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Thursday, June 7, 2012
Why Texas Has a Booming Economy and We Don’t!
The County Budget hearings begin next week.  To fully understand the magnitude and scope of our communities’ dire financial condition, you must understand three fundamental elements of county finances.
 
The first thing you need to know is that County government is primarily an extension of State and Federal government programs.  Approximately two thirds of the county’s finances are monies forwarded to the county by the State and Federal government from various forms of taxes such as income taxes, gas taxes and sales tax which typically serve to fund mandates.  These programs include Social Services, Public Health, regional infrastructure costs, and a variety of other programs.  The county has to typically provide a financial match to these federal and state monies and then hire and pay for the staff to perform the associated programmatic duties.
 
The county is nearly entirely dependent upon local property tax revenues to provide the match monies and to perform all local discretionary tasks that are not funded and/or mandated by State and Federal government.  The monies associated with local spending is referred to as the General Fund.  The bulk of the local funding goes to Public Safety programs in the form of Fire, Sheriff, District Attorney, Probation and Public Defender.  Ninety percent of the county’s revenues for these and other General Fund programs come from property taxes.  Our modern day problem is that the real estate market took a nosedive in 2008 and we can’t meet our obligations accordingly.
 
Another major component of county finances has to do with pension liabilities.  Typically, employees pay a small percentage of their pay towards their own retirement and the county contributes a little more.  However, 85% of the money that will eventually provide the funding for retirement checks comes from investment income.  Unless, that is, the returns are insufficient to meet the county’s obligation, in which case the money has to come out of the General Fund. Hence, the stock market losses in 2008 and the subsequent volatility of the market means the county is hopelessly behind in their investment returns, so much so, that we can no longer afford to provide basic services with current employees due to our pension debt obligations to retirees.
 
These pension liabilities are directly tied to and based upon employee compensation levels.  During the tenure of the board majority of Schwartz, Rose and Marshall, the county handed out over $100 million in raises to some 4,000 county employees.  We are now stuck with the bill!
I actually favor early retirement for firefighters and cops.  However, we need a plan to pay for the same.  The total cost for a firefighter, in terms of salary, health and retirement benefits is now approaching $200,000 per employee!  How do we generate enough tax revenue to afford that?
 
Well, that brings us to the last component we need to address and that is the private sector job market.  High returns and high wages in the private sector market generate economic activity that fuels the economy and generates the tax revenue that funds government services. 
 
However, if the government starts taking too much money out of the private sector in the form of fees, taxes and regulatory costs, there is less money left over for individuals to create consumer demand and less money for businesses to create the necessary profits that serve to create jobs in the first place and grow the economy as a whole.  Examples of individuals and businesses leaving the State in droves, due to this phenomenon, abound. 
 
It is no coincidence that Texas actually gained the number of jobs that have been lost in California during this current recession. 
 
                       
Andy Caldwell is Executive Director of COLAB and hosts the Andy Caldwell Show weekdays from 3-5 pm on AM1440.  Contact him at andy@colabsbc.org
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