Tuesday, June 30, 2009

Umass hotel taxes heading to Town Hall

The line-item veto documents are on the web, and it looks like the hotel tax changes all made it through unscathed. So next time your annoying relatives are in town, put them up at the Campus Center Hotel.

Monday, June 29, 2009

Keep your fingers crossed...

So I grabbed the latest state budget document, mostly to see how the wording for the local-option meals tax ended up. Towns will have the option of adding an extra three-quarters of one percent tax on meals, with the money coming directly back to them.

Then I stumbled across this odd little bit of legalese:
SECTION 50. The first paragraph of section 2 of chapter 64G of the General Laws, as so appearing, is hereby amended by striking out clause (b) and inserting in place thereof the following clause:- (b) lodging accommodations, including dormitories, at religious, charitable, educational and philanthropic institutions; provided, however, that this exemption shall not apply to accommodations provided by any such institution at a hotel or motel operated by the institution.
Section 64G is the Hotel Tax law. It looks like the UMass hotel loophole is getting closed.
I wrote the above ten days ago, and have been sitting on this post since then, afraid that calling attention to the UMass hotel loophole might possibly mean that it wouldn't actually get closed. It still might not happen; I haven't seen the list of line-item vetoes in the budget that Patrick signed this afternoon.

Wednesday, June 24, 2009

Budget basics, Part 3 : Baumol's Cost Disease

My friendly neighborhood economist (and fellow town meeting member) thinks my skepticism on "Level Services" budgets is unwarranted, and that using inflation-adjusted per-capita spending as a metric isn't fair.

Here's the rationale: Government suffers from "Baumol's Cost Disease" -- it has to pay ever-higher employee salaries to compete with private industry. Private industry pays higher salaries (relative to the overall cost of stuff) because innovations (especially in manufacturing) make their employees more productive.

The government, and other service industries (Baumol's original 1967 study was of orchestras), can't use technology to be more productive, so the costs of government rise faster than inflation over time.

I'm biased; I'm a high-tech software entrepreneur. It's hard for me to put aside my belief that competition and technology inevitably leads to higher productivity and lower costs.

And not all economists agree that Baumol's Cost Disease is at the heart of increased government spending:
The bottom line is that governments have grown in recent decades, that they did not do so earlier, and that economists do not really know why. -- Gordon Tullock
Then there's this widely cited 2002 research paper:
We find that labor productivity in services industries has grown as fast recently as it has in the rest of the economy, and that the major contributor was an unprecedented acceleration in multifactor productivity. Baumol’s Disease has been cured. -- Jack E. Triplett and Barry P. Bosworth
That paper notes that our biggest local expense, "education", bucks the overall trend (productivity for the education sector declined from 1995-2000).

So I'm not sure what to think. Did the information technology revolution leave teachers behind because that's just the nature of teaching? Or did lack of competition in the education market make them less innovative than (for example) lawyers? Did college education productivity (where there are lots of private schools) fall as much as primary education productivity (where the government has a near monopoly)? Do countries with a more competitive education market (like Sweden or Chile) also suffer from declining productivity over time?

And does any of this really matter for Amherst? We're stuck with the system we've got, and we compete for teachers (and firefighters and building inspectors...) with the rest of the towns and cities in New England. Maybe in a perfect world government spending wouldn't rise any faster than inflation. But we don't live in a perfect world.

Thursday, June 18, 2009

The Spaghetti Didn't Stick

Town Meeting last night was really painful.

We talked about potholes for a while. Whaddya know-- turns out people don't like them, but there's not enough money to fix them properly.

And then we talked about Pools. And recreation for poor kids. And how the Town should give money to private charities because that's just WHO WE ARE.

We saw barely-controlled outrage that closing War Memorial pool is basically a done-deal-- even if Town Meeting voted to keep it open, it's too late to repair it, hire lifeguards, and get it open for the summer. Fair enough, except that the outrage was directed at the Finance Committee, who were asked to do the impossible this year-- they had to come up with a budget when we have, even now, only a vague idea of how much funding we'll get from the State.

And then we got five different proposals to increase the Community Services budget from the Finance Committee / Select board recommendation (+$8,000, +$10,000, +$24,000, +$80,000, and +$175,000) and one to cut it in half. Talk about throwing spaghetti against the wall and hoping some of it sticks!

I don't know if all of the motions to increase were some kind of coordinated strategy or not. If it was a coordinated strategy, it didn't work-- Town Meeting (and I) voted 'No' to all the proposed increases and passed the FC/SB recommendation.

Coordinated or not, the end result was a lot of tired and grumpy Town Meeting members.

Some friendly advice to the well-intentioned people who spoke so passionately last night: spend your political capital more carefully next time.

Monday, June 15, 2009

Budget basics, Part 2

Tonight is the start of Town Meeting Budget Bash, 2009 Edition. To prepare I've been looking at inflation-adjusted per-capita spending over the last five years (I haven't had time to go to the Jones library or Town Hall and dig out old financial statements).

Results are over there in the spreadsheet on the right. According to the audited year-end financial statements and the Census bureau's population estimates, between 2004 and 2008 the Town has increased real spending per resident about $200$130. Spending has gone up a little bit every year, even as the population in Amherst creeps down a little faster than the population is increasing (we'll find out next year how accurate the Census Bureau's estimates are; the population decline doesn't affect the bottom line very much).

High on my TODO list: get budget numbers going back before Prop 2 1/2 was passed, and figure out how this year's proposed budget fits in; are we looking at cutting services back to a 2004 level or a 1984 level? And where is that extra $130 per person per year going-- salaries? Health insurance? More services? Pensions?
UPDATED 16 June: A few months ago the UMass Donahue Institute convinced the census bureau that they were underestimating Amherst's population.

Friday, June 12, 2009

Budget Basics, Part 1

On Monday Town Meeting will start talking about the budget. It's going to be ugly; everybody's pet Town program will be getting less money than last year. I just hope we don't get buried in a flurry of amendments from people trying to give their favorite program a little extra. We'll have at least two-- the Library folks are asking for a little more, and there's a petition article asking that we restore $66,000 in funding to private charities.

If the past is any guide, I expect to see lots of "spaghetti-against-the-wall" logic in the next week or two-- people giving lots of plausible-sounding reasons on why THIS part of the budget deserves more money than proposed by the Finance Committee, and hoping that one of their arguments sticks. Does anybody listen to that type of logorrhea* and think "Hmmm, four of their six arguments sound like BS, but the other two are pretty plausible, so I'm convinced!"

There'll also be all sort of comparisons of proposed budgets to "level services" budgets. I'm skeptical of "level services" budgets; why does it always seem to cost more to provide "level services" than inflation? (most likely suspect: because health care spending here in Massachusetts is rising faster than in the rest of the country, even since passing health care reform)

Shouldn't our local government be getting more efficient at providing services over time, as better technology becomes available and they get more experience?

My favorite measure for looking at budgets is inflation-adjusted per-capita spending. Inflation-adjusted because dollars become cheaper over time; a dollar bought more stuff in 1970 than in 2009. Per-capita because if there are more people to serve then you obviously need more money.

There's a nice graph of inflation-adjusted per-capita Federal spending here. I'll see if I can dig up the numbers for Amherst over the last (say) 25 years and make a similar chart...

* We just watched the movie Akeelah and the Bee. GREAT family movie, highly recommended!