This commentary originally appeared in Forbes on February 26, 2016.
Think the federal government is the only one with a debt problem? Think again.
According to the Texas Bond Review Board (BRB), the state agency charged with overseeing debt issuances, Texas’ total local debt (including principal and interest) exceeded $338 billion in 2015. This means that every man, woman and child in the state owes about $12,250 for his or her share of all the debt incurred by city, county, school and special purpose governments. And the tab for Texas taxpayers is growing fast.
Just five fiscal years ago, in 2010, Texas’ local debt totaled $309 billion. Since then, however, local governments have gone on a borrowing binge, adding $30 billion in new debt, which works out to be almost $13,000 borrowed and spent for each new Texan.
Putting Texas’ problems into perspective To put Texas’ local debt problems into perspective nationally, consider a new report from the BRB: Among the top ten most populous states in the nation, the principal amount owed by Texas is $225 billion and is the 2nd largest total next to only California who is $268 billion in the hole. Meanwhile, Texas’ local debt per capita of $8,350 ranks as the 2nd highest total, behind only New York’s $10,646 per capita. Both the aggregate amount owed and the debt per capita are well in excess of the nationwide averages.
As Texas’ appetite for debt has grown, so too has the tax burden necessary to sustain it. In an environment of elevated debt and accompanying debt service payments, Texas’ property tax—levied exclusively at the local level and their main source of tax revenue—is one of the nation’s worst. According to one measure from the Tax Foundation, the state has the nation’s sixth-highest effective property tax rate.
Texas is clearly facing an uphill battle when it comes to debt, but there’s an easy path to right the ship and stave off future fiscal crises. And it starts with education.
Right now, Texas voters aren’t provided with enough information at the ballot box to make an informed decision about government spending. Ballot propositions, sometimes worth as much as $1 billion or more, include only two bits of information at the voting booth:
1. A general description of the project that is usually written in legalese and worded broadly enough to mean almost anything; and
2. The principal amount to be borrowed that understates the bond’s total cost since it excludes interest.
With so little information provided to voters, it’s little wonder that many bad debt decisions have piled up. Fortunately, the solution to this problem is straightforward—arm voters with basic financial facts at the ballot box.
Although policymakers shouldn’t overload voters with information, there should be enough detail that a layperson can understand, such as:
Voter education is, of course, only one piece of the puzzle. Policymakers also need to consider stricter controls on nonvoter approved debt instruments, like certificates of obligation. These types of debt devices were originally created to deal with emergency situations—think natural disaster recovery—but have increasingly been used by city councils to purchase things they don’t want to put in front of voters.
Another effective way to ease the swell of debt is using zero-based budgeting, which is a public finance technique to build the budget from the ground-up. It often requires more time and effort up-front from policymakers, but the budget is better and leaner, and the efficiencies found can be set aside to cut taxes so the productive private sector can flourish or help pay for future capital improvements.
Finally, it’d behoove Texas policymakers to look around the nation for models of successful local debt limitations. A debt ceiling of some sort, with flexibility for emergencies, may be needed. Much like parental involvement is needed when a young 20-something gets in over their head with their first credit card.
Texas’ local governments are in a deep, dark debt hole–and it is obvious that we must get back to the core conservative principles and values that built this country and made it great. Certainly not an easy feat, but not an impossible one either, especially with the right policy prescriptions in place.
Dr. Ginn is an economist at the TPPF. Mr. Quintero is director of the Center for Local Governance.
AUSTIN – Texas Public Policy Foundation Director of the Center for Local Governance James Quintero and Economist Dr. Vance Ginn issued the following statements on news that the San Antonio Independent School District will consider a phased in minimum wage increase to $15 per hour.
“San Antonio ISD should reject calls for a government mandated minimum wage increase and instead focus on getting its house in order,” said James Quintero, director of the Center for Local Governance at the Texas Public Policy Foundation. “Right now, SAISD’s student enrollment is shrinking while its debt is exploding. The latest data reveal that from the 2004-05 to 2013-14 school years, the district’s enrollment shrank by 4.9 percent while it grew statewide by 14.6 percent. This is at the same time that SAISD’s debt skyrocketed to almost $1.1 billion, or $20,250 owed per student.”
“San Antonio ISD is in a dire fiscal situation that suggests artificially raising workers’ cost is not good policy. Across-the-board wage increases are bad public policy because they don’t incentivize productivity and they burden taxpayers unnecessarily,” said Dr. Vance Ginn, economist with the Center for Fiscal Policy. “With limited resources available in SAISD, productive private sector style merit-based raises should be used to encourage increased productivity helping taxpayers, workers, and students.”
James Quintero is director of the Center for Local Governance at the Texas Public Policy Foundation.
Vance Ginn, Ph.D. is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
AUSTIN – The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued this statement today on the U.S. Census Bureau’s Foreign Trade report:
“Today’s report further clarified the diversity of the Texas economy as it again tops the nation in exports for the 14th consecutive year. Although the lower oil price contributed to a substantial drop in exports to foreign countries in 2015, Texas’ other vibrant industries led to $251 billion in exports, which was $86 billion more than the second highest total in California,” said Dr. Ginn. “The Texas model supported by a well-diversified economy benefited by high levels of international trade and pro-growth policies must be continued to empower Texans to achieve their hopes and dreams.”
This commentary written by Dr. Vance Ginn and Dean Stansel originally appeared in Real Clear Policy on February 9, 2016.
Economic freedom in America has steadily declined for the past 15 years as the role of the federal government has expanded rapidly. However, the situation is worse in some states than in others — as noted in the latest "Economic Freedom of North America" (EFNA) report, of which one of us is a coauthor.
The most economically free states have per capita incomes 7 percent above the national average; the least free states have income 8 percent below the average. The contrasts are especially clear among the four largest states, which account for over one-third of the U.S. population.
New York and California are ranked last and next to last in economic freedom, respectively, while Texas and Florida are tied for third (behind only sparsely populated New Hampshire and South Dakota). Their economic performances also stand in sharp contrast. In recent years, population has grown twice as fast in Texas and Florida as it has in New York and California. Employment and income have grown faster in Texas and Florida as well. Levels of income inequality have remained about the same in Texas and Florida, despite their having far fewer costly redistributionary policies.
This is not a new phenomenon. Historical data in this year's report shows that Texas and Florida have been in the top five for economic freedom since 2005, and in the top eight since 1981 (when the data set starts). New York has never ranked higher than 48th, and California has been above 40th only twice, both times ranking 39th.
It's no coincidence that Texas and Florida have thrived while New York and California have not. High levels of taxes, spending, and regulations make it more difficult for entrepreneurs to be successful. When entrepreneurs cannot expand their businesses and hire new workers, everyone is hurt, not just the rich.
There have been over 130 papers by independent researchers using the EFNA index. The vast majority of those have found that higher economic freedom is associated with a host of positive outcomes, for example higher incomes, faster income growth, and more entrepreneurial activity. Similar research has been done using country-level data with the same basic conclusion: Countries with more economic freedom tend to have more prosperous economies.
Texans have reason to be pleased, but as was once said, "The price of liberty is eternal vigilance." While the state ranks near the top of the EFNA list by having a relatively limited-government philosophy, there's plenty of room for improvement.
Being one of only nine states without an individual income tax substantially benefits Texans and must be maintained. However, Texas is one of only four states to impose the terribly burdensome business margin tax, which is similar to a gross-receipts tax. As a result, the Tax Foundation ranks Texas as 41st nationwide on corporate taxes in their State Business Tax Climate Index. Texas also ranks quite poorly for sales taxes and property taxes (37th for each) in the EFNA report. Restraining government spending so that these taxes can be reduced would help Texas be even more competitive with other states.
Taxpayer-funded corporate subsidies also limit Texas' full potential. The Texas Economic Development Act is a property-tax abatement initiative of $1.6 billion over ten years that reduces tax liability and provides tax credits for companies that build facilities and create new jobs. The breadth of these programs is expansive, including the Texas Enterprise Fund, the Economic Development Bank, Arts Organization Grants, and others. Texas taxpayers would be wealthier if less money was spent on these initiatives, which often provide big giveaways to huge corporations while leaving small businesses to fend for themselves — corporate welfare at its worst.
Finally, in the Mercatus Center's "Freedom in the 50 States" report, Texas ranks only 24th for regulatory freedom. One reason is stringent occupational-licensing requirements; the Institute of Justice ranks Texas as having the 17th most burdensome set of them. These regulations protect existing businesses from new competition, and they make it harder for low-skilled workers to find employment. They should be dramatically scaled back.
Texas' successful economic model is one that other states and federal lawmakers would be wise to follow. But even Texas could do far better.
Dean Stansel is a research associate professor at the O'Neil Center for Global Markets and Freedom in SMU's Cox School of Business. Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.
This commentary, written by Dr. Vance Ginn and Daniel Garza, originally appeared in Townhall on February 8, 2016.
In the last seven years, the United States has tumbled from 6th place to 11th place in The Heritage Foundation’s annual Index of Economic Freedom. This scale is a loose measure of the federal government’s burden on us in the form of taxes, debt, and opaque regulations that dictate how we must spend “our” money.
Under the current administration, government spending has increased to nearly $30,000 per household, and our national debt now exceeds $19 trillion, or about $125,000 per tax-filing household. We’ve seen bank bailouts, taxes that depress hiring, and mandates that force working Americans to cough up their hard-earned money to buy products of questionable value.
Simultaneously, the burden of regulation is exploding, as Washington imposes new rules on companies that force us to spend more on energy, health care, food, and education.
Bottom line: The American people are paying more and more of their hard-earned dollars to satisfy government at all levels, and they’re not getting value in return.
That’s not what backers of big government promise, of course. They claim that other people will pay these costs, not the working families who are struggling to achieve their hopes and dreams. However, middle-income Americans are always the ones who foot the government’s bill.
Although government officials often vow to enact a raft of new government programs, they conveniently don’t talk about the massive tax increases associated with such a plan that would substantially lower incomes. And when the current administration finally won the massive tax increase on “the wealthy” that the president promised for years, it ended up hitting 77 percent of American households instead.
Still, our youth clamor for increased government intervention because, they’ll tell you, they are tired of the greed, the cronyism, and the increasing income inequality. They see government as a benevolent force untainted by a profit motive.
However, they ignore that inequality has been aggravated precisely because of excessive government spending, quantitative easing measures by the Federal Reserve that centralize capital in Wall Street, and government cronyism that only favors the few well-connected. They overlook the need to focus on alleviating poverty as a priority over inequality, which is a natural outcome of economic growth supported by free markets that rewards talent, hard work, and comparative advantage.
The youth ignore that economic freedom makes funding social programs possible, and is now sustaining the highest quality of life in human history.
Some see “economic freedom” as a complex idea, or one that doesn’t affect them. But, at the most basic level, it means protecting our rights as workers and entrepreneurs to earn, spend, and save without unnecessary interference from the government.
It means that if you’re a young Latina trying to pay for college, you shouldn’t be hurt by poorly-managed government programs that increase the cost of tuition. If you’re a worker trying to save for a home, the government shouldn’t tax you for programs that will go bankrupt before you can benefit from them. It means that if you’re a senior on a fixed income, the cost of basic necessities shouldn’t rise just because decision makers in Washington want to protect their political supporters.
The plain truth is that the vast majority of Americans do a better job caring for themselves than government officials in Washington ever could. If taxes and regulations didn’t inflate the cost of health care or stifle job growth, millions would be better off than they are now. Daniel’s family immigrated to the United States not because of government programs aimed at helping them. That was the false promise they rejected at home, in favor of the chance to build a life for themselves in the most dynamic economy in the world. To fulfill that destiny, Vance took it upon himself to earn a doctorate in economics as a first generation college student from a low-income household instead of following the potential path of being supported by taxpayer dollars.
Millions of immigrants and disadvantaged people have proved throughout our nation’s history that success comes not from government taxes and mandates smoothing the bumps along the road. Quite the opposite. We have done well because government was limited, leaving room for people to create, build, and prosper.
Government has a role—a critical role—in protecting our security and ensuring the care of those who truly cannot help themselves. But when it tries to do too much, as is the case today, it winds up doing more harm than good. When government protects economic freedom and individual liberty with policies that limit taxes, spending, and regulation, it helps everyone succeed.
Vance Ginn, Ph.D.