Friday, August 10, 2007

The Great Engine of Employment

On April 1, 2005 the Washington Post published an article about a Congressional investigation: “Cost of Cisneros Probe Nears $21 million Over 10 years.” Cisneros was President Clinton’s Secretary of Housing and Urban Development way back in 1995. Congress authorized an independent counsel investigation after allegations that Cisneros lied about payments to his mistress. After 4 years and $10.3 million dollars of investigation, Cisneros pleaded guilty. That was in 1999, but the investigation continued in order to investigate if anyone attempted to obstruct justice, the Washington Post reported. The continued probe added another $10.7 million to the expense, hence the caption “$21 million over 10 years”.

We could say America would be better off if the money used on the Cisneros investigation went into medical research, but that is different from saying government should reduce its total expenditures, or even that it wasted money. Either expenditure pumps $21 million into the economy and any cut in government spending whether it is for medical research or Cisneros probes will limit employment. Government is a major employer and even though the government has money to pursue what appears like a political vendetta, as in the Cisneros case, America needs government that is actively creating or inventing jobs.

Actually 22 million work as employees on government payrolls. There are 2.7 million in the federal government, 5.1 million in state government, nearly 14.2 million in local government including education and hospitals. Add another 1.4 million for the armed forces. Still it undercounts employment that is the result of government action because governments buy so much from businesses where employees are on private payrolls even though their jobs are really the result of government spending.

The decision to build roads and highways is the decision of a government. Builders and developers build a few roads in their new developments, but the roads that get people from here to there are planned and funded by a government. The actual building is typically contracted to private firms in the highway, street and bridge construction industry. The people who work in this industry are counted as part of employment in private business and not counted as government employees.

The terms government contractor, outsourcing and privatization all connote private businesses, but they are private businesses doing government funded and government sponsored work. Government employment added to government sponsored employment is more than a mere 22 million: much more.

The federal government will always be vitally important in job creation because it controls the money supply and can increase the country’s total spending as much as necessary to increase job growth. Local governments do the same thing on a smaller scale. At the school board meeting school crowding is a problem and everyone agrees Westside elementary school needs three new classrooms. Then someone stands up and says Westside is old and the roof is bad and the heating plant needs updating and it would be better to tear down the old school and have a whole new school, and the parking lot needs expansion too. Now we have a jobs policy. A new school packs a real punch of spending. Borrow the money, hire local contractors and nearly everyone will be happy.

In Arlington, VA the School Board and the County Board agreed to construct a new high school, which has a pre-construction price tag of $95 million. Arlington already has three high schools and a school population of 18,800 with 5,400 high school students split among three high schools. However, the new high school is not to be the 4th high school, nor is it due to growing enrollment in the public schools. Actually enrollment is declining slightly, down from over 19,000. Instead the plan is to tear down one of the existing high schools, Washington and Lee High School, and replace it with a better school.

The old school has modest fame as the high school of Warren Beatty and Sandra Bullock. Drawings and plans of the new school show an aesthetic design, which is pleasing to the eye. It will have a theatre, swimming pool, luxurious gym with ample seating. It will have a media center, computer labs, cafeteria and of course it will be fully wired with state of the art communications. The thing is though the old school has all of that already. The existing gym is so big it has balconies and seats several thousand in a full sized gymnasium. The old school is not run down, nor dilapidated, nor is the county building inspector worried about code violations. Going into the school or driving by it is easy to notice it is big and really amounts to a bunch of boxy brick additions; more or less one box built onto another. Without a doubt it is a very homely school and with a bad track pattern.

In Virginia the state legislature correctly and wisely requires all local governments to pass a bond referendum to finance their local projects. You might suppose there would be a tough sell to get majority approval for this new high school. If you had to organize a public relations campaign here what would you say? "Don't let our children attend a homely school." However, no campaign was necessary at all. True, a small band of brave and courageous souls stood up in the full light of day and objected to the excess. They could have accomplished more bailing out the Potomac River with a teacup. The School Board for its part remained calm and dignified in their silence. They all know the history. Arlington does not turn down bond referendums. Ever. Referendums for curbs, sidewalks, streets, parks, libraries and schools pass with 80 and 90 percent majorities. They knew perfectly well they could propose the Palace of Versailles and it would pass. In Arlington, people work hard, but they love their work. That is why they work like demons and spend like maniacs. Arlington sits right next to Washington, DC where thousands of professionals make their living at federal bureaucracies. People here know how to stay employed; they keep those dollars rolling.

The current expenditures of government add up to $4.098 trillion reported as seasonally adjusted at annual rates for 2006, or close to a third as large as Gross Domestic Product. It is a big enough share to think that government spending by all levels of government provides a mighty engine of employment. All this spending is supported by taxes and borrowing. Taxes reduce private spending and job creation, but governments are experts at spending all their revenue as fast as they can. They run deficits and make debt finance a way to pep up employment and put off higher taxes. The federal government can borrow but as mentioned above it controls the money supply so it can create money to cover its spending and put off collecting taxes. Local governments can use bond-funded projects to speed up and enlarge spending in the near term and let the growth in property values and higher property taxes pay for capital projects in the future.

To understand the importance of government in employment for America’s system of government remember the national government sits at the top of the federal system and has taxing authority over the entire country. Our elected Congress in Washington, DC has taxes collected for personal and corporate income, payroll, estates, gifts and excise taxes, and customs duties. The 50 states divide up the country and each of the state legislatures has sovereign authority to govern every square inch of their respective states.

If the state legislature of Virginia wanted to be in charge of trash pick up in Sharpsburg or Norfolk or anywhere else they have the full authority to do that. For practical reasons it is too much trouble for state legislatures to be managing local services. Instead the states are physically divided into counties, and then counties further subdivided into smaller jurisdictions. Some states divide their counties into townships, but all the states allow villages and towns to incorporate or establish a charter and set up separate city governments within their counties, or townships. The power to govern these sub state jurisdictions comes directly from the state legislature. In effect, the state legislatures of the 50 states delegate their sovereign authority to these sub units of government by having their legislative staff write carefully detailed laws that define the taxing and spending authority of counties, municipalities, townships, school districts and special districts. The state laws spell out the taxing and spending authority of all the local governments.

Ask almost anyone and they know there are fifty states. It would be hard to reside in the United States without knowing there are fifty states. Ask the same people how many counties there are in the United States and they are less likely to know there are 3,034 counties. Even fewer know there are 16,506 townships, especially since not all states have township government. I have to confess I did not know the count of townships until I looked it up.

I do know township government is completely and totally obsolete. Take Michigan where there are 83 counties and 1,242 townships. Back in the 1830’s when Michigan became a state there were no motorcars or telephones and people got around on dirt roads and horseback. It made sense to divide the counties into smaller spaces so that meetings could be held and services could be delivered to the people who could get to them. In today’s world the roads are paved and almost everyone has a car and a telephone so township government is a surplus layer of government in between counties and municipalities. An extra layer of bureaucracy creates more work and administrative costs and it would be more efficient to eliminate the extra layer of government and have the county or cities take care of these services.

Do not expect township government to be eliminated anytime soon, or ever. There are lots of people who will fight to their last breath of life in defense of township government. Inefficiency creates jobs and not just the 5 paid jobs as elected members of Michigan’s township boards. In Michigan, for example, many know that townships have borrowing, taxing and spending authority. The Michigan Public Improvements Act (MCLA 41.721-41.738) of 1954 gives fiscal authority to township boards, which includes constructing, improving or maintaining sewers, water systems, roads, elevated structures, bicycle paths, erosion control, lighting systems, and sidewalks plus acquiring, improving or maintaining public parks, planting and maintenance of trees, and eradication or control of aquatic weeds. I think they forgot flagpoles.

To fund these fine improvements township boards have the state’s blessing to provide for payment with the issuance of bonds or to defray all or part of the costs with special assessments along with a “pledge of full faith and credit of the township for the prompt payment of the principal of and interest on the bonds authorized herein, as the same shall become due,” in which event, “the township may levy a tax on all taxable property in the township for the payment of principal and interest on the bonds without limitation as to rate or amount and in addition to all other taxes which the township may be authorized to levy.” It is my thought that attorneys familiar with America’s township government drafted many condominium declarations and by-laws.

Townships only scratch the surface of America’s government units. In addition, there are 19,431 municipal governments, which are generally incorporated places with taxing and spending powers defined similarly, although not identically, among the states. What municipal governments have in common is incorporation, which defines separate governmental powers.

Next there are 13,522 independent school districts. The independence of independent school districts means separate from a department or agency of another level of government. Finally, we have 35,356 special district governmental units. Special district governments exist as separate government units but most state legislatures limit their authority to a small list of projects, but with independent fiscal authority. Often their geographical jurisdiction overlaps county, township, and city governments in various combinations.

In Michigan the County Department and Board of Public Works Act(MCLA 123.731-123.786) provides independent fiscal authority for a separate county board of public works to acquire and administer water systems, sewage disposal, refuse collection, lake improvements and erosion control. As a special use district the county board of public works has officials appointed by the county board and with fiscal authority almost identical with township government including a pledge of full faith and credit to pay any and all expenditures incurred under the act.

To be counted by the Bureau of Census in its Census of Government, government units must be organized subject to public accountability with elected members, or with officials appointed by elected members to administer a separate administrative structure. Total all the government units from the Census of Governments and the sum reaches 87,900. These are 87,900 independent modules of taxation and spending; independent modules so important to assure government as America’s great engine of employment.

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