Approval for California Legislators Barely Detectable

During rocky economic times, it’s expected that people will not look kindly on their federal elected officials.

And right now, President Bush earns very low approval ratings in the polls, with the Democratic-led Congress doing even worse.

But there’s a place where state lawmakers manage to garner even more atrocious assessments from the voters. That place is California.

The Golden State is in the midst of a fiscal mess, with a standoff over the state’s budget now reaching 74 days, according to a story from the Sacramento Bee.

The Bee’s report highlighted just how low legislators’ approval ratings have sunk:

California lawmakers keep breaking records. Earlier this month, the Legislature surpassed the mark for state budget futility. Now Californians have given their legislators the worst rating in recorded state history. A Field Poll released Thursday showed only 15 percent of registered voters give the 120 lawmakers passing marks, while 73 percent disapprove of their job performance. "This is the lowest job (approval) rating recorded for anybody from any institution," said Mark DiCamillo, director of the 62-year-old Field Poll. "No one has ever gotten this low. Even Richard Nixon."

Wow.

Imagine what lawmakers’ approval ratings would look like if they reined in bloated government spending, and kept taxes low. Just a thought.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

An Ugly Reminder on Federal Spending

The current fiscal year comes to a close at the end of this month. The Congressional Budget Office’s latest “Monthly Budget Review” was published on September 5. It provides the budget basics through the first 11 months of FY2008.

What does it tell us about federal government expenditures? Basically, the spending juggernaut relentlessly marches on.

Specifically, when adjusted for weekdays and holidays, federal outlays were up by 8 percent compared to the same period last year. And spending was up in all major categories: Defense/military by 10.9 percent; Social Security benefits by 5.5 percent; Medicare by 4.7 percent; Medicaid by 4.8 percent; net interest on debt by 3.4 percent; and other programs and activities by 11.4 percent.

When will someone slay the federal spending monster that sucks so many resources away from the private sector?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Businesses on the Economy, Politics and Policy

On August 28, the latest Discover Small Business Watch survey results were released.

On the economy, small business owners’ views improved a bit on the economy, but were still pretty darn grim. For example, while 60 percent said they thought the economy was getting worse, that compared to 71 percent the previous month. In addition, 51 percent ranked the economy as poor, which was down from 54 percent in July.

Another important question for the economy is whether small businesses will “increase or decrease spending on business development activities such as advertising, inventories, and capital expenditures” over the coming six months? The response: 40% said decrease, 28% increase, 26% no change, with 6% not sure.

Overall, not exactly a rosy picture.

The August survey also dealt with small business owners’ takes on politics and policy. Consider the following:

• 43 percent cited the economy as the most important issue, with national security running a very distant second at 11 percent. That’s not surprising.

• “Only about one quarter of all small business owners have donated time or money to a candidate this year. And 75 percent said they would never consider running for office.” That’s disappointing. We could use more business owners, and fewer lawyers and lifetime politicians serving in elected office.

• “Fifty-three percent of small business owners do not believe the 2008 election has provided a forum for small business owners to be heard by the candidates while 33 percent said they weren’t sure. Only 14 percent believe small business issues are being heard on the campaign trail.” Even though politicians usually say nice things about small business, most small business owners apparently are not too pleased with how small business issues are addressed on the campaign trail. Given the vast number of small business owners and their importance to the economy, this is an obvious and important opportunity for those seeking office.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Energy Subsidies

The Energy Information Administration (EIA) released its latest “Energy in Brief” report on September 8 titled “How much does the Federal Government spend on energy-specific subsidies and support?”

A few points from this analysis are well worth highlighting:

• The Federal Government spent an estimated $16.6 billion in energy-specific subsidies and support programs in Fiscal Year (FY) 2007. Energy-specific subsidies have more than doubled since FY 1999.

• In FY 2007, most primary energy production received some type of energy-specific subsidy, as did conservation- and efficiency-related activities. Subsidies to renewable energy resources have been growing most rapidly. In FY 1999, renewable energy received $1.4 billion in subsidies. By FY 2007, subsidies to renewable energy of all forms grew to $4.9 billion.

• There are several alternative ways to compare subsidies across fuels. In FY 2007, wind power received subsidies and support valued at $23.37 per megawatthour (MWh). Refined coal and solar had even higher subsidies per MWh produced. The estimated subsidies for traditional primary energy sources used for electricity production were significant in total dollars. It is estimated that coal received $854 million, nuclear received $1,267 million, and natural gas and petroleum liquids received $227 million. However, these traditional forms of generation produce most of the Nation’s electricity, resulting in subsidies and support per unit of production of between $0.25 and $1.69 per megawatthour.

The analysis provides the following details on subsidies per unit of production:

Subsidies/Support in Dollars Per Megawatthour by Energy Source

Natural Gas and Petroleum Liquids at 0.25

Coal at 0.44

Hydroelectric at 0.67

Biomass at 0.89

Geothermal at 0.92

Nuclear at 1.59

Wind at 23.37

Solar at 24.34

Refined Coal* at 29.81

*chemically enhanced to reduce certain emissions



Hey, here’s a crazy thought: Why not stop all of the subsidies that hit the taxpayers, distort the market, and therefore, restrain the economy’s overall potential? If we just let the market work and send its signals through prices and profits, then entrepreneurs, businesses and investors will boost supply and innovate, and consumers will conserve accordingly.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Stadium Business

Two things irritated me about the Indianapolis Colts during the season premiere of NBC’s Sunday Night Football on September 7.

First, since I’m a Minnesota Vikings fan, the Colts managed to lose to our division rival the Chicago Bears by a score of 29-13. Thanks a lot Peyton Manning and Company.

Second, there’s the matter of the Colts new home. The Bears-Colts game marked the official opening of Lucas Oil Stadium. From what I could see on television and in a variety of online photos, it looks like a wonderful facility.

That is, except for the fact that the taxpayers were sacked to build it. That irritates me as an economist.

Teams, government officials, and even many in the business community like to proclaim that new stadiums boost regional economies in order to justify all kinds of taxpayer handouts for such projects. That’s been no different with the Colts new venue.

For example, an article on the Website of WISH-TV opened: “Taxpayers are footing most of the bill for the new stadium, but city and state leaders promise financial blessings will rain down on expectant Hoosiers.” The piece went on to quote various people making all kinds of promises about how the stadium will be an economic plus, including, of course, citing the obligatory study from a hired-gun firm supposedly showing these benefits.

In reality, though, every legitimate, independent study of stadium economics makes clear that these facilities have no effect on jobs, income and growth in local economies. Indeed, some analyses point to a negative impact.

An August 9 article in the Indianapolis Business Journal serves up some of the typical assertions justifying subsidies for new stadiums, but also raises points about this $720 million stadium that should raise questions about sports subsidies in general, including:

• [T]he hard work is only beginning for the city’s Capital Improvement Board, the entity charged with operating the stadium.

The fumbling point: CIB is anticipating a $20 million operating deficit for Lucas Oil Stadium in 2009. Anticipated expenses are $27.7 million—far outstripping the $7.7 million CIB expects to collect from its share of revenue from stadium events.

• Attracting events beyond Indianapolis Colts games to the stadium is crucial because the team gets all revenue derived from its games. CIB and the Colts each get about half of revenue from other events.

• For 2008, the board has an overall budget of $108 million, with $34 million earmarked for debt payments on construction of Conseco Fieldhouse, the RCA Dome and an earlier convention center expansion.

About $60 million of the board’s revenue comes from taxes, including portions of local hotel, car rental, cigarette, and food and beverage taxes.

Grand said he didn’t think the board would need to tap taxpayers for any additional money to cover operating expenses “at this point,” adding that the CIB traditionally has operated “pretty efficiently.”

• CIB isn’t on the hook for the largest expense—the bonds issued to pay for construction.

Under a deal brokered with Gov. Mitch Daniels in 2005, that responsibility fell to the state. The Indiana Finance Authority is handling the bond issues, and the newly created Indiana Stadium and Convention Building Authority is overseeing construction. The state also took responsibility for making the $40 million payment the Colts received for terminating their RCA Dome lease.

The final tab for the project is expected to be $720 million—that’s $5 million more than the initial $625 million budget and its $90 million contingency fund.

• To cover stadium construction, the Indiana Finance Authority sold $666 million in bonds, and it soon will sell bonds to cover the convention center project. Bonds will be repaid from a bevy of new taxes, including increases to the Marion County hotel, car rental and admission taxes, and a regional tax on food and beverage sales.

As is clear form these points, the Colts got a sweetheart deal, and the taxpayers got stuck with the tab, including hotel, rental car and food and beverage businesses. And both businesses and individuals will not reap any great rewards in terms of the economy.

Is there economic value in new stadiums? Sure. But it must be left up to the private sector to decide what that value is. So, just like other businesses, let the team owners finance and build their own sports facilities.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council