Two more votes of confidence in Iowa's fiscal health

Three of the world’s leading bond rating agencies agree that Iowa deserves the highest possible credit rating. This month Fitch Ratings and Moody’s Investors Service increased their ratings for Iowa to AAA and Aaa, respectively. The ratings boost is related to decisions at both agencies to “recalibrate” the way they assess default risk for municipal bonds. A third leading agency, Standard and Poor’s, gave Iowa the AAA rating last summer.

State Treasurer Mike Fitzgerald noted yesterday, “For the first time in our history, we have the highest ratings from all three rating agencies. Only seven other states have an across-the-board AAA rating.”

The credit ratings are important for two reasons. First, they represent a strong overall assessment of Iowa’s fiscal health. These agencies don’t care whether Governor Chet Culver is re-elected or whether Iowa Democrats retain majorities in the state House and Senate. Their analysts serve professional investors who need to know the risk of default on outstanding obligations. They look at a broad range of factors, including levels of revenues, spending, reserve funds and per capita debt load.

Second, the top-level credit rating means Iowa will be able to borrow at lower interest rates when the next batch of bonds for the I-JOBS infrastructure initiative are sold. When I-JOBS bonds hit the market last summer, strong investor demand drove down the interest rate and, consequently, reduced the state’s repayment costs by approximately $12 million per year for the life of the bonds.

One other point is worth noting: Moody’s gave Iowa a “stable” outlook rating. If professional market analysts believed Iowa legislators had approved unsustainable levels of debt or spending, as State Auditor David Vaudt and many other Republicans have claimed, we would be among the states that received a “negative” outlook from Moody’s.

As I recently discussed here, Republican candidates for governor keep talking about a so-called billion-dollar budget deficit projected for next year, even though the Iowa legislature approved a balanced budget for fiscal year 2011. Instead of acknowledging that fact, Republicans are shifting the goalposts, complaining that Iowa supposedly will have a huge budget gap for fiscal year 2012. Fitzgerald was pitch-perfect yesterday in response this doom-and-gloom talk:

Last week Vaudt criticized the Legislature and Culver for building a fiscal 2011 spending plan so heavily reliant on $736 million in one-time funding sources that it promises a budgetary “cliff” for the following year when state officials will face another projected funding gap exceeding $1 billion.

“The state auditor says that every year and the budget he’s talking about is a year from next July,” Fitzgerald said in an interview. “Well, my goodness gracious, volcanoes can blow up, meteors can hit the earth, who knows what’s going to happen. That’s just speculation.”

Economic and fiscal issues will be at the center of this fall’s election campaigns, creating a challenge for Iowa journalists. The “safe” way to report this issue would be the usual “he said, she said” format: [Republican’s name here] says Democrats are running deficits and driving us too deep in debt, while [Democrat’s name here] says the governor and legislature have kept Iowa in a strong fiscal position.

The alternative is to ask Republicans to defend their assertions in light of these facts:

*Independent analysts for the Pew Center on the States put Iowa in the group of states “least like California” in terms of budget problems.

*Moody’s, Fitch and Standard and Poor’s agree that Iowa deserves the highest possible credit rating.

*Iowa legislators approved balanced budgets year after year amid the biggest revenue collapse in six decades.

*Governor Culver made mid-year spending cuts when necessary in order to preserve our state’s fiscal health. He didn’t keep two sets of books like Terry Branstad, or fully deplete the state’s reserve funds like Minnesota Governor Tim Pawlenty.

Analysts who don’t have a dog in this fight say Iowa is in good shape coming out of the most severe recession since World War II.

P.S.-In case you missed this story last week, Forbes magazine has ranked Des Moines as “the No. 1 city in America for businesses and careers” and Cedar Rapids the “No. 1 city for projected job growth.”

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Government spending is better economic stimulus than tax cuts

Paul Rosenberg has an outstanding post up at Open Left on a report by Mark Zandi, the chief economist and co-founder of Moody’s Economy.com. Zandi analyzed different types of tax cuts and government spending in terms of “fiscal stimulus bang for the buck.”

Click here to view the chart showing his conclusions. Various types of government spending all delivered much more stimulus to the economy than even the most effective tax cuts.

Temporary increases in food stamps carried the most “bang for the buck,” $1.73 for every federal dollar spent. That’s because food stamp money goes into the hands of people who will spend it right away. Not far behind was extending unemployment benefits (which also helps people likely to spend money quickly) and government spending on infrastructure (which creates jobs).

Zandi found that even the government spending that delivered the least bang for the buck, general aid to state governments, still generated $1.38 for every federal dollar spent.

On the other hand, most tax cuts generated far below $1 for the economy for every dollar they cost the federal government. That’s particularly true for the tax cuts Republicans tend to favor, which mainly benefit high-income Americans or businesses. These generate between 25 and 50 cents for the economy for every dollar they cost the federal government.

By far the best tax cut for stimulating the  economy, according to Zandi, was a payroll tax holiday, which generates $1.28 for every dollar it costs. However, a payroll tax holiday still ranked significantly below various types of spending in terms of “bang for the buck.”

Rosenberg created a second chart combining Zandi’s figures with job creation numbers from the Center for Economic Policy and Research. It shows that millions more jobs would be created by $850 billion in spending compared to $850 billion in tax cuts.

Not only does government spending create more jobs and stimulate more consumer spending, it can also accomplish tasks that benefit the community as a whole. For instance, everyone who uses a bridge benefits from maintenance that prevents that bridge from collapsing. Thousands of travelers could take advantage of improved passenger rail service, which would also reduce greenhouse-gas emissions compared to driving or flying. For those reasons, I agree with the Iowa legislators who have advocated more rail funding in the stimulus bill.

Yesterday the Iowa Environmental Council provided another excellent example of how stimulus spending could produce both jobs and cleaner water in many Iowa communities:

IOWA ENVIRONMENTAL COUNCIL

For Immediate Release

February 2, 2009

More money needed in stimulus for clean water infrastructure

The Iowa Environmental Council is encouraging U.S. lawmakers to increase clean water infrastructure funding in the economic stimulus plan, now under consideration in Congress. The House version of the stimulus package currently includes $8 billion and the Senate bill $4 billion for clean water infrastructure. The EPA estimated the cost of meeting our clean water infrastructure needs at $580 billion during the last assessment in 2004, according to a GAO report.

In Iowa alone, the Department of Natural Resources estimates water infrastructure needs to be over $618 million over the next two to three years.

According to Susan Heathcote, water program director for the Iowa Environmental Council, 87 of these projects, with a total cost of $306 million, could be underway in three to four months if the necessary funding were made available.

Sixty-six communities in Iowa do not have a public sewer system and 21 communities need help to upgrade their drinking water systems says Heathcote.

“These needs combined with the fact that we could have shovels in the ground as soon as funding becomes available make them perfect candidates for funding under the nation’s economic stimulus package,” said Heathcote.

In letters to Iowa Representative Boswell and Senators Harkin and Grassley, Heathcote outlined Iowa projects that could proceed immediately with available funding:

·         25 communities with sewage treatment plant projects, with estimated needed loan amounts of $165 million.

·         41 small unsewered communities, with estimated total cost of $72 million.

·         21 communities with need for upgrades to their drinking water systems, with an estimated total cost of $69 million.

Heathcote says, in addition to the new water projects outlined above, Iowa communities also need help to address ongoing efforts to separate outdated combined sewer systems and to repair or replace aging sanitary sewer system pipes. Until this work is completed, Iowa communities must continue to deal with the public health threat from frequent failure of sanitary sewer systems that result in discharges of untreated sewage into Iowa rivers.

“While we are addressing our ailing economy, why not make a real investment in clean water?” said Heathcote.

### End ###

Maybe Senator Chuck Grassley, who derides the stimulus spending as “porkulus,” needs to hear from Iowans living in communities with substandard sewage systems and drinking water that could be a lot cleaner. You can reach his office by calling (202) 224-3121.

President Barack Obama and Democratic leaders in Congress need to do a better job explaining to the public that the spending in the stimulus bill would directly boost the economy much more than tax cuts.  

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