Homeowners who undertake construction or improvement projects on their property have noticed the proliferation of municipal regulations forbidding the removal of dirt from the property without a permit. That is, you must pay the town for the privilege of throwing away dirt–if the town engineer lets you, that is. Some towns have even formed official Soil Boards (I wish I were making that up) to oversee this process, because once you begin wasting taxpayer money as if it were, well, dirt, it can apparently become quite addictive.
When I was a reporter in New Jersey, residents of one of the towns in my coverage area began discovering this soil scheme, and at the same time the town announced it was cutting back on garbage pickup due to budget constraints. Residents quickly figured out the scam: they were not only having to do work that the township was supposed to do, but the residents were actually paying the township in order to do so. The decrease in garbage pickup wouldn’t have been so terrible but for another brilliant town rule: as in many municipalities, residents could only deposit their garbage in township-provided trash cans, and the town refused to provide additional trash cans to make up for the extra days between pickups. The government’s policies ensured that much of the town was covered by rotting garbage or unwanted dirt.
This a fairly common example of what happens when local governments overspend in times of plenty and find themselves cash-strapped after the boom. You can only raise property taxes so high–though New Jersey is perpetually testing that hypothesis. The Tax Foundation reports that “Coming in with the highest per capita collection rate is New Jersey.” But the point is that even as property and other taxes go up, the government’s balance sheet affects more than just taxes. Elected officials’ inability to budget responsibly results in numerous erosions of the quality of life of everyone except the government’s favored interest groups, to whom it has given all the money it was supposed to save or spend on you.
In addition to the Tax Foundation’s findings, the story of big government’s failures was brought to mind by the Manhattan Institute’s Steven Malanga, who has a column today about the growth in unfunded state pension liabilities and what that is doing to the business climate–and thus the future job market–in some states. Malanga notes that courts have often sided with government employees who argue that the generous benefits formula put in place during a far different economic climate and for different workers cannot be undone, amended, or disturbed even for current and future workers.
“That’s a prescription for higher taxes, fewer services and eventual insolvency,” Malanga writes. He continues:
Large businesses that operate in multiple locations see this playing out as a new aggressiveness on the part of states. Every few years Chief Financial Officer magazine asks executives at large companies to rate the states in terms of how aggressively they pursue higher tax collections. In the last study, completed in 2011, executives told the magazine that, as one finance exec wrote: “The states are in a pure money-grab mode and don’t care about policy, the law, or fairness.” Not surprisingly, four of the five worst-rated states in that study-California, New York, Illinois and New Jersey-all have mountains of debt of one form or another.
Some state governments have switched from merely trying to collect taxes on in-state business to extending their tax arm as far as possible. That means firms with a single telecommuter in a state are being dunned for corporate income tax claims, as are firms with no physical presence in a state other than a website hosted on local server.
“We are seriously going to consider whether we allow employees to travel to or participate in events” in New York, one CEO recently told Chief Executive magazine. New York has the second highest per capita debt load among the states, according to a report by its comptroller, as well as one of the highest tax burdens in the nation. So it’s not surprising that the CEO explained his strategy by noting, “We can’t afford for NY to become a tax nexus for us just because our employees participate in a conference in NY or the like.”
Indebted states must eventually become money-grabbing states, if they aren’t already. Businesses that haven’t learned that lesson yet will learn it the hard way.
Malanga’s column explains that businesses are starting to understand all that goes into their decisions on where to locate their headquarters–and even, as the above quote demonstrates, which cities and states their employees travel to on business. The states dominated by big government liberalism run amok will be highly attractive to public sector workers but few others.
And that, in turn, risks perpetuating this vicious cycle by damaging the economy that would otherwise feed the government beast. The remaining taxpayers will see their taxes go up. These days that will be accompanied by cutting essential services because the contracts and pension plans can’t be touched (much like the similar predicament I’ve discussed in which New Jersey’s public school students lost out on computers, tutoring, newer books, and sports programs because the teachers union contracts couldn’t be adjusted to meet costs).
It also, once again, proves the importance of responsible budgeting in all economic climates and the foolishness of putting off possible reforms until it’s too late. The rise of conservative governors even in blue states is perhaps a hopeful sign that message is getting through.