Tom Sgouros: Short Takes

Tom Sgouros: Short Takes

There's always an excuse

I see that the new and amended pension reform bill not only doesn't do anything to help the municipalities with their own pension issues, but it cut what little there was out of the original bill. To be honest, that part of the original bill wasn't really that helpful, so it's likely a net win for the municipalities, but why exactly is there a problem in the first place?

There are two reasons. One, the one you hear about all the time, is that the benefits are generous. There is some truth to this. There are COLAs in some of those agreements that offer 6% raises each year. Though 6% was a pretty good guess for inflation 20 years ago, it hasn't been a good guess for a long time, and is a real source of trouble for those plans and someone who retired with a 6% COLA has been doing quite well in a world of under 3% inflation. But the other, and in my opinion far larger, reason for the poor health of these plans is the poor fiscal health of the cities who sponsor them. And the reason for that poor fiscal health is that our increasingly suburban state simply doesn't support our cities.

I've written this many times in the past, but the heavy reliance on local property taxes to fund local services leaves a city at the mercy of the movement of its people. Providence has as many firefighters today as it had sixty years ago not because of the strength of its unions, but because there are just as many buildings to protect today as there were then, and just as much territory to cover. But there are only 160,000 people to share that expense, not 240,000, as there were in 1950. In recent decades, Providence has faced little from the state except declining state aid, and has seen cuts in virtually all the categories of aid, except for those categories the city doesn't actually get, like the now-defunct car tax reimbursement. But even that is gone today.

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I know what you're thinking, and Maureen Moakley said it for you on Lively Experiment this week, when she asked me how I could hope the state would give more money to cities and towns when they have these 6% COLAs in their labor agreements. My answer (not delivered particularly well on the show, I'm afraid): there will always be a reason for the state to deny aid to its cities -- if it wants to. If a magic wand could be waved to make those 6% COLAs go away, the current leadership of the General Assembly would suddenly discover more corruption in some public works departments and that would be a reason to deny aid. If corruption was finally stamped out, then they'd say we'll help you only when you get rid of the backlog of maintenance you've let fester.

The state is hardly blameless in the waste department. I'll never condone waste, but even the most effective administration will always have some. What I want to see is energetic and honest efforts to root it out. Demands that waste be eliminated before any other help is forthcoming are simply excuses for not helping.

Is Central Falls Greece?

There are few bright notes in the news from Europe this past week, but there is a dark pleasure in the advent of Italy's debt woes. That is, it's easy to scold Greeks for being spendthrifts and running their economy badly, and that's enough for some. But the root of Greece's problem is to be part of a monetary union where the big guys feel no responsibility for the little ones. Their own mismanagement made a bad situation worse, but the bad situation wasn't of their making.

You see, part of the point of monetary union was to give the big export economies like Germany and the Netherlands, privileged access to the southern markets. With a single currency and single market, German imports had an advantage over goods from America or Asia in the markets in Greece. In a sense, they weren't even imports any more. German and French banks also got access to high-interest investments at low cost, since they didn't have to exchange currencies to invest in Greek banks.

Now that Greece is in trouble, the Germans and French insist that all the pain of adjustment be borne entirely by the Greeks (and Spaniards, Portuguese, and Irish, each of whose countries have also shown the same weaknesses). To prevent inflation in Germany, the European Central Bank is insisting that deflation happen in Greece. This is untenable, and the financial failure of one of those countries will have enormous repurcussions to the whole European project. In fact, after watching the past week's panic over Italian bonds, it's not even clear that it's possible to prevent disaster any more.

(And just as an aside, the funniest commentary on the European woes is the line that it's all the fault of the "European welfare state" policies. There are lots of these -- here's one from the Heritage Foundation. If anything, the crisis shows the opposite, since the healthy countries -- Germany, Sweden, France, the Netherlands -- are exactly the ones with the most generous social policies.)

Though Germany was willing to profit by the inclusion of Greece in the union, it showed itself to be completely unwilling to consider any sacrifice at all to keep that nation solvent. It's as if commuters who live in East Greenwich and Lincoln showed no interest in the fiscal health of Rhode Island's cities. Oh, wait.

Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected].
 

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