It’s been a big week for government budgets. The Hamilton County Board of Commissioners approved the county’s 2013 budget, and City Manager Milton Dohoney Jr. unveiled his budget proposal, which now the mayor and City Council must approve. At the federal level, the “fiscal cliff” still looms as federal officials fight over how to handle a series of tax hikes and spending cuts set to trigger at the end of the year.
Balancing the budget is a weird problem to deal with during an economic downturn. Economic research shows balanced budgets at state and local levels have only made the ongoing unemployment crisis worse. An analysis from the Center on Budget and Policy Priorities found local and state governments cut 716,000 jobs between August 2008 and August 2012. A study from the Brookings Institute in July found the national unemployment rate for June would have been at 7.1 percent, down from 8.2 percent, if it weren’t for government job cuts.
Today’s Europe is a clear, real-life example of balanced budgets sinking economies. As the continent has taken up more and more austerity measures, it’s been thrown into a double-dip recession. Greece in particular has been forced by its European partners to cut government jobs even while the country faces a startling 25.4 percent unemployment rate.
Unfortunately, the “balanced budget at any cost” trend is continuing in local governments. At the county level, the Hamilton County Board of Commissioners approved $14.4 million in across-the-board cuts. Obviously, this will lead to a reduction in county services. A few reports from local news outlets have also speculated the cuts could eliminate more than 150 county jobs. That’s not a good sign for an economy that isn’t exactly roaring back.
Cincinnati is going down a different, but similar, path.
But there’s another part to Cincinnati’s budget that has its own host of problems: parking privatization. In order to close its $34 million deficit, the city plans to sell off its parking services for at least $40 million and use $21 million of that lump sum to plug the budget hole. Experiences in other cities, including Indianapolis and Chicago, show this could lead to higher parking rates — not ideal for a population already strapped for cash due to poor economic conditions.
What these examples show are balanced budgets working against the economy. As Cincinnati and Hamilton County race to meet laws that require balanced books, the city and county will have fewer jobs, less government support and possibly higher fees when driving to work.
The worst part is the deficits are likely caused by poor economic conditions. Bad economies reduce tax revenue as salaries and wages are held down and taxpayers lose jobs. Recessions also require more costly social services as more unemployed people take up welfare programs to support themselves.
In effect, this all means local governments are being forced to make their deficits worse in the long term. By eliminating jobs and services, the city and county are making it harder to get back to good economic conditions, which makes it all the more difficult to get back to ideal budgetary circumstances.
But if governments insist on having laws that require balanced budgets, there is a more economically sensible, if controversial, approach: a tax hike on the wealthy. When looking at the effect of the fiscal cliff, the Congressional Budget Office found letting tax breaks expire for the wealthy would raise a large amount of revenue while barely affecting the economy. Another study from economists at Stanford University and Northwestern University found tax hikes on the wealthy would only have a major negative impact on the economy if current tax rates were already high, which is simply not the case relative to other countries or historical trends.
Still, it’s hard to imagine local governments, particularly the Republican-controlled Board of Commissioners, proposing any major tax hikes. That’s politically risky, especially for any local Republican aspiring to break into a national scene in which Republicans refuse to raise taxes even on people making more than $250,000 a year.
What Cincinnati and Hamilton County are left with isn’t ideal. Instead, local governments are forced to meet austerity requirements that lead to job and service cuts every year.
CONTACT GERMAN LOPEZ: email@example.com or @germanrlopez