Today is Thursday, May 17, 2012

Budget

Penry promies to repeal Colorado vehicle registration fee hike

Josh Penry, the Colorado Senate minority leader and a GOP candidate for governor, promised to repeal the very controversial state vehicle registration fee hike.

This probably will come up at tomorrow’s candidates forum in Westminister.

Link:

Gubernatorial candidate Penry pledges to repeal Colorado vehicle-registration fee hike
By Jessica Fender. Denver Post.

New vehicle registration fees will be rescinded before 2010 elections, McInnis predicts

Colorado’s General Assembly is likely to rescind the controversial new vehicle registration fees that it imposed on owners in this year’s session, Scott McInnis predicted today in Delta, CO, where he addressed about 75 voters.

The fees are angering voters across the state and legislators who voted for them are under fire.

I’ve been researching buying a motor home, but the new fees make that idea inoperable.

Link:

Colorado’s motor vehicle registration fees increase beginning July 1. Boulder County.

How Colorado can save $600 million a year without Federal bailouts

Colorado could solve most of its budget problems without a bailout from President Obama’s proposed fiscal stimulus bill, according to Barry W. Paulson,  a senior fellow with the Independence Institute and distinguished scholar with Americans for Prosperity.

In a Denver Post op-ed piece,

How the state can save $600 million a year,

Paulson noted that

7 reasons a small economic stimulus would be better than a big one

Arnold Kling gives seven reasons why he prefers a small economic stimulus over a large one.

1. It is harder to spend larger amounts quickly and cost-effectively.

2. There is a greater risk that we will run into a “sudden stop,” in which foreign investors are no longer willing to fund our deficits (this is Buiter’s main worry).

3. There is a risk that the intergenerational transfer imposed by the stimulus (from our children to ourselves) is excessive, particularly in the context of other intergenerational transfers of the same sort.

4. There is a risk that fiscal stimulus, large or small, is actually ineffective, so that a large stimulus only means a large failure.

5. There is a risk that much of the spending will kick in after a recovery is underway.

6. The government’s capacity to deal with an emergency, such as a major natural disaster or a foreign attack, will be limited, because its credit worthiness will be damaged.

7. There is a risk that government will absorb a permanently higher share of GDP. Policymakers will be reluctant to cut public spending for fear of causing a downturn. Moreover, it

 

Tax cuts twice as effective as government spending in stimulating the economy

Members of congress and the states’ legislatures are convinced that if they spend more, they can slow the recession and maybe even turn the economy around, but recent research by President-elect Obama’s chair woman of the Council of Economic Advisers found that tax cuts are twice as effective as government spending.

N. Gregory Mankiw, a professor of economics at Harvard and a former adviser to President Bush, writes in the NY Times:

Textbook Keynesian theory says that tax cuts are less potent than spending increases for stimulating an economy. When the government spends a dollar, the dollar is spent. When the government gives a household a dollar back in taxes, the dollar might be saved, which does not add to aggregate demand.

The evidence, however, is hard to square with the theory. A recent study by Christina D. Romer and David H. Romer, then economists at the University of California, Berkeley, finds that a dollar of tax cuts raises the G.D.P. by about $3. According to the Romers, the multiplier for tax cuts is more than twice what Professor Ramey finds for spending increases.

Why this is so remains a puzzle. One can easily conjecture about what the textbook theory leaves out, but it will take more research to sort things out. And whether these results based on historical data apply to our current extraordinary circumstances is open to debate.

Christina Romer, incidentally, has been chosen as the chairwoman of the Council of Economic Advisers in the new administration. Perhaps this fact helps explain why, according to recent reports, tax cuts will be a larger piece of the Obama recovery plan than was previously expected.

Economist and blogger Tyler Cowen writes:

The argument for fiscal stimulus is simply that it will stop things from getting worse by preventing further collapses in aggregate demand. That may be true but fiscal stimulus won’t drive recovery. Recovery requires that zombie banks behave like real banks, that risk premia are properly priced, and that the economy undergoes its sectoral shifts toward whatever will replace construction and finance and debt-driven consumption. Fiscal policy won’t do much toward these ends and in fact a temporarily successful stimulus might hinder these long-run adjustments.

Cowen recommends an op-ed piece in the Jan. 7 edition of The Wall Street Journal by Hal Varian, professor of economics at the University of California, Berkeley, and chief economist at Google. His key points:

That brings us to government expenditure, which is getting most of the press. The danger with this form of stimulus is twofold: First, it takes too long for the government spending to kick in, and second, spending may easily focus on pork-barrel projects that have little inherent value.

There are worthwhile public infrastructure projects; the trick is to find them and fund them promptly. One possible plan is to set up an independent commission to prioritize public investment projects, and then subject the plan to a single up-or-down vote in Congress.

One further warning about government stimulus: It makes little sense for the federal government to spend more if the states are forced to spend less. A significant part of the increase in federal government spending should be transfers to the states in order to keep basic government services available at the state and local level.

That brings us to private investment, which hasn’t been getting nearly as much attention as it deserves. This is unfortunate, since private investment is what makes possible future increases in production and consumption. Investment tax credits or other subsidies for private-sector investment are not as politically appealing as tax cuts for consumers or increases in government expenditure. But if private investment doesn’t increase, where will the extra consumption come from in the future?

Ultimately, we want to end up with a significantly higher savings rate in the U.S. than we have seen recently. That means some other component of demand must increase to compensate for the reduced consumption. And the most attractive candidate by far is private investment.

Colorado’s top 50 stocks had a rough 2008; state lost a lot of wealth

The 47 largest companies based in Colorado had a rough 2008 as did most stocks around the world. This means, of course, that Colorado saw a lot of wealth go down the drain and that the state won’t collect as much in capital gains taxes that it had budgeted for fiscal 2009 and was expecting for fiscal 2010.

Many of the stocks, however, despite last week’s market drop, still are looking a bit stronger technically. But, after last week’s action, the durability of the recent bear market rally is very much in doubt.

Daily charts for the 10 largest Colorado-based stocks are here. Click on a chart to see hourly, weekly and point and figure charts.

The daily charts of stocks ranked 11 to 20 by the Rocky are shown here. One company was acquired and its chart is no longer available.

The daily charts of stocks ranked 21 to 30 by the Rocky are shown here.

The daily charts of stocks ranked 31 to 40 by the Rocky are shown here.

The daily charts of stocks ranked 42 to 50 by the Rocky are shown here. Two of the stocks that were listed here are no longer publicly-owned.

I don’t own any of these stocks.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.

 

 

How are states cutting and balancing budgets in face of deep and long recession?

Investors in tax-exempt municipal bonds and in companies that generate significant revenues by selling products and services to states, counties and municipalities are trying to figure out how budget cutting by states and municipalities will affect their credit ratings and their spending.

The Center on Budget and Policy Priorities has published several useful reports, including State Budget Problems Worsen, FACING DEFICITS, MOST STATES ARE IMPOSING
CUTS THAT HURT VULNERABLE RESIDENTS, MOST STATES ARE CUTTING EDUCATION, and STATE REVENUES PLUMMET.

Why isn’t there a report on how states are cutting spending on highway, bridge, school and other public facilities construction and maintenance? A review of budget cutting measures mentions no spending cuts by any of the states in those areas. Are construction contractors and their unions so powerful that they can avoid the pain?

These seem to be objective, well-researched reports that are worth reading before we get into looking at the stocks that will be hurt by the states’ budget problems and helped by federal bailouts for the states and by planned federal spending on infrastructure projects. Each report includes editorial comments about how reducing states’ spending and raising states’ taxes hurt the economy. And the reports appear to be written to make the case for federal bailouts for the states, which I question.

In reading the reports, it’s obvious that all of the proposed budget cuts involve very labor intensive services. This presents a question: Will states seek to negotiate with the SEIU, Teamsters, teachers and other education and health care unions wage and work rules concessions?

Probably not. We’re talking about politicians and governments, not about the executives running automakers, airlines and other troubled companies, which have negotiated and are negotiating such concessions.

In Colorado, former state treasurer and senator Mark Hillman, a Republican, laments Governor Bill Ritter’s long denial of developing budget problems and his unwillingness to create a “rainy day” fund last year. Look at the reports and tables. Colorado is rarely mentioned when budget cutting actions are discussed, which means it’s very late in addressing the problems. And Colorado’s expected deficit of 7.7% of its fiscal year 2009 general fund is comparable to those in states such as Illinois, Massachusetts, Nevada and New Mexico, but it’s below the national average of 8.6%.

Links:

Governor Bill Ritter proposes $800 million budget cut, more spending on roads, alternative energy projects. Denver Post (AP)

Colorado state budget outlook bleak. Denver Post.

Republican state senate minority leader calls for spending on Colorado roads, education, offers no budget cut ideas. Rocky Mountain News.

GOP’s house minority leader also fails to discuss budget cuts in depth. It’s all about roads for the GOP. Denver Business Journal.

In Colorado, its pretty clear that legislators are waiting for the governor and joint budget committee to propose a budget that includes cuts. Few legislators really know enough about the budget to be very useful when it comes to balancing the state budget.

Why Colorado’s Medicaid program is in a financial bind

This is a pretty fair description of the Medicaid problem for all states.