Monday, February 9, 2009


There was a show on PBS called Connections hosted by James Burke. In addition to being a historian, Burke possessed a very dry sense of humor. The show took a unique look at history and showed how different events built on one another over time. Burke’s approach was to avoid the typical linear approach to history and look more holistically at events and exploring some lesser-known connections.

I started thinking about “Connections” the other day while reading about additional lays offs for sheriff’s deputies. The deputies are the latest in a budget cuts resulting from the failing economy and diminishing tax revenues. The sheriff blames elected officials but the public blames the sheriff and elected officials. Neither view goes very far at looking at the causes.

Low tax revenues does not mean low taxes, in fact just the opposite tends to be the case. Ohio has one of the worst tax situations for businesses and explains in part why business chose to locate in other states. Governor Strickland has for some time correctly assessed that Ohio suffers from “brain-drain”, unfortunately he tends to see this as a educational issue and feels developing a state university system is the way to overcome brain-drain. I believe the real reason Ohio is losing “brains” is due to a lack of jobs to employ those brains. I read a few years ago that Ohio had fewer new home constructions in one year than Atlanta. High taxes create a disincentive for businesses, which in turn creates a disincentive for job creations. Fewer business and jobs means lower tax revenues.

High taxes are just one of the reasons that fewer businesses are in Ohio. As industries became deregulated, such as the airlines, larger businesses bought out smaller ones until only a handful of bloated companies are left. United, American and Delta are all that is left of the legacy carriers. They merged and bought out their competition and contrary to the predictions of market economics, newer airlines weren’t able to enter the market. A sort of monopoly was created and without new airlines entering the market, there was not incentive for the legacy carriers to maintain travel perks. There was little incentive to modernize and improve flights in advance of staggering fuel costs. Once crude oil prices skyrocketed, airlines had no choice but pass the cost on to the consumer.

The American auto industry became complacent and was unable to react even while losing $2,000 per every car produced. Now it looks as though Chrysler may not survive through the year even despite the federal bailout. Chrysler provides 80 percent of the cars that make up the Dollar Thrifty fleet. If Chrysler collapses, then Dollar Thrifty (not to mention all of the suppliers and dealers that depend on Chrysler) will fail. Many of these businesses are located in Ohio and the loss of jobs and tax revenues will be devastating.

Tax revenues in Ohio have been decreasing as a result of businesses leaving the state. As businesses leave the ability for the state to receive revenue from taxes decreases. The loss of business means a loss of jobs as well further reducing tax revenues. Job loss increases demand on public services that are funded through tax revenues. People without incomes are forced to turn to public assistance in the best case or crime in worst case. Increased crime rates places more demands on law enforcement and correctional facilities. The lack of tax revenues causes cuts to law enforcement and the closing of correctional facilities.

Going back to “Connections”, we need to make the connection of jobs to the safety and security of our communities. We need jobs and employers to pay taxes to generate the revenue need to fund our communities. Elected officials need to work with business in collaborative way to create communities that are safe and attractive to businesses. In turn, these businesses will create jobs to provide the tax revenues to provide for the safety and well being of the community.


Quim said...

I think most people are ok with their taxes if they think they are getting their money's worth in services and infrastructure. If they think the infrastructure is crap and the bureaucracy is some kind of Kafkaesque nightmare, they'll bail in a second. I would guess regulations and infrastructure have more to do with our region not getting more businesses.
Then again, KY has done pretty well luring businesses by giving away the bank.
I saw a show on tv, once (Stossel ?) where a guy set about starting a store in several countries Somewhere in Asia he was up in a week. In Europe (Poland ?) he was still wrangling with paperwork at the time of the show. The U.S. was somewhere in between.
Crowley has an environmental proposal in the works right now that sounds admirable in purpose but would likely be a total clusterf*ck to prospective investors.
Hopefully some gummint commerce puke or chambers of commerce are finding out why businesses who consider the region either choose or reject it.

Bob Baylor said...

I think the chambers are trying to get a handle on it but I don't think the tax situations are going to improve. I know Lexington has really try to position itself to attract IT professionals. The KY Interstates are in much better condition than Ohio's, at least in my opinion, but their power grids weren't able to withstand the ice storms forcing them to call out the National Guard.

Personally I think developing a mass transit system between major cities would do a number of things to alleviate our economic problems. It would create cheap and efficient travel alternative to the over-priced costs of air travel. It would create jobs associated with the creation, operation and maintenance of such a system. Finally, it would make it possible for qualified workers to move easily about to where the jobs are.