Wednesday, October 15, 2008

The local impact of presidential politics

The Next President and You

Predicting each candidate’s impact on your money, your health, and your security

Here on America’s North Coast, we are so very, very far from Washington that electing a president may seem to be an abstract exercise, a chance to express ourselves emotionally, rather than a practical choice with practical consequences.

Barack Obama

Make no mistake. Your vote will make a difference right here at home.

A Barack Obama victory would mean strong one-party rule for at least the next two years. A cooperative working relationship between the Obama White House and the Reid-Pelosi Congress could achieve

• possible local property tax stability (probably not relief) if a very sharp shift in healthcare financing succeeds in extending coverage while also bringing US healthcare expenditures more in line with those of other industrialized countries. Obama’s federal policy mix could also include an increase in the federal matching share for Medicaid for New York, which means that Washington would pick up more of the cost now covered by taxes paid to the State of New York and county governments, to bring it into line with the ratio Washington pays in other states;

• more construction jobs because of a federal commitment to infrastructure funding, through the establishment of an infrastructure bank, which would get to work on big projects like the long-overdue regional sewerage-management problem that nobody talks about any more, but that the Environmental Protection Agency estimates will need $300 billion nationally over the next 20 years. At least $100 million will be needed locally to deal with sewers that are in some cases more than 100 years old;

• more road money to older suburban roads through a federal policy change (which will take a few years to actually implement) that will favor densely-populated areas before new money is made available for roads that serve fewer people, so that old suburbs and cities get help before sprawled-out suburbs;

• a potential rebound in manufacturing after a review and possibly renegotiation of some of the trade treaties (probably not NAFTA, but World Trade Organization agreements) that many see as having injured the manufacturing economy of our region;

• more local National Guard volunteers remaining Stateside for the public service they signed up to do, rather than shifting overseas, but only if there is a successful draw-down of forces in Iraq, and deployment of regular forces (i.e., not reservists) to Afghanistan, which are Obama’s stated goals.

The consequences of a John McCain victory for this region would certainly reflect a fundamental division between Congress and the executive branch of the federal government. McCain employs “red budget” ideologues who are serious about reducing the federal safety net, starting with the biggest Great Society programs. The consequences of McCain’s first budget for 2009-2010 would include:

• higher state taxes and higher local property taxes, as McCain intends to radically reduce the federal commitment to Medicaid and Medicare. Practically speaking, this means that Washington would off-load the cost of mandated programs to state capitols, which will continue to do what state capitols always do: protect Medicaid recipients (who are mainly the high-needs elderly), protect healthcare workers, and protect long-term care providers. States like New York also have a long-standing practice of off-loading costs to local government, which fund mandated services with property taxes. This will set up a political dynamic that will favor local Republicans, as local property taxes rise to meet the cost of mandated health services to seniors, who are becoming a larger share of the regional population (not only in Buffalo but everywhere where it snows) but who are politically receptive to the anti-tax message;

• no new construction jobs because of no increased federal commitment to infrastructure funding, as McCain has explicitly and relentlessly criticized federal spending as undesirable. McCain has been particularly hostile to any funding for Amtrak and for light-rail projects;

• no federal policy shift on funding roads, meaning that while there may be some continuity in the Bush administration’s exploration of various congestion-relief strategies in major markets (especially Southern California, Washington, and some other big metros), there would be no change in the highway-funding regime in force today;

• no rebound in manufacturing, because there is no reason to expect any change in US trade agreements;

• the same or increased levels of reliance upon reservists for continued deployments in Iraq and Afghanistan, plus a renewed requirement for forces should McCain’s policy toward Iran grow require personnel.

What presidents really get to do

John McCain

Remember when Bill Clinton beat George Herbert Walker Bush?

Folks today remember voting for Clinton and getting a great economy for several years. For those areas of the country like Buffalo and Upstate New York that missed out on the great American economic expansion of the Clinton years, but who have seen the trouble of the Bush years, the 2008 election is more than eerily reminiscent of the 1992 election. It’s like a replay.

But the trouble for Obama is that there is a big difference between the George Herbert Walker Bush recession of 1992 and the George W. Bush recession and credit crisis of 2008.

In 1992, Bill Clinton won decisively with a focus on domestic programs, especially his pledge to restore progressivity in the federal tax code, which meant ending the favorable treatment of unearned income like capital gains and dividends and raising the marginal tax rate for those with incomes over $250,000. The Clinton plan also included expanding access to health insurance with a top-to-bottom reform, investing in infrastructure and in education, science, and technology, while also taking on the culture of Washington insiders and lobbyists.

Obama reprises the Clinton program, but goes it a couple better. Snow-state Senator Obama recognizes that the Great Lakes cities have been shrinking and their metropolitan regions have been failing to thrive. His urban policy position paper, in contrast to Senator McCain’s, actually exists. (Go see it on his Web site; McCain has a Web site but no urban policy.) Obama has pledged to create a new cabinet-level office of urban affairs—in recognition of the ongoing relevance of cities, but also of the observed fact that dysfunction in cities is a drag on regional economies.

But Clinton’s experience should be a warning.

Bill Clinton inherited a $400 billion deficit in a declining economy soon after a war in the Mideast. Obama, should he win, will inherit a $1 trillion deficit in a deeply disturbed global economy, and take the helm of a nation engaged in two wars.

Unless something changes in the next few weeks, the most powerful person in economic policy will not be the new president or his secretary of the treasury, but rather the group bankers that includes the chairman of the Federal Reserve, Ben Bernanke.

Bill Clinton had to wait a couple of budget cycles to get his program going—but first, he had to meet the needs of the debt markets by raising income taxes (in his first budget in 1993-94) in order to tame the deficit monster. The result was a political nightmare. Republicans successfully labeled his “the largest tax increase in American history,” and overnight, Clinton no longer enjoyed a unified Democratic Congress. The Republican Congressional triumph of 1994 was attributed to effective Republican advertising (the “morphing” ads) in a campaign led by retiring Congressman Tom Reynolds; some of us recall that Democrats went into a crouch rather than defend the deficit-killing tax increases.

The lesson: The credit markets are more powerful than the leader of the free world. And when the leader of the free world acts responsibly to save the free world, there is a heavy political price to pay.

McCain and his campaign team do not like the 1992 analogy. They prefer 1980, when Ronald Reagan defeated a Democrat in an economic downturn. Reagan won on a program of less government, tax cuts and an appeal to national security. (Credible historians and former operatives also suggest that Reagan’s candidacy benefited from an intentionally prolonged Iran hostage crisis.)

But to get right back to the practicalities of budgets and governing, a McCain victory, like Reagan’s win in 1980, would leave a politically isolated Republican with two overwhelmingly Democratic chambers of Congress.

That means that McCain’s budget will reflect his radical antipathy to Medicaid, Medicare, and other programs that cover every American who is eligible by virtue of age, income, or disability—and it is reasonable to expect that McCain and his advisors will cite the current economic crisis as the rationale for this fundamental change away from the decades-old policy of income and healthcare support for the elderly.

The predictable response in the snowy states would be to fill the gap that Washington made, and to do so with increased local taxes—which would result in very much greater polarization of rich from poor, black from white, and even old from young.

Thus McCain plus a Democratic Congress would means more of what we’ve been seeing for some time now—except more so. The new politics of rich and poor could become a whole lot uglier, but that’s the subject of another essay.

The other players

As powerful as presidents are, automobile company executives also exert a lot of power over our region, too—despite the shuttering of American Axle, Delphi, and many other parts suppliers in the past few years.

The governor of New York State—especially because of a lawsuit that former Governor George Pataki won against legislative leaders a few years ago—has a lot more power over his state’s budget priorities than the president has over the federal budget.

Right now, in October 2008, we are one month away from an Albany showdown between legislative leaders accustomed to power and a governor who has to reduce spending by billions of dollars to close a growing budget gap.

Contractual obligations of the state government will have to be met. But the State University of New York at Buffalo has been told to expect a 10 percent cut, or $20 million, in its next budget. Buffalo State College has been told to expect a multi-million-dollar cut as well. The impact on the local economy of reduced expenditure by SUNY will be quite negative, because SUNY is such a large employer and a large purchaser of local services and of goods from local suppliers.

County governments—which operate largely as branch offices of state government, with very little independent budget flexibility—will be commanded by Albany to raise funds to cover non-Medicaid mandated expenses. Former county executives Joel Giambra of Erie County and Tom Suozzi of Nassau County were successful in negotiating the three percent cap on annual Medicaid increases, but they were not successful in getting Albany’s commitment to cap other mandates…and that’s where the Albany hammer will fall.

Meanwhile, the leaders of General Motors Corporation, Ford Motor Corporation, and the entity that owns Chrysler were successful two weeks ago in obtaining $25 billion in federal loan guarantees so that they can re-tool their plants in New York, Ohio, Michigan, and other snowy places in order to make energy-efficient cars. (Honda and Toyota, which like the Big Three have seen sales plummet between 20 percent and 35 percent as the recession settles in upon us, have somehow managed to make their own hybrids and electrics market-ready without access to such aid.)

That credit lifeline is meaningful here. There are still about 10,000 workers in the Buffalo-Niagara Falls area (out of the region’s workforce of 580,000 or so) who rely on Ford and General Motors, directly or indirectly, for a paycheck. We should all hope that the executives in Detroit make good decisions—and that those decisions include making fuel-efficient vehicles or vehicle-parts here.

But the credit crisis, and especially the loss of over 100,000 jobs on Wall Street since 2007, means very tough budget times for New York State—and that puts public employees at risk now, too. About 16 percent of the regional workforce consists of teachers, professors, troopers and cops, firemen, health workers, parks and road and sewer and water workers, all of whose salaries and benefits are an important part of the regional economy.

Central bankers, exchange rates, and Wall Street are all like presidents, and together they are more powerful than presidents. And neither of the two candidates for president will ever be able to exercise king-like power to turn words into policies. Anyway, presidential policy-making in itself does not the world command.

But the power of the presidency is still very, very great.

Long-term trends like the polarization of income and wealth, the abandonment of snowy central cities, and suburban sprawl, and problems like over-spending on healthcare despite indifferent outcomes, and under-investment in keeping water clean despite measured outcomes, won’t be solved in the first term of either Barack Obama or John McCain.

The difference is, these issues might possibly see some change during the second term of President Barack Obama, but will never see any change at all in the first or second terms of President John McCain.

At least not here.

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