Sequestration

The one very minor positive for me in the current economic cliffhanger is that my vocabulary has expanded to include sequestration and I even find myself unfortunately using this word on a regular basis. In the next few weeks, I may even get to the point of asking friends and acquaintances how they are and how they will be after sequestration. The reality is I would be happier if I never needed to use this word again. More importantly, as I have indicated in previous blogs, failure of the democrats and republicans to agree on budget cuts would be extremely harmful for the economy. And especially since the signs of recovery are stronger, the downside of aborting that recovery and having a mandated sequestration becomes more devastating. Just so we are all on the same page, by sequestration I am referring to mandated, virtually across the board, reductions in most federal expenditures. Rather than making the decision in terms of priorities, these are autopilot decisions.

The mandated cuts in education, where we know upfront that education is an investment in our future, are particularly harmful. Between cuts in the work study program and cuts in the supplemental opportunity grants program, approximately 100,000 students will be adversely impacted by sequestration. Support for special needs students and students with disabilities would also be significantly reduced. No one can argue that the need for these programs will disappear or argue that there will not be significant consequences; what we will be left with are consequences, many of which will have their greatest impact on those who are economically disadvantaged.

We have no choice at this point in time other than cutting spending and limiting the increase in future spending. And since taxes were dealt with already, short term this is not an area that we can turn to help resolve the current situation. Even more importantly, I am not at all supportive of increasing the burden on taxpayers while not realistically confronting the expenditure part of the financial equation.

We know there need to be cuts in spending. For me, reducing spending in education should not be a significant source of savings. These would be short term savings with long term negative and counterproductive consequences. Passions are high on all sides of the spending/sequestration issue; many of us have specific priorities in one or more areas where we feel that spending cuts should be a last resort and perhaps a never resort. Those of us in education should do all that we can to passionately make the case for education. We can be sure that each area has it advocates. The case for education is very strong; our advocacy should be at least as strong.

Moving Forward

In my early days in administration, many years ago, I had the opportunity to serve on negotiating committees for various labor contracts and the position I held on these committees was the exalted chair-filler position. A chair filler has minimal involvement with the actual negotiations so expertise is not necessarily a prerequisite.  Instead a chair-filler is selected based on his or her ability to fill a chair and look both intelligent and engaged at the same time.  I did the best I could to meet these standards, and though I wondered initially why it was necessary to have such a position, I nevertheless found it to be a valuable experience.  The “why” in my opinion is simply because if one side has a large number of individuals on their team, the other side needs an almost equal number to show it is at least equally engaged.

The reason I found these early career experiences to be invaluable is that almost at the beginning of  the process I was able to gauge with a high level of accuracy exactly what the settlement would be.  In an environment where everyone realizes that bargaining is a mutual benefit equation, it is not that hard to predict the conclusion.  I believe the likely conclusion is known by the individuals heading the negotiations and those associated with the negotiations well in advance of the deadline date and perhaps even well in advance of the start of formal negotiation. However, the widely held belief is, if you settle too early, you are really not doing all you can to have your positions prevail.

In the recent budget/national debt debate in Washington, even though we came close to defaulting, I think our national leaders (as well as the accompanying chair fillers) knew based on clearly stated positions, exactly what the likely outcome would be. The fact that it took so long was designed to convince the public of how each side worked to have their position prevail.  I think this strategy was a mistake.  With an economy that is struggling, with a faltering economy, it is a serious mis-step to undermine confidence in that economy and not surprisingly in the Washington leadership in both parties.  And yet we have done that.  Would a settlement two weeks or a month sooner have made a difference? I believe it would have and that we would have been better off as a result of that earlier conclusion. 

More and more we seem to be headed for confrontations and for blunt economic solutions.  No changes in taxes, tax caps, and across the board spending cuts are blunt instruments.  There are no doubt tax loopholes that should be closed or tax rates that should be adjusted.  There are no doubt tax caps that will prevent real needs and priorities from being addressed. And across the board federal budget cuts, if it comes to that, will almost inevitably result in changes that undermine the national interest.

As I have said before we do need to contain spending, we do need to get a handle on the national debt and we do need to reduce the tax burden.  But unless we move away from brinkmanship, and also substitute well thought out policy initiatives for blunt economics, these goals will not be achieved or if they are achieved, the costs could rival the gains.  The economy is faltering and the clock is ticking. We need to do better and now is the time.

Blunt Economics

Across the country, virtually every state is trying to control spending, and nationally we are also working hard to control spending.  Who could argue?  No one wants additional taxes, so raising revenue (absent a more robust economy) on the state level will be difficult while raising the deficit on the national is equally unpopular.  We all demand, and rightly so, fiscal discipline from our leaders.

To control spending, you could do a thorough national, state, and local review of all policies, programs and regulations. It is certain that some programs have a great deal of waste, or have outlived their usefulness, or provide only marginal benefit.  It is equally certain that some unfunded mandates/regulations are costly and not needed.  But doing a program by program or policy by policy review is difficult, time consuming, and often impacted by politics at least as much as merit. Given that difficulty, tax caps have become more and more popular.  You can stringently limit spending increasing but avoid making the tough program by program or mandate by mandate decisions.  We have such a cap now in New York, and as a school board member I can clearly tell that there are serious problems ahead that virtually all school districts will face as a result.  With the legislation recently in place and given unfunded mandates, the built in annual education cost increase (inflation rate) will likely be higher than the cap.  Overriding the cap will require a super majority (60%) and consequently be very difficult but living within the cap will squeeze education and in time almost certainly adversely impact quality.  Tax caps are blunt instruments.  I am not disputing that they can be helpful but there are certainly alternatives and there are certainly negative consequences.

On the revenue side, we also seem to be embracing a blunt approach.  The mantra of no tax increases is alive and well at every level of government.  The appeal is enormous and I’m certainly sympathetic.  But once again there are consequences of following a one size fits all policy rather than taking a more micro look at taxes.  Are there some tax rates that are still too high and tax payers paying more than they should?  Are there others where the tax rate is too low and tax payers should be paying more?  Remember that if there are no possible increases in tax revenues, we will likely be forced to cut important programs (such as in the education area), that are key investments in our future.  Blunt instruments and one size fits all policies may be easier to articulate and implement but may have far greater negative consequences than a more thought through less arbitrary plan of action.

We are all invested in keeping spending under control at all levels of government.  We are all invested in minimizing the tax obligation.  Both need to happen. But moving forward wearing the blinders of blunt policy parameters can’t be the best decision making process when our future is on the line.  Now is the moment for our government leaders to provide the sophisticated leadership that these challenging times demand.