the UK, one in Iceland and Wachovia here in the U.S.  (Of course the FDIC insists that Wachovia didn't 'fail', but Citicorp snapped it up for $1 per share vs. $60 per share it was trading at a year ago and FDIC had to absorb a lot of the losses.

Of course, once it was apparent that the bill was failing, the stock market dropped like a stone - down 600+ as I type this.  Lest you think that this affects only big investors, keep in mind that more than half of Americans have their retirement savings invested in the stock market.  

Look for more corporate failures in the next several days as the Republican members of Congress pout.  It would be nice if they cared about their country more than they care about defending their disgraced President. 

Taken for a Ride Again

I have to depart today from my usual practice of focusing on Maryland politics and issues to comment on the financial debacle unfolding in Washington and New York.  Once again the taxpayers and citizens are being taken for a ride by the Paulson, Bernanke, Bush and the other clowns who pretend to manage the economy.

Let's take a look at the background first.  With the deregulation of the banking system in 1999 let by Senator Phil Gramm - now John McCain's chief economic advisor and with full and vocal support by Senator McCain himself (who, until last week was an ardent foe of any kind of regulation) - large commercial banks moved full speed into the brokerage and insurance business while every other financial institution spread into mortgage banking and investment banking. 

When things started to go sour due primarily to the banks investing in securities they didn't understand, the mightly capitalists on Wall Street turned, of course, to Washington for help.  Bernanke and the Federal Reserve obligingly started lowering interest rates and, several times pumped billions of dollars into the financial system through the Federal Reserve.  When that wasn't enough, Bernanke and Paulson jumped in with more taxpayer money to rescue the unregulated investment bank Bear, Stearns.  After this rescue Paulson announced that the problem was contained.

A few weeks ago another $35 billion of taxpayer money was commited to bail out Fannie Mae and Freddie Mac whose managers had unwisely decided to forget what they were created for and decided to fund mortgages and mortgage-related debt for people who couldn't afford them.  At that point, Mr. Paulson again expressed confidence that the crisis was being managed.

Last week another investment banking firm collapsed and Mr. Paulson, in his wisdom decided that we, the taxpayers, needed to spend $75 billion of our money to support the unregulated and private insurance firm AIG, which was so badly managed that it had lost 95% of its market value.  Of course, those same managers are still in place being richly rewarded by you and me.  

Now Mr. Paulson, echoed by Mr. Bernanke and Mr. G.W. Bush comes to us saying that we need to let them spend $700 billion of our money to rescue the firms on Wall Street from their own stupid mistakes.

Let's take a look at what they're proposing:

First of all they are asking for carte blanche for Mr. Paulson to acquire on our behalf any asset (not just the mortgage-related securities which he says are the problem) of any kind at any price he wishes to pay.  Further he is asking that his decision not be subject to review by anyone else - congress, the courts - anyone.

Mr. Paulson also says that his purchases will not be limited to assets of U.S. corporations or banks, but that he should be able to acquire assets from foreign banks and companies even though no foreign government is participating.

Of course, you know he's going to pay more than the going price for these assets because otherwise there would be no reason for anyone to sell them.  He wants to use our money to protect the banks from having to write down their assets. 

And who's going to manage all these 'assets' when he's purchased them with our money?  The same people who screwed things up in the first place - the Wall Street money managers.  They're already maneuvering for a piece of the pie which will be worth billions of our money each year.

Let's be real clear.  If we're going to purchase the toxic assets of these banks, then we should get a big share of the banks stock, too.  This has worked in other countries, notably Sweden, and it will work here.  And the people who have run these banks - and our economy - into the ground need to be fired, with no 'golden parachute of millions of dollars and no consulting fees. 

And let's remember that Mr. Paulson, before Bush appointed him Secretary of the Treasury, was an investment banker on Wall Street!  No wonder he's so anxious to bail out his buddies.  I'm sure he has his eye on a good job up there when his stint as Treasury Secretary is over.  Let's hope that is sooner rather than later.  If we're going to have to pay for this, we need someone other than clowns running the show.

Unemployment Edges Up in Maryland

Unemployment in Maryland increased again last month.  And while we don't have unemployed standing in bread lines as shown in this 1910 photo, things could be better.

According to the Labor Department, unemployment in Maryland increased to 4.5 % from 4.3% in July.  The increase in unemployment came despite an increase in overall employment of 1,800 jobs, all in the private sector.  About 136,000 workers were unable to find jobs in the state.

This is still better than the nationwide picture, where the unemployment rate increased to 6.1 % last month.  Some 600,000 jobs have been lost since the beginning of the year nationwide.  In Maryland, by contrast, employment has grown by about 15,000 during the same period thanks largely to growth in the health sector.

Despite the relatively good employment numbers, though, lots of Marylanders are hurting.  The combination of high energy and food prices and stagnating wages have pushed more and more Marylanders close to the edge.  Food banks report they are experiencing high demand and are running low. 

I haven't seen the August data for the Eastern Shore, but unemployment here has been running a little higher than the statewide rate for some time and, with the end of the summer season, it's likely to rise significantly as seasonal employment ends.  With high energy prices and predictions by some of a relatively cold winter, it could be a difficult season for many here.