A Matter Of Choice

Minyan Peter is discussing The Courage to Choose.

I believe that in time, historians will define the last twenty years in America as the �Age of Aspiration� where, thanks to unprecedented levels of credit, Americans could become anything they wanted. Where, thanks to zero percent down debt and a seemingly robust economy, we could own bigger homes, fancier cars, and more lavish vacations � where our bounty was limited only by the boldness of our wants.

Well, I, for one, believe that our Age of Aspiration is ending. And, with its conclusion, we must, for the first time in almost a generation, begin to reconcile our wants with our means. We must choose what to do without, rather than what more to do with.

When anything is possible, everything is possible. Few of us have really had to choose. And, like it or not, all of us will need to return to our vocabulary a simple phrase that I believe has been lost over the past twenty years: �I can�t afford that.�

So as we approach 2008, I wish the Minyanville community the wisdom to prioritize well, the courage to make the hard, and often painful, choices, and, most of all, the strength and conviction to follow through.

Minyan Peter

Peter is one of the best reads on the Ville. In case you missed it, please click on the above link and read his entire message about choices for 2008.

I certainly agree with Peter but would like to add that people are going to be forced to make choices whether they have the courage to make them or not. Where courage comes in is making the right choice, not a choice.

Let's take a look at some major choices.

Governor Schwarzenegger Considers Major Cuts In Services

Schwarzenegger will declare a fiscal emergency.

Gov. Arnold Schwarzenegger is expected next month to seek immediate major cuts in state services, including a plan to take back $1.4 billion budgeted for schools this year and a proposal to slash the prison population by releasing tens of thousands of inmates.

When the governor reveals the details of the cuts, the state's interest groups are "going to be squealing beyond belief," said one official, who spoke on condition of anonymity because budget discussions are confidential.

My comment: Interest groups can squeal all the want but choices still have to be made: cut services or raise taxes.

The official described Schwarzenegger's approach as: "Don't talk about taxes. Talk about services. Make the public say, 'I want the prison system funded. I want education funded.' He won't talk taxes until there is a consensus that these services are what the state wants."

My Comment: Schwarzenegger's choice seems to be to force the public to choose. Unfortunately both Schwarzenegger and the public chose irresponsibly when confronted with previous choices.

The governor's fight on education, which represents 40% of the budget, is likely to be fierce because school districts are still nursing the wounds of 2004, when the governor deferred pledges to restore education funding that they agreed to surrender.

Scott Plotkin, executive director of the California School Boards Assn., said his group will not agree to any cuts until the Legislature begins a discussion of increasing revenues through taxes. "This is too big a problem to be solved solely through cuts," Plotkin said. "We've been down this road before, and we got burned."

My Comment: So now the California School Boards Assn. does not trust the governor. This is what happens when you make promises that cannot be met. Interestingly enough one group will not consider spending cuts unless tax increases are discussed first, while another group will not discuss taxes unless all spending cuts are considered first.

In these kinds of situations, the choices are put off until the last moment and no one is happy with the result. Nonetheless choices must be made.

The governor's plan to cut $1.4 billion from this year's money for schools is based on new estimates of what is guaranteed under Proposition 98, a constitutional provision that determines the minimum of state revenues that must go to education. The formula is based partly on state revenues, which have plummeted since education funding was allocated last summer.

My Comment: California voters are going to be facing lots of choices about various propositions, many of which are downright silly such as $2.9 billion in affordable housing programs and $3 billion for general obligation bonds to fund stem cell research. Both are complete nonsense and a huge waste of taxpayer money. Getting rid of such waste should be the easy choices.

Kevin Gordon, a lobbyist for hundreds of school districts, said $1.4 billion is "almost insurmountable as a number for districts to really give up."

My Comment: It's a good thing he said almost insurmountable.

Cuts would inevitably fall heavily on the Los Angeles Unified School District, which, with about 700,000 students, receives about 13% of the state's education dollars. The school board was already weighing at least $100 million in cuts anticipated for next year. It also faces a restive teachers union, which is demanding raises.

My Comment: Ah yes, raises. The unpleasant choices here are: grant raises and raise taxes, grant raises but fire teachers and increase class size, don't grant raises and face a strike. When the strike comes, review the choices and make one.

The Party Is Over In California

On December 16th in Turn out the lights California, I made the following observations:

Schwarzenegger Has 3 Choices

• Cut Spending and Services
  
• Raise Taxes
• Attempt to float massive amounts of bonds in a hostile debt market

The crisis is coming to a head and choices must be made. Arnold, it's your move. What's it gonna be?

Michigan Has Choices

I discussed Michigan recently in Why Michigan is a Basket Case. If you think Michigan's problems are all auto manufacturing related think again. Click on the above link to see Michigan's legislative process in action. It was an amazing set of choices they just made to rob Peter to pay Paul then Paul to pay Peter ending up accomplishing nothing.

Ohio Has Choices Too

There is a giant Credit Squeeze In Ohio.

Cleveland Mayor Frank Jackson said today that he and top advisers are working to stave off a money crunch that could jeopardize large capital projects on the horizon. Such projects, ranging from roads and bridges to developments such as Bob Stark's $1.5 billion plan for the Warehouse District, rely on the city's ability to borrow money.

Maryland vs. Virginia

Inquiring minds might also want to consider Maryland computer firms anxious over new tax.

�I�m being asked to levy a hefty tax on my clients, and the thing that really aggravates me is that Virginia computer companies won�t impose this on their Maryland clients,� said Matthew Shapiro, president of Rockville-based networking and integration firm Design One Corp. Shapiro doesn�t want to physically move, but he does want to consult with a lawyer about setting up a subsidiary outside the state.

Hmm. There are choices and there are consequences to those choices. Imagine setting up subsidiary outside the state to avoid tax consequences of staying in the state. Who is the winner? I know who the losers are: anyone spending money to avoid taxes, and the state that loses the taxes.

What About Florida?

The epicenter of real estate fallout has to be Florida. A 25 member committee is now addressing Florida Taxation and Budget Reform. Good luck with that.

This quick review clearly shows that Minyan Peter was spot on with his assessment that 2008 will be a year of choices: personal choices, household choices, city choices, state choices, and even national choices.

At the national level, a big presidential election is at stake, with consequences that can affect the US for decades to come.

Choose Wisely.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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