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February 29, 2012

Arlington Government Schools Budget Nears $500 Million

The Superintendent of the Arlington Public School (APS) presented his proposed Fiscal Year 2013 budget to the Arlington School Board last Thursday. According to the Arlington Sun Gazette last Friday, the APS budget of $493.8 million is up 5.1% while per-student spending rises by 1.6% because of rising enrollment. Here’s how the Sun Gazette’s Scott McCaffrey began his report:

“Per-student spending would rise, employees would get a modest salary increase, maximum class sizes would go up across the board and the overall Arlington Public Schools budget would tiptoe ever closer to the half-billion-dollar mark, under the budget proposal unveiled by Superintendent Patrick Murphy on Feb. 23.

“Murphy’s fiscal 2013 spending package totals $493.8 million, up 5.1 percent from the $469.8 million spending plan he sought a year ago, and per-student spending rises 1.6 percent, to $18,400, from his budget request last year.

“But the per-student cost would remain well below the pre-recession, free-spending days of Murphy’s predecessor, Superintendent Robert Smith, where the per-student cost peaked at a whopping $19,538 in fiscal 2009.”

Following is a portion of the February 23, 2012 APS press release concerning that rising enrollment:

“The continued challenge of rising enrollment has resulted in an ever-increasing shortage of classroom space for the school division. Currently, over 30% of APS schools are at or over capacity. For the coming school year, 55% of all schools will be at or above capacity, and that rate is projected to rise to 71% of all schools in the following year. At the same time, while the school division is planning for future capital projects to address the rapid rise in enrollment, school officials estimate that it will take approximately two to three years until more permanent space solutions can be brought online.”

The press release notes that several million dollars will be set-aside for several reserve funds, including “$2 million from the current debt service reserve to cover rising debt service costs. Finally, the proposed budget includes class size and budget stabilization reserves at $1 million each.” Could that be money being set-aside for one-time spending next June?

Resources: The Superintendent’s 29-page slide budget presentation and his proposed FY 2013 budget are available at the Budget & Finance webpage.

February 28, 2012

Today's Quote

“Based on the history of the past few decades, voters have learned that politicians promising unspecified spending cuts should be treated with all the credibility of a six-year old boy caught with his hand in the cookie jar promising to be good for the rest of his life."

~ Scott Rasmussen

HT RasmussenReports.com

February 23, 2012

Today's Thought

"What is worse than class warfare is phony class warfare.

"Slippery talk about "fairness" is at the heart of this fraud by politicians seeking to squander more of the nation's resources."

~ Thomas Sowell

HT Column at Investor's Business Daily

Note: There will likely be little blogging until the beginning of next week.

February 22, 2012

Assaulting Your Dividend Income?

In an editorial, the Wall Street Journal writes that “one buried surprise” in the President’s Fiscal Year 2013 budget, released earlier this month, “is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.” They begin their explanation this way:

“Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.

“Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.”

Unfortunately, the President doesn’t seem to care that the lowering of tax rates generally results in higher revenue to the government as shown in the following chart that accompanied the Journal’s editorial.


The editorial is at its best in explaining who is hurt from the President’s proposed policy:

“ . . . The tripling of the dividend tax will have a dampening effect on these payments.

“Who would get hurt? IRS data show that retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65, according to IRS data.

“But all American shareholders would lose. Higher dividend and capital gains taxes make stocks less valuable. A share of stock is worth the discounted present value of the future earnings stream after taxes. Stock prices would fall over time to adjust to the new after-tax rate of return. And if investors become convinced later this year that dividend and capital gains taxes are going way up on January 1, some investors are likely to sell shares ahead of paying these higher rates.

“The question is how this helps anyone . . . .”

With that “dampening effect" on the economy, one must question just how the President's FY 2013 budget justifies some of the “accounting gimmicks,” which Jeffrey Kuhner writes about in a column earlier this week in the Washington Times when he says:

“It is full of accounting gimmicks to obscure the true extent of Washington’s deficit crisis. For example, its future projections of high economic growth rates, soaring tax revenues and supposed government “savings” are fictional and provide the illusion of fiscal competence.”

The Wall Street Journal ended their editorial saying, “Seldom has there been a clearer example of a policy that is supposed to soak the rich but will drench almost all American families.” Is there an economic future in America’s future?

February 21, 2012

Today's Thought

"Countries whose politicians have been able to squander ever larger amounts of a nation's resources have not only failed to make the world fairer, the concentration of more resources and power in these politicians' hands has led to results that were often counterproductive at best, and bloodily catastrophic at worst."

~ Thomas Sowell

HT Column at Investor's Business Daily

February 20, 2012

Voodoo Environomics

Leighton Steward, a geologist and retired energy industry executive writes that “America’s energy insecurity is moving into a dangerous new phase, while our economy remains anemic and unemployment systemic” in a column posted today at the Washington Times. Steward explains voodoo environomics this way:

“At the very heart of voodoo environomics, of course, is the much-hyped theory linking man-made carbon dioxide (CO2) and climate change. Without the world’s policy focus on CO2 emissions, climate-change alarmists would be robbed of the ammunition they need to change and control human behavior via draconian energy policies. They also would be robbed of the substantial financial support needed to continue their biased research.

“When adopted as official government policy, voodoo environomics can wreak havoc on the economy and represents a double whammy for working Americans. The admitted goal of CO2-slashing schemes such as “cap and trade” is to jack up the price of energies like gasoline and coal to make expensive alternative energies more competitive financially. Of course, their proponents hope you don’t realize that it’s ordinary Americans who are stuck paying higher prices for utilities and gasoline.”

His conclusion? “The phantom gains and real losses stemming from voodoo environomics are starting to be realized. America needs more opportunities, not lost opportunities.”

February 19, 2012

And 2011's Porker of the Year is . . . .

Last week, Citizens Against Government Waste (CAGW) announced the polling results for their 2011 Porker of the Year. There was strong competition, but the winner was Steven Chu, Secretary of the U.S. Department of Energy. In justifying awarding its 2011 Porker of the Year to Secretary Chu, CAGW said:

Sec. Chu’s weak oversight of DOE’s loan guarantee program (LGP) resulted in huge losses to taxpayers when solar panel manufacturer Solyndra, the recipient of a $535 million loan guarantee, filed for bankruptcy in September, 2011.  Solyndra was granted the $535 million loan through a green energy technology section of the LGP, which received a massive increase in funding on the 2009 stimulus package.  The LGP program itself has been the subject of three Government Accountability Office (GAO) reports since its inception, all detailing its management weaknesses, arbitrary selection process, and vulnerabilities to manipulation and politicization.

To make matters worse, the Department of Labor (DOL) announced that Solyndra’s former employees qualify for federal aid packages worth $13,000 each under DOL’s Trade Adjustment Assistance (TAA) program, which compensates and retrains American workers who can prove that their jobs were lost as a result of foreign competition.  The TAA benefits far exceed normal unemployment benefits.  The DOL granted TAA to Solyndra’s employees by accepting the company’s claim that it went belly up as a result of unfair competition by Chinese solar panel manufacturers, rather than from mismanagement by company executives.

Unfortunately, Solyndra was not Sec. Chu’s and DOE’s only ill-fated LGP recipient.  Beacon Power and Evergreen, Inc., both of Massachusetts, along with Ener1 of Delaware and SpectraWatt of Oregon, have filed for bankruptcy after receiving DOE loan guarantees.  In addition, Fisker Automotive, which was awarded a $529 million loan guarantee, announced layoffs at its Delaware plant after the government halted payments due to “delays” in its production schedule.  A July, 2010 GAO report concluded that the LGP lacked clear goals and failed to hold all applicants to the same standards.  GAO said that the LGP “has treated applicants inconsistently, favoring some and disadvantaging others,” and that “some applicants … receive conditional commitments before incurring expenses that other applicants had to pay.  It is unclear how DOE could have sufficient information to negotiate conditional commitments without such reviews.”

“Sec. Chu dismissed numerous warning signs that the LGP was a ticking time bomb,” said CAGW President Tom Schatz.  “The dramatic program expansion in 2009 and the continued funneling of taxpayer dollars toward poor investments reeks of poor management and crony capitalism, since Solyndra’s major investors were among the President’s largest campaign donors.  If this is the Obama administration’s idea of how America can ‘invest’ in its economic recovery, taxpayers would much rather keep the money and do it themselves.”

For a look at other benefits of CAGW membership, including how CAGW works to reduce government spending, visit their homepage.

February 18, 2012

Arlington County Outpaces Arlington Schools in Efficiency

After a bit of crunching of the “selected fiscal indicators” in the Arlington County Manager’s proposed Fiscal Year 2013 budget (Section F - Glossary and Appendices), one comes to the conclusion that from 2004 to 2013, the county side of Arlington County government has outdone the public schools side in efficiency.

  • Arlington County government. Arlington’s residential population increased from 197,423 in 2004 to 200,200 in 2013, or 5.96% while county employment increased from 3,711.9 FTEs (Full-Time Employees) in 2004 to 3,753.9 in 2013, an increase of 1.13%. The number-crunching shows the  the county employed 18.8 FTEs (Full-Time Equivalent) employees per 1,000 residents in 2004. However, by 2013, that ratio was reduced to 17.9 FTEs per 1,000 residents, i.e., a higher level of employee efficiency.
  • Arlington Public Schools (APS). School enrollment increased by 18.5% from 2004 to 2013, growing from 19,200 students to 22,666 in 2013. The number of FTEs in the school operating fund has increased faster, however, going from 3,258 FTEs in 2004 to 3979.6 FTEs in 2013, an increase of 22.1%. After the number-crunching, we see that in 2004. APS enrolled 5.87 students for each FTE, but there were only 5.70 students for each FTE in 2013, i.e., a lower level of employee efficiency.

According to the December 21, 2011, minutes (page 2, requires Adobe) of APS’s Budget Advisory Council, the report of the state’s efficiency review is scheduled to be released late next month. Since ACTA worked so hard to put APS on track for the efficiency review, we look forward to seeing how truly efficient APS really is.

February 17, 2012

Today's Quote

“There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.”

~ Milton Friedman

HT OnPower.org

February 16, 2012

True Rate of Unemployment is 15%

A report today at U.S. News & World Report says, “After three years with unemployment topping 8 percent, the U.S. has seen the longest period of high unemployment since the Great Depression, the Congressional Budget Office noted in a report issued today.” US News & World Report continued, saying:

“And, despite some recent good news on the economic front, the CBO is still predicting that unemployment will remain above 8 percent until 2014. The report also notes that, including those who haven't sought work in the past four weeks and those who are working part-time but seeking full-time employment, the unemployment rate would be 15 percent. (emphasis added)

“The CBO made its comments in a report examining the long-term effects of joblessness, and possible policy options to boost employment, including unemployment insurance reforms and job training programs. The report came at the request of Democratic Michigan Rep. Sander Levin, but Republicans quickly jumped on the chance to bash President Obama's stimulus program, which is also reaching its three-year anniversary today.”

In a blog entry about the report, the CBO Director wrote that the study was requested by the Ranking Member of the House Committee on Ways and Means, and examined the following questions:

  • What are the consequences of unemployment?
  • What factors have caused high unemployment?
  • What policies would increase demand for workers?
  • What other policies could reduce unemployment?

Here is the entire report (requires Adobe), entitled, Understanding and Responding to Persistently High Unemployment. It is dated February 2012. Here is the summary of the CBO report:


The rate of unemployment in the United States has exceeded 8 percent since February 2009, and CBO projects that it will remain above 8 percent until 2014.

  • Slack demand for goods and services is the primary reason for the persistently high levels of unemployment observed today.
  • When demand ultimately picks up, structural factors — such as mismatches between employers' needs and workers' skills and locations, the erosion of unemployed workers' skills, and the stigma of being unemployed —  may continue to keep unemployment higher than normal.


In analysis of a number of tax and spending policies designed to increase output and employment in 2012 and 2013, CBO found the largest increases in employment per dollar of budgetary cost would be produced by:

  • Reducing the marginal cost to businesses of adding employees and
  • Targeting people most likely to spend the additional income (generally, people with lower income).


Lawmakers could aim to reduce unemployment by:
  • Improving workers' skills,
  • Modifying the unemployment insurance program, or
  • Facilitating transitions to work.
"Such policies could be implemented using mechanisms ranging from federal block grants to direct federal operation. But they would probably not have a significant effect on unemployment over the next two years because of the difficulties of scaling them up in that span of time. Nonetheless, by reducing the extent of unemployment and long-term unemployment in the future, they might have longer-term benefits.”

US News & World Report ended their report by quoting Rep. Jeb Hensarling (R-Texas), who said, "The stimulus is a stark reminder of how the president got the policies he wanted, and how those policies have failed the American people and are making things worse . . . .” The following chart is from the CBO report:

HT Mark Levin Show

February 15, 2012

Speaking of Greedy, the Arlington County Board

Some on the left like to speak of citizens who believe in less government and lower taxes as greedy. On the other hand, government is never greedy. So what excuse did the Arlington County Board use last night when they voted 4-0 to advertise increasing the current real estate tax rate of 95.8 by two cents to 97.8 cents per $100 of assessed value. Here’s how one County Board member was quoted in the online reporting in today’s Arlington Sun Gazette:

“The advertised rate was higher than that sought by County Manager Barbara Donnellan. On Feb. 14, Donnellan formally unveiled her proposed $629 million county budget and a transfer to the county school system of an additional $397 million, for a total spending package of more than $1 billion.

“County Board Vice Chairman Walter Tejada said setting the rate higher than Donnellan requested was an opportunity to consider a full range of possibilities during the budget process.

“This will give us a cushion,” Tejada said.

But wait a minute. Why do you need a cushion when the Board’s budget guidance to the Manager just last December was explicit, and indeed a press release just one week ago said the Manager had “proposed a ½-cent increase in the real estate tax rate to fund some of these initiatives, in keeping with budget guidance from the County Board,” according to this February 8, 2012 county press release. Do Board members have other special interests in mind that need to be bought?

Interestingly, though, the press release included the proviso that “the Board consider advertising a 1½-cent increase in the tax rate to address the strategic priorities that the Board gave in its budget guidance  to her.” So the price of cushions are equal to 1/2 cent, eh?

It seems to this fiscal analyst that if the County Board now needs an “extra” 1/2 or 1 1/2 cents in the real estate tax rate, the problem, if there is indeed a problem, is with the Arlington County Board having provided slipshod budget guidance to the County Manager. After all, the Arlington County Board will be the beneficiary of a slush fund as a result of the 6.6% overall increase in the real estate tax base.

Here’s how Scott McCaffrey began his reporting in today’s Sun Gazette:

“A typical Arlington homeowner would pay nearly $5,100 this year in real estate taxes, up 4 percent, based on tax rates advertised by County Board members Feb. 14.

“Board members voted 4-0 to advertise a rate of 97.8 cents per $100 assessed value for residential parcels, up from last year’s rate of 95.8 cents. Coupled with a slight increase in the average residential assessment, the average assessment for homeowners would rise to $5,080 from $4,888.

“The advertised rate is the highest that the board can adopt when it approves its fiscal 2013 budget in April; the rate ultimately adopted could be lower. County Board Chairman Mary Hynes predicted a “robust” public dialogue between now and April.”

In addition, the online ARLnow reported the Board’s action here. We growled on February 8, 2012 about Arlington County's new Fiscal Year 2013 budget, too. The county's "correctted" press release today contains other tax advertisements as well as announcing the scheduled March 20 budget hearing and the March 22 hearing on tax rates and fees.

February 14, 2012

Kudos to the Arlington Sun Gazette

On their opinion page today, the Sun Gazette editors gave a "Thumbs Down" to for the "very thought by county government officials (i.e., the Arlington County Board) that they would raise the real estate tax rate for the coming fiscal year. " Here's the explanation:

"The overall assessed value of taxable real estate in the county is up 6.6 percent over last year, with the commercial sector (which brings in tremendous money and requires little in services) up by double digits. That increase in assessments should be leading to a cut in real estate tax rates, not an increase.

"Lord only knows what the county government would use the extra money for. Much as we’re beginning to sound like the small but vocal band of critics who berate the government at County Board meetings, we’d bet the money will be funneled into frills, pet projects and other non-essential trifles. All this at a time when there is still way too much economic uncertainty out there.

"Only in Arlington can the county government get a Christmas present in the form of much higher assessments, and still want more, more, more from property owners. Sigh."

The 6.6% increase in the overall assessment of county property values should -- repeat, should -- result in Arlington's  panjandrums lowering the tax rate. So we think the kudos today for the Arlington Sun Gazette are very well deserved.

February 13, 2012

Is Greece in America’s Future?

At the Cato Institute’s blog, Cato@Liberty today, Chris Edwards provides a helpful introduction to the Fiscal Year 2013 budget that President Obama officially proposed today. Here’s how he began:

“The new federal budget includes a range of accounting maneuvers to cast the administration’s 10-year projections in the best possible light. Senate Republicans point out some of President Obama’s funky accounting here. But note that the George W. Bush administration also used tricks to make deficit forecasts look more optimistic.

“That’s why it’s useful to look at a president’s spending numbers for the current year and next year, rather than the make-believe numbers for later years in the budget. The chart shows total federal outlays since 2000 and Obama’s estimated spending for 2012 and proposed spending for 2013. Data are for fiscal years. Also, I’ve excluded TARP spending because reestimates of TARP costs distort the data."

He embeds links to both the White House/OMB for the budget and to a two-page document from the office of Sen. Jeff Sessions (R-Alabama), ranking member on the U.S. Senate Budget Committee. The following chart is from Mr. Edwards’s post.

In his fact sheet, Sen. Sessions says the President “claims that his fiscal plan will reduce the deficit by $4 trillion over the next 10 years, including the previously enacted $1 trillion Budget Control Act cuts that are part of current law. An honest analysis reveals, however, that the president’s budget would only reduce the deficit by about $300 billion in comparison to what was agreed to in the Budget Control Act last August.” After identifying the accounting trickery, Sessions concludes:

“Fiscal sleight-of-hand accounts for $3.7 trillion of the president’s deficit reduction, leaving the debt in the president’s plan largely unchanged from what would be expected to occur under current spending law and tax policies ($11.2 trillion rather than $11.5 trillion). Even worse, the president’s proposed switch from a current law spending reduction to even higher taxes contributes to a 62 percent increase in spending between 2011 and 2022. Once the gimmicks are taken away, the president’s budget becomes another enormous tax-and-spend plan that ignores the drivers of our debt and is alarmingly inadequate for the undisputed fiscal realities of a growing debt and aging population.”

In closing his blog post, Edwards presents “a better fiscal plan, which focuses on ways to cut spending and balance the budget, and links to the plan at Cato’s website, Downsizing Government.

If Greece is not a part of America's future, it will certainly require leadership that is capable of explaining just how close to the fiscal precipice America stands. Edwards puts it this way:

"Federal spending is soaring, and government debt is piling up at more than a trillion dollars a year. Official projections show rivers of red ink for years to come unless policymakers enact major budget reforms. Unless spending is cut, the United States is headed for economic ruin."

February 12, 2012

Politicians Sure Know a $25 Billion Election-Year Windfall

The front-page, above-the-fold story in Friday’s Washington Post (paper edition) was titled, “Settlement Launches Foreclosure Reckoning,” and began:

“The government’s $25 billion settlement Thursday with banks over fraudulent foreclosure practices begins a long-promised reckoning with the financial industry over its role in the worst economic crisis since the Great Depression, officials said.

“The deal represents the largest industry settlement since an agreement with tobacco companies in 1998 and will force five of the nation’s largest banks to overhaul their mortgage-servicing practices and reduce loan balances for many borrowers who owe more than their houses are worth.

“Officials acknowledged that the final sum will reach only a fraction of homeowners across the country whose homes are collectively worth $750 billion less than what is owed on their mortgages. But they argued that it was a meaningful step in healing the housing market.”

Thanks to the graphics staffers at the Washington Post for the following graphic that helpfully identifies how the $25 billion pie gets divided:


The Washington Times added:

“Under the terms of the settlement, the five largest mortgage servicers - Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC) - will provide $10 billion toward reducing the principal for borrowers who are delinquent or underwater and at risk of default. At least $3 billion will go toward refinancing, and billions more will be directed to state governments and the Federal Housing Authority, according to the Justice Department.”

A website is available where further information can be obtained -- NationalMortgageSettlement.com.

It’s difficult to find anyone that has a kind word about the settlement. Examples from a number of news media:

New York Times

"Economists do not expect a big boost for the economy, in part because the banks have three years to distribute the aid. Some experts questioned whether the accord would do much to stabilize the housing market and its glut of millions of foreclosed homes.

"Critics also pointed to the fact that millions of mortgages owned by the government’s housing finance agencies, Fannie Mae and Freddie Mac, would not be covered under the deal, excluding about half the nation’s mortgages."

Los Angeles Times, Columnist Michael Hiltzik

"I hate a parade. And the parade of rosy self-congratulation staged last week by the creators of the $25-billion mortgage fraud settlement with five big banks is the kind of parade I really hate. (emphasis in the original)

[ . . . ]

"If you don't listen too closely, it sounds as if they're putting up the $25 billion. Not so. The only cold cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, with the rest going to the federal and state governments to pay for regulatory programs."

Wall Street Journal, Editorial

"But the politicians know an election-year windfall when they see it. Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo promised to devote a mere $1.5 billion of the $25 billion to alleged victims of wrongful foreclosures between January 1, 2008 and December 31, 2011.

"The rest of the loot will serve the political agenda of paying off favored home owners—er, voters—with principal reductions, refinancing programs and foreclosure forbearance. The states and feds will also get nice cash payments. Think of this as one more giant political stimulus package—Congressional approval not required."

Bloomberg View. Their "view" is the settlement "falls short," but was "still worth the wait." The bottom-line for Bloomberg is:

"With this settlement, banks can clear out their backlog of stalled foreclosures. In the short run, that may drive prices down even more, but it will also help the housing market find its natural bottom faster. Only then can home prices, which have fallen by more than a third since 2007, begin to rise again. Borrowers can finally start to rebuild equity.

"Once banks reduce their real-estate inventory, and their balance sheets recover, they’ll be able to loosen up home- lending standards to create new mortgages. If this is the result of a less-than-satisfactory legal settlement, it will have been worth the wait."

ProPublica (Journalism in the Public Interest). Paul Kiel spent most of his article comparing the mortgage settlement to HAMP (Home Affordable Modification Program), which, he wrote, was "widely considered a failure." He then added:

"North Carolina Attorney General Roy Cooper made a rather pointed reference to HAMP: "I think strong, court-ordered enforcement with teeth distinguish this deal from those earlier efforts to help homeowners."

"As we've reported extensively over the past several years, homeowners seeking to avoid foreclosure by gaining a loan modification have often been frustrated by banks' errors and delays. In the worst cases, the banks' shoddy mortgage servicing has led to wrongful foreclosures. The errors have sometimes continued even after homeowners got an elusive modification.

"When HAMP was launched, it came with the promise that mortgage servicers would have to abide by clear rules. The handbook laying out these rules now approaches 200 pages. But as we've detailed, enforcement of those rules has been lacking."

Fiscal Times, Liz Peek, Columnist

"The $25 billion deal struck with the nation’s five biggest mortgage servicers is no cause for celebration. At its best, the agreement presents the White House with a politically pleasing sound bite.

"Possibly the worst aspect of the settlement is that its terms might encourage “homeowners to default in the hopes of getting aid,” as described by the New York Times. That will surely gum up a recovery.

[ . . . ]

"The one possible positive of the accord is that foreclosure activity, which took a sharp dive when the robo-signing scandal broke in late 2010, will revive, and begin to clear the market of the “shadow inventory” of homes that are behind in their payments and hanging over any recovery. As harsh as the process is, only until that mountain of available product disappears will supply and demand begin to converge.

"The worst aspect of this agreement is the message that “only fools meet their financial commitments; the non-payers are the truly enlightened,” as bank analyst Dick Bove recently wrote in a note to clients. Mr. Bove is especially horrified that in forcing the banks to renegotiate loans, “the government has taken away the banks’ property rights; rights thought by many to be the basis of capitalism.” Given the damage done to millions of Americans who lost their jobs because of the financial crisis, few may agree that those rights should be protected." (emphasis added)

San Jose Mercury News. Pete Cary writes that "Californians to get up to $18 billion in mortgage relief in settlement with nation's biggest lenders" but adds that "but many say the deal isn't a game changer for the housing market or the economy."

McClatchy-Tribune News Service, posted at LoanSafe.org. Alex Ferraras points out the mortgage settlement "won’t solve the nation’s housing crisis. Far from it."

National Review Online's blog, Exchequer where Kevin Williamson writes:

"Here’s what it does not do: It isn’t going to prevent a lot of foreclosures (and may in fact cause some), it isn’t going to assuage the terror in the mortgage markets, and it probably isn’t going to clean up the system that caused some number of homeowners to be foreclosed on without proper documentation.

"Like the fiasco that was HAMP, this settlement will encourage homeowners to become delinquent on their loans: There’s $10 billion set aside for principal writedowns for delinquent homeowners, but paid-up borrowers only get $3 billion to encourage the refinancing of underwater mortgages. U.S. homeowners are upside-down to the tune of more than $750 billion, with more than a fifth of homeowners underwater. So, even if you think that the federal government ought to be in the business of trying to micromanage mortgage refis, this is four-tenths of 1 percent, assuming maximum utilization.

[ . . . ]

"And one of the biggest problems — the mortgage documentation system — goes largely unaddressed. Basically, the new rules say to fast-and-loose mortgage servicers: “Don’t do that again, and pay $1,500 to $2,000 to everybody you foreclosed on without proper documentation.” Given the complexity of assembling proper documentation and the legal costs involved, $2,000 per offense is a great bargain for the wrongdoers, practically an invitation to keep doing exactly the same thing. Everybody gets worked up about robo-signing, but robo-signing is not the root of the problem, only a symptom of it: The root of the problem is that the underlying system for keeping track of mortgage ownership in an age of securitization and mass default is entirely inadequate to the task. So far as I can tell, the new servicer rules basically say, “Document stuff the right way next time,” but don’t do much to spell out what that looks like and creates incentives not to comply. If the price of fraud is lower than the benefit to be derived from the fraud, then what is the disincentive to fraud?"

Forbes magazine. Staff reporter Daniel Fisher writes:

"Stop me if you’ve heard this one before: Politically ambitious state attorneys general target an unpopular industry with lawsuits based on creative legal theories that would stand a tough time in court. Their sheer legal might brings the other side to the negotiating table. Talks grind on. Finally a grand bargain is struck that buys the industry some measure of immunity and sends cash sluicing directions that will help the AGs in their political careers.

"That’s how the great tobacco settlement went down, and it’s looking like the mortgage settlement is headed the same direction. In both cases, the AGs are seizing upon behavior which looks bad and may technically violate the law, but is hard to link directly to consumer injuries."

Cato Institute's blog, Cato @ Liberty. In two posts (February 9 and February 10), the following comments by Mark Calabria are of special interest:

"Out of the $25 billion settlement, guess how much goes to borrowers who “lost” their homes to foreclosure?  $1.5 billion.  That’s correct, only 6% of the settlement actually could go to the victims it was all supposed to be about.  What’s worse is that the settlement does not even require that money to go to parties actually harmed.  The money can go to any borrower that had a foreclosure, harmed or not.  In fact, as far as I can tell, a borrower could get the money even if he got into the house via fraud, like over-stating his income.

"While coverage has been a little loose on details, it appears that about $3 billion of the settlement is going into the coffers of state governments.  You read that right: state governments are looking to get about twice what the actual victims might get.  But then that doesn’t sound too far off from the typical class-action: lawyers make out like bandits and victims get peanuts.

"If you’re wondering where the rest of the money is going, it is headed to homeowners who are still in their homes, and hence  by defintion not victims of foreclosure abuse.  So much for actually helping victims.  But then, since the state AGs apparently never bothered to look for any real victims, it should not be too surprisingly that they completely forgot about them when crafting the settlement."

Big Government. Chriss Street wonders whether the mortgage settlement is a bailout for California, commenting:

"When the good people of the other 49 states learn the terms of this bail-out, I believe they also come together. But this time they will be showing their fangs and carrying pitch forks! With only 13% of the GDP of the United States, California gets 72% of the settlement proceeds. Undoubtedly, the five national banks will pass 100% of the cost of this settlement on to all their customers nationally. Consequently, 87% of the increased bank fees will be paid by other states increases to bail-out California’s insolvent budget."

Heritage Foundation's blog, The Foundry. David John writes:

"The new agreement does not fix the housing crisis. As the new Web site of the settlement states, “This is a mortgage servicing settlement that addresses only a portion of the mortgage lending system.” The amount of relief each homeowner or former homeowner receives will be fairly small, and it will depend on individual circumstances and the state of residence. Since the agreement will be executed over a three-year period, so “borrowers will not immediately know if they are eligible for relief.”

"The newly announced agreement is estimated to help about 1 million homeowners who are underwater either through refinancing or by having their loans partially forgiven. While the overall numbers are big, The Washington Post notes, “The effects of this deal are likely to be rather modest. In terms of direct help for consumers, the aggregate impact will be quite minor.”

[ . . . ]

"This agreement represents a real settlement for some real abuses. However, it is easy to get blinded by the media frenzy. Only a small number of homeowners and former homeowners will receive any benefit, and they will not know who they are for some time."

That last comment by David Johns about not getting blinded by the media seems especially appropriate. We hope that after reading the stories at the above links, ACTA members will be able to avoid the b.s. coming from their favorite panjandrum.

February 11, 2012

Is This a Great Country, or What?

Bloggers at Judicial Watch’s Corruption Chronicles write:

“In a classic “only in America” case, a federal court has found that prison officials in one state violated a transgender inmate’s constitutional rights by refusing to provide taxpayer-funded laser hair removal treatments. (emphasis added)

“The bizarre case comes from Massachusetts where a male inmate, who identities as female, is serving a sentence at a correctional institution in Norfolk. The criminal, Christine Alexander, was diagnosed with “gender identity disorder” in 2003 and receives hormone replacement therapy and psychological counseling as he progresses “towards feminization.”

“As if this weren’t outrageous enough, Alexander also wants taxpayers to finance the cosmetic beauty treatment of laser hair removal because in his case it’s medically necessary, according to his attorneys. That’s because the inmate has a rare medical condition, according to court documents cited in a legal report this week; he “suffers from facial and body hair, and male pattern baldness.”

“Evidently prison officials drew the line and refused the laser hair removal, so Alexander sued in federal court, claiming that corrections department officials are violating his Eighth Amendment right to be free from cruel and unusual punishment and Fourteenth Amendment right to equal protection . . . .”

There’s more if you care to access the Corruption Chronicles blog to read it.

One can never cease to be amazed at the rights that exist within the penumbra of the U.S. Constitution. And yes, the federal judge who ruled in favor of the transgendered inmate is from Massachusetts.

February 10, 2012

Today's Quote

“The economic miracle that has been the United States was not produced by socialized enterprises, by government-union-industry cartels or by centralized economic planning. It was produced by private enterprises in a profit-and-loss system. And losses were at least as important in weeding out failures as profits in fostering successes. Let government succor failures, and we shall be headed for stagnation and decline.”

~ Milton Friedman

HT Independent Institute's OnPower.org

February 09, 2012

Dependency on Government Continues to Increase

John Merline of Investor’s Business Daily wrote yesterday that “67 million (Americans now rely) on some federal program.” His reporting is based upon the work of William Beach and Patrick Tyrrell in a new report (No. CDA 12-02, February 8, 2012) from the Heritage Foundation’s Center for Data Analysis. Merline writes:

“The conservative think tank's annual Index of Dependence on Government tracks money spent on housing, health, welfare, education subsidies and other federal programs that were "traditionally provided to needy people by local organizations and families."

The one-page fact sheet of this year’s index points out that greater handouts result in a “dependency nation.” For example:

  • Americans Receive More Than Ever Before: Americans relying on the federal government received an average $32,748 worth of benefits in 2010. That’s more than the average American’s personal disposable income of $32,446.
  • A Growing Population Looking to Government: Now, more than 67.3 million Americans depend on the federal government for everything from food stamps and college tuition to retirement services and health care. The Index saw overall dependency on the government jump 8.1% in 2010. This cost federal taxpayers roughly $2.5 trillion.
  • Fewer Federal Taxpayers to Support Programs: At the same time, nearly half the nation (49.5%) does not pay any federal income taxes. This means a shrinking number of taxpayers are funding a growing number of people who rely on the government for their daily existence—a recipe for the government’s fiscal collapse.
  • Higher Spikes on the Horizon: With more than 77 million baby boomers retiring in the next 25 years, Heritage’s Index could show even higher spikes as seniors start collecting Social Security checks, using Medicare benefits, and relying on Medicaid for long-term care.

The report emphasizes that a reliance on Washington weakens America, and then outlines a path to changing course. The table below, from the full CDA report, provides a history of the Index of Dependence on Government for the years 1962-2010.

Merline concludes his IBD column by saying that President Obama’s “former economic adviser, Larry Summers, noted in the 1999 Concise Encyclopedia of Economics that "government assistance programs contribute to long-term unemployment ... by providing an incentive, and the means, not to work."


February 08, 2012

Arlington County Manager Previews FY 2013 Budget

For about one and one-half hours this afternoon, the Arlington County Manager provided a preview of her Fiscal Year 2013 proposed budget to the Arlington County Board. The budget would increase by 2.1%, supposedly less than the current inflation rate. She also told the Board she plans to recommend that a 1 1/2 cent increase in the real estate tax rate be advertised. according to a press release released this evening.

Here is how the press release begins:

“Arlington County Manager Barbara Donnellan today previewed to the County Board a balanced $1.026 billion budget for Fiscal Year (FY) 2013. Her proposal ensures that existing services are continued at current levels, and that investments are made in key strategic areas, including affordable housing, compensation and restoration of library hours.

“Donnellan proposed a ½-cent increase in the real estate tax rate to fund some of these initiatives, in keeping with budget guidance from the County Board.

“Our approach to long-term planning, Smart Growth and conservative financial management continues to provide sustainable growth,” Donnellan said in a work session with the County Board. She noted that the County has seen “renewed development interest in our major corridors, and modest growth in some of our economically-sensitive revenue streams.”

The press release goes on to explain:

Proposed budget would increase at less than current inflation

“The proposed budget represents a 2.1 percent increase from the FY 2012 Adopted Budget of $1.005 billion. The FY 2013 General Fund budget, excluding the transfer to APS, would increase 1.6 percent over FY 2012 – below the current inflation rate of 3 percent.

“Donnellan proposed that the Board consider advertising a 1½-cent increase in the tax rate to address the strategic priorities that the Board gave in its budget guidance  to her. That advertised rate, she noted, also would leave the Board the flexibility, as it hears from the community, to consider providing additional funding for affordable housing and safety net programs and maintenance capital. By law, the Board cannot set the tax rate higher than the advertised amount, but may set it lower than that amount.” (emphasis in the original)

Additional resources: First, Manager’s 16-page PowerPoint presentation (requires Adobe) to the County Board. Second, the Manager’s FY 2013 34-page budget message and summaries of budget priorities.

February 07, 2012

Talking about Government Waste

Over the weekend, we growled, and asked if Congress has cut any spending, yet. We based the question on a post by Chris Edwards at the Cato Institute's blog. Even worse, though, is that Congress seems unwilling to even cut government waste.

In a “web memo” (No. 2642, October 6, 2009), Brian Reidl of the Heritage Foundation writes that “eliminating waste cannot balance the budget. Lawmakers must also rein in spending by reforming Social Security and Medicare and by eliminating government activities that are no longer affordable. Yet government waste is the low-hanging fruit that lawmakers must clean up in order to build credibility with the public for larger reforms.” (Emphasis added)

In his web memo, Reidl lists 50 examples of government waste. He categorizes them into such categories as programs that should be devolved to state or local government; duplicate programs; or, programs that could be performed better by the private sector. I’ll list just 10 of the 50:

  1. The federal government made at least $72 billion in improper payments in 2008.
  2. Washington spends $92 billion on corporate welfare (excluding TARP) versus $71 billion on homeland security.
  3. Washington spends $25 billion annually maintaining unused or vacant federal properties.
  4. Government auditors spent the past five years examining all federal programs and found that 22 percent of them -- costing taxpayers a total of $123 billion annually -- fail to show any positive impact on the populations they serve.
  5. Examples from multiple Government Accountability Office (GAO) reports of wasteful duplication include 342 economic development programs; 130 programs serving the disabled; 130 programs serving at-risk youth; 90 early childhood development programs; 75 programs funding international education, cultural, and training exchange activities; and 72 safe water programs.
  6. Washington will spend $2.6 million training Chinese prostitutes to drink more responsibly on the job.
  7. A GAO audit classified nearly half of all purchases on government credit cards as improper, fraudulent, or embezzled. Examples of taxpayer-funded purchases include gambling, mortgage payments, liquor, lingerie, iPods, Xboxes, jewelry, Internet dating services, and Hawaiian vacations. In one extraordinary example, the Postal Service spent $13,500 on one dinner at a Ruth's Chris Steakhouse, including "over 200 appetizers and over $3,000 of alcohol, including more than 40 bottles of wine costing more than $50 each and brand-name liquor such as Courvoisier, Belvedere and Johnny Walker Gold." The 81 guests consumed an average of $167 worth of food and drink apiece.
  8. The Securities and Exchange Commission spent $3.9 million rearranging desks and offices at its Washington, D.C., headquarters.
  9. Over half of all farm subsidies go to commercial farms, which report average household incomes of $200,000.
  10. Health care fraud is estimated to cost taxpayers more than $60 billion annually.

Another example of the great work done by the Heritage Foundation!

February 06, 2012

The Rich aren't the Problem

In the January 29, 2012 Outlook section of the Washington Post, James Q. Wilson, the Ronald Reagan professor of public policy at Pepperdine University, has an essay well-worth reading in its entirety. In the essay, he argues that people shouldn’t blame the rich if they’re angry at income inequality, or somehow claim to be a part of the 99%.

Admittedly, he says, “(t)here is no doubt that incomes are unequal in the United States.” However, Wison adds:

“But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality?”

In arguing his case, Wilson points to studies at two of the Federal Reserve Bank:

“The “rich” in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. Such mobility is hardly surprising: A business school student, for instance, may have little money and high debts, but nine years later he or she could be earning a big Wall Street salary and bonus.

“Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods."

Wilson also points to the poverty rate as a problem, citing the book, “The Poverty of the Poverty Rate” by Nicholas Eberstadt." He writes:

“Poverty in America is certainly a serious problem, but the plight of the poor has been moderated by advances in the economy. Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home. In his book “The Poverty of the Poverty Rate,” Nicholas Eberstadt shows that over the past 30 or so years, the percentage of low-income children in the United States who are underweight has gone down, the share of low-income households lacking complete plumbing facilities has declined, and the area of their homes adequately heated has gone up. The fraction of poor households with a telephone, a television set and a clothes dryer has risen sharply”

In addition, there are four letters in last week's Post that responded to Wilson's essay, including one from the authors of one book referenced by Wilson.

As we growled on September 6, 2009, “The topic of income inequality is important since liberals base much of their belief in the need for income redistribution on it, or in the words of then-candidate Barack Obama who told “Joe the Plumber” last year, he wanted to “spread the wealth around.” We see once again that a free market does the job of spreading the wealth around” quite well without the political class choosing winners and losers. Forget a progressive income tax. What we need is a flat tax.”

February 04, 2012

Has Congress Cut Any Spending, Yet?

At the Cato Institute’s blog, Cato @ Liberty, yesterday, Chris Edwards asks whether Congress, with a more conservative House of Representatives, has cut any spending over the past year. Afterall, he notes:

“It’s been a year since Republicans assumed control in the House in the wake of the 2010 elections, which were powered by Tea Party concerns about massive federal spending and deficits.”

He does this by comparing “the new CBO budget projections to CBO’s January 2011 projections,” as reflected in the following chart.

Here’s Chris’ explanation:

“The chart shows federal spending of $3.6 trillion this year and CBO’s projections for 2021 from last year and this year. Last year, 2021 spending was expected to be $5.726 trillion, but this year 2021 spending is expected to be $5.205 trillion. Thus, Congress will apparently be “saving” $521 billion in 2021 compared to what it had planned to spend, although spending is still expected to rise 45 percent over the next nine years.

“Of the $521 billion in “savings,” about $317 billion stems from the “cuts” under the budget caps put in place last year plus savings from the upcoming sequester. (The planned sequester results from the failure of the supercommittee). The sequester is supposed to trim entitlement spending a tiny amount and move the budget caps down a little lower. But, as we’ve discussed on Downsizing Government many times, budget caps aren’t real cuts; they are only promises that Congress will restrain spending in the future. “Real” cuts are full terminations of programs or permanent reductions in legislated entitlement benefits. So far, we haven’t seen any substantial real cuts. (Emphasis added)

“The other $204 billion of the $521 billion in savings projected for 2021 result from a sharp reduction in CBO’s projection of federal interest costs. Last year, CBO projected that short-term Treasury rates would rise from about zero percent today to 4.4 percent by the end of the decade, while long-term rates would rise to 5.4 percent. CBO’s new projections show short-term rates rising to 3.8 percent and long-term rates to 5.0 percent. Last year, the short-term rate in 2015 was expected to be 3.9 percent, but this year CBO says it will be just 1.3 percent. These changed interest rate assumptions result in more than $1 trillion of new “savings” over the coming decade.”

Edwards ends the blog post by noting:

“The upshot is that Tea Party Republicans and other fiscal conservatives have a long, long way to go to get spending under control. Budget caps and sequesters are a step forward, but it’s time for Republicans to step up their game and start focusing on eliminating programs and agencies.”

Exactly. Thanks, Mr. Edwards! If this concerns you, call your Members of Congress. For Arlington, and other Virginians, here are their phone numbers and links for e-mailing:

  • Senator Mark Warner (D) -  write to him or call (202) 224-2023
  • Representative Jim Moran (D) -- write to him or call (202) 225-4376.
It's important to point out, however, that while the House of Representatives has been under the "Republican management" since January 2011, the U.S. Senate is under "Democrat management." As we noted when we growled on January 24, 2012, Citizens Against Government Waste (CAGW) awarded Senator Kent Conrad, Senate Budget Committee Chairman, it's Porker of the Month, marking the 1,000th day that the U.S. Senate had not passed a budget resolution, going back to April 29, 2009.

February 03, 2012

The United Nations Wants a Global Tax to Help Poor

At Hot Air, Tina Korbe writes that “United Nations officials are transparent about their goals to redistribute wealth on a global scale. According to several U.N. leaders, health care, education, housing, water and sanitation, among other services, are basic human rights, equivalent to the rights to “life, liberty and the pursuit of happiness.” To ensure these rights, these U.N. higher-ups want to institute a global tax."

She goes on to quote from the Deseret News:

“Inside the U.N., another group of civil society leaders demanded a basic level of social security as they promoted a “social protection floor” at a preparatory forum for the Commission on Social Development, which began Feb. 1.

“The focus of the forum was “universal access to basic social protection and social services.”

“No one should live below a certain income level,” stated Milos Koterec, President of the Economic and Social Council of the United Nations. “Everyone should be able to access at least basic health services, primary education, housing, water, sanitation and other essential services.”

“The money to fund these services may come from a new world tax.

“We will need a modest but long-term way to finance this transformation,” stated Jens Wandel, Deputy Director of the United Nations Development Program. “One idea which we could consider is a minimal financial transaction tax (of .005 percent). This will create $40 billion in revenue.”

Korbe concludes by saying:

"Thankfully, the United Nations doesn’t really have the authority to institute this type of tax without the agreement of its member nations, but these sorts of schemes that blatantly favor central planning over grass-roots development initiatives that are more effective anyway make me wonder: What does the United States gain by its membership in the United Nations? Consider: In 2010, the United States gave $7.7 billion to the United Nations system — and for what return? Wouldn’t that money have been better spent on more concentrated international development efforts? The United Nations — an unaccountable bureaucracy — repeatedly proves itself corrupt and inefficient, yet leaders of the most respectable nations in the world continue to pay court to despots and dictators at U.N. headquarters. Why?"

Kudos to Tina Korbe for writing about the efforts of U.N. officials to plunder ever more taxes. We’ve growled about this before, including July 4, 2006, July 6, 2007, December 13, 2009, and August 14, 2010.

UPDATE (2/4/12): Rick Moran takes note of the United Nations' efforts to provide a world tax, commenting at American Thinker today:

"It certainly is a novel approach; condemning capitalism and then taxing it to fund planetary social welfare schemes. It does no good to point out the idiocy of such plans; the UN bureaucrats are oblivious. They are also immune to charges of hypocrisy since they actually believe that money grows on trees and that countries like America are hogging all the wealth.

"All those poor countries in Africa and Asia? Perhaps the UN should talk to them first about cutting their military budgets. They spend far more per capita on defense than we do.

"Then maybe we wouldn't need a "global tax" to transfer wealth to nations that don't need it - or where the cash would only end up in some kleptocrat's Swiss bank account."

February 02, 2012

When Big City Bureaucrats Rule?

Last September, Labor Secretary Hilda Solis proposed regulations that would among other things, prohibit minors from operating tractors of more than 20 horsepower and prohibit minors from performing specified farm work, according to a story in yesterday’s CNS News. The online news service also writes:

“Farmers and congressmen from farm states continue to slam proposed U.S. Department of Labor farm regulations, which would bar farm children under 16 from operating tractors and other machinery and working with livestock.

“This is what happens when big city bureaucrats try to craft policies for rural America,” Rep. Denny Rehberg (R-Mont.) said of the proposals.

"Rehberg, who has become of the proposal’s most ardent opponents, criticized the Labor Department for drafting regulations that he says are unnecessary.

“(The) most effective way to become a safe and effective operator of farm implements is to learn at a young age under the guidance of a knowledgeable and careful instructor,” he said.

“Farm groups like the South Dakota Farmers Union have also joined in the protest.”

Sheesh! Just what this country needs is more bureaucratic statists? Not!

February 01, 2012

County Board Members Home Assessments

Continuing an annual practice, Scott McCaffrey of the Arlington Sun Gazette, posts an online article reporting the value of the residential assessment of each member of the Arlington County Board. According to McCaffrey:

"The average assessed value of County Board members’ homes rose 2.5 percent from 2011 to 2012, according to new figures.

"The average value of the four members’ homes rose from $811,975 to $832,150, but in each case remained well below the peak assessment set at the end of the real estate boom in the late 2000s.

"Like all residential and commercial parcels in Virginia, assessments of County Board members’ properties are public information.

"The average increase in their assessment was slightly higher than the county average for residential property, which rose 1.8 percent from 2011 to 2012."

McCaffrey continues by reporting the neighborhood and value -- both 2011 and 2012 -- of each Board member's home. Although the information is public, we won't report it, but readers can access the story for the information.