Category Archives: Economy

Meanwhile, in Washington…

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It’s easy to be totally focused on Gov. Scott Walker’s efforts to destroy unions along with most of what is good about Wisconsin.

But, hey, they’re trying to screw you in Washington, too.

The House and Senate this week agreed to a continuing resolution that will keep the government chugging along for a whopping two weeks. The fight ain’t over yet, though.

The House, keen to cut programs that benefit anyone making less than a zillion dollars a year, is pushing for a $61 billion cut in discretionary funding, according to The Economist.

According to The Center on Budget and Policy Priorities:

Some 157,000 at-risk children up to age 5 could lose education, health, nutrition, and other services under Head Start, while funds for Pell Grants that help students go to college would fall by nearly 25 percent, under a bill passed by the House that would cut current-year non-security discretionary funding by an average of 14.3 percent.  The bill (H.R.1), which would fund the government for the rest of fiscal year 2011, now must be considered by the Senate. 

H.R. 1 also would kill a program that helps low-income families weatherize their homes and permanently reduce their home energy bills, cut federal funds for employment and training services for jobless workers and for clean water and safe drinking water by more than half, and raise the risk that the WIC nutrition program may not be able to serve all eligible low-income women, infants, and children under age 5.  In addition, it would cut funds for the Centers for Disease Control and Prevention by 10 percent, for the Food and Drug Administration by 10 percent, and for the Food Safety and Inspection Service by 9 percent.

Wisconsin, according to CBPP, would stand to lose $30 million in education funding — in this fiscal year!

According to CBPP:

At the same time, H.R. 1 would increase overall funding for security programs (those funded by the Defense, Homeland Security, and Military Construction-Veterans Affairs appropriation bills) by a little less than 1 percent.

Also, the 14.3 percent figure is a bit deceiving.  To achieve that level of overall cuts for non-security programs for the entirety of 2011, funding for those programs will have to fall on average by nearly one-fourth over the seven remaining months of the fiscal year.  This could make it even harder for some agencies to maintain important activities than the 14.3 percent figure for all of 2011 suggests.

The House, by the way, would not fully share the sacrifice it would impose on others, as its own budget would decline by a mere 6%.

There is not many surprised on who voted how on this bill:

Yea    WI-1    Ryan, Paul [R]
Nay    WI-2    Baldwin, Tammy [D]
Nay    WI-3    Kind, Ronald [D]
Nay    WI-4    Moore, Gwen [D]
Yea    WI-5    Sensenbrenner, F. [R]
Yea    WI-6    Petri, Thomas [R]
Yea    WI-7    Duffy, Sean [R]
Yea    WI-8    Ribble, Reid [R]

There you have it. Something besides Scott Walker to think about.

Fixing the game for Mercury Marine

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Wisconsin Power & Light wants to give a $4.8 million discount on electric rates to Mercury Marine, which slashed wages and raised health care costs for workers a year ago.

If the Public Service Commission approves the request, it’s highly likely that some of the folks who payer higher electric rates so Mercury Marine does not have to will be the very folks who saw wages cut and health care costs increased by Mercury last year.

Is this country great or what?

Here’s the kicker. WP&L knew it wanted to give a discount to Mercury even before it finished designing the program that would allow it to do so. The Public Service Commission, in a remarkably bad decision, approved the program, excluding the public from full participation along the way.

Yes, a major utility made promises in private to a specific corporation, then designed a program to benefit that corporation and then went to compliant regulators to get the program approved.  which the regulators did, benefiting the corporation but stiff-arming other ratepayers. (I have no idea whether the PSC knew the program would benefit Mercury.)

Like I said, is this a great country or what?

WP&L didn’t mention Mercury Marine in its original, November 2009 application seeking approval for the program. The utility simply said that it wanted to offer lower rates to companies that, among other things, would leave the WP&L service territory if they didn’t get them.

In documents filed with the Public Service Commission this month, however, WP&L made it clear that it had Mercury Marine in mind before the program was even out of the planning womb.

06/03/09 – Alliant Energy (WP&L’s parent company) “proposal for assistance to Mercury Marine” sent to the Fond duLac County Economic Development Corporation

• 06/09/09 – State of Wisconsin initial economic incentives offer received, verbal reference by Governor Doyle of “Alliant Energy incentive for Growing Wisconsin”

• 06/11/09 – City / County of Fond du Lac, Wis., initial economic incentives offer received, written reference to Alliant Energy “proposal for assistance to Mercury Marine” targeted at $6.0 million over five years (The value now is estimated at $4.8 million over five years.)

• 06/15/09 – Phone call between Steve Cramer (CFO of Mercury Marine) and Bruce Kepner of Alliant Energy to better understand the “Growing Wisconsin” program

And then there is this:

When Mercury announced on Sept. 4, 2009, its decision to close its Stillwater, Okla., facility, it had written indications of commitment from the City of Fond du Lac, the County of Fond du Lac, the State of Wisconsin and Alliant Energy. In all cases, these written indications of commitment were subject to successfully negotiating contracts and receiving the necessary approvals (whether City Council, County Board, State Legislature or in the case of Alliant Energy – the PSC).

…In all cases, representations were made subject to final negotiations, and are subject to obtaining necessary approvals. In all cases, the actual program and incentives are very different today than what was envisioned in Q3, 2009. However, the total value committed to Mercury Marine in Q3, 2009, by the City, County and State of $123 million will be achieved at $122.7 million = 99.8%.

…Mercury relied on representations by the City, County and State. That reliance included a rate reduction in Mercury’s electric bill under the “Growing Wisconsin” program. Mercury was aware that the program was not yet fully developed, and that the program would require the approval of the Public Service Commission, just as the City incentives required approval of the City Council, the County incentives required the approval of the County Board, etc.

Mercury Marine was hit hard in the recession, as many companies and individuals were. Its fortunes likely will improve when the economy improves, with or without a utility rate break. Pushing Mercury Marine’s business costs on to other ratepayers, including other financially struggling companies, is almost beyond comprehension. Why not have Mercury Marine’s insurance premiums paid by employees of Briggs & Stratton? Why not make Kohl’s Corp. pay for Mercury’s equipment costs? By making the WP&L service area friendlier to Mercury, WP&L and the PSC is making the same area less friendly to every other business.

This isn’t simply a bad program; it’s a bad precedent that may well have companies all over the state racing for approvals to dump utility costs on to others before others dump utility costs on to them.

The Wisconsin Citizens Utility Board, which fights for reliable and affordable electricity and telephone service on behalf of Wisconsin customers, is suing to block the ill-considered WP&L program, and I am on the CUB Board. This post, though, was not vetted or approved by CUB and I’m not representing the organization here.

Wait — what?!? It’s OK to lie if you’re M7

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The bizarro writings of the JS’ John Schmid bless a local group’s just makin’ it up:

At its two Milwaukee factories, Super Steel LLC employs about 250 workers. But in a document to be released Thursday by the Milwaukee 7 economic-strategy consortium, Super Steel’s headcount inaccurately balloons to 500 – which amounts to a full 10% of the 5,000 jobs that the M-7 credits itself with helping to create or preserve.

The M-7 commemorates its first five years of operations with a civic gathering at We Energies’ downtown headquarters Thursday that will include top political and business leaders from the seven counties of metro Milwaukee. Emblazoned on each invitation is the group’s own tally of its success: “5 years, 5,000 Jobs, $300 million in Payroll = 1 Milestone Meeting.”

And even if those numbers are demonstrably inflated, the group’s leaders are in no mood to apologize for their arithmetic. Regardless of how many jobs the group has actually helped create or preserve, it can make one overriding claim: For the first time, someone is systematically trying to recruit investment and jobs into a region that many of its own residents often disparage as a Rust Belt town, a second sister to Chicago, an inhospitable tax hell.

“We’re the boots on the ground,” said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, one of the M-7′s primary organizers. “No one else is playing that role.”

In that context, the hyperbole in the job-creation document being released in conjunction with Thursday’s event is understandable.

The story goes on to report that M7 claims that it helped Super Steel retain 350 jobs. There are 250 jobs at the firm.

Yeah. Understandable.

Improvements to the mortgage relief plan

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President Obama is going to unveil a real mortgage relief plan, about three years after he should have.

It’s got some very good elements, but it is crying out for some income limits.

Here are the major elements of the plan, according to the Washington Post:

  • Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.
  • The government will provide financial incentives to lenders that cut the balance of a borrower’s mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.
  • The government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled home buyers to put little or no money down, and home equity lines of credit.
  • More incentives will be paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can’t qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.
  • The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.

All of those are much-needed measures, but should be limited. There is a fundamental difference between a family of four living on in a 1,500-square-foot house and a twosome living in a 3,500-square-foot monstrosity. Even if layoffs equalize the two households incomes, the former should simply be given more consideration. The couple in the bigger house has more options — like downsizing.

This proposed measure will provide a little relief, but probably less than will be hyped. A six-month mortgage grace period, in the form of lower payments, may really benefit those who can find a job within six months, but will only delay the inevitable for those who can’t and will cost taxpayers a tidy sum even for those not ultimately helped.

It also would be nice for the government to include a “stupid choices” factor that would disqualify homeowners who can’t make their mortgage payments because they made stupid choices — fancy car debt over a savings account, for example, or a $600,000 house on a $100,000 income.

It is, alas, unlikely that the federal government, which often moves with the grace of a large bulldozer, will make those fine distinctions. And this bailout will cause resentment, too.

CBO on Obama budget

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Those who say the deficit is nothing to worry about are probably wrong. Maybe we shouldn’t worry today about squashing it today, when we are trying to climb out of a huge recession, but we should worry today about squashing it someday.

The Congressional Budget Office just released its analysis of President Obama’s 2011 budget, and its not totally reassuring.

The deficit would be $1.5 trillion this year and $1.3 trillion next year. There is a bit of good news — if one defines that term very, very loosely — buried in there. The deficit would be 10.3 percent of gross domestic product this year, but then tumble to 8.9% next year. The 2009 deficit was 9.9% of GDP.

Here’s the really scary thing: government debt would increase from 53 percent of GDP last year to 90 percent of GDP in 2020. Interest payments would increase dramatically.

The president also piles up some BS about the costs of the wars in Iraq and Afghanistan, estimating them at $50 billion after next year. CBO instead keeps them at the current $130 billion.

The best news, though, is the president’s health care reform would reduce the deficit by $.2 trillion.

Let’s do it, for reasons related both to ethics and economics.