Connections

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.

The Economy

It’s the economy, stupid. Two items caught my attention both related to the economy although the items were filed under different headings.

First, there is a summit of college and business leaders today at the University of Cincinnati the brain drain “discovered” by Governor Stickland during a recent visit to Taft High School. Nine out of ten students indicated they would be pursuing academic careers outside of Ohio because that is where the jobs are. I put quotation marks around discovered because this situation should not have been news to the governor. Ohio has one of the worst tax schemes anywhere for business. Business owners get to pay state, county, city and/or township taxes. In addition, businesses pay a variety of licenses. All of this is paid on top of the normal expenditures for employee benefits, insurance, pension funds, etc. There are only so many ways to trim costs and before long the only option left becomes to relocate your business. The Mead Corporation was a homegrown company in Dayton, Ohio but eventually relocated their corporate headquarters. The decision did not have anything to do with an inability to find qualified workers, rather the costs associated with keeping their corporate headquarters here in Ohio (where the Mead family is from) became just too expensive.

Governor Strickland is focused on creating jobs through revamping Ohio’s high educational system. He envisions luring companies to Ohio by having a highly trained workforce in place. A test of his theory has already hit the local area in the form of the DHL closure in Wilmington. Seven thousand jobs have been cut creating a huge pool of employed workers. Many of these workers have technical skills and college degrees, if the governor’s theory is correct then another company should be willing to relocate here and hire the DHL employees. However, I doubt this is likely to occur without revamping Ohio taxes to create incentives for a major employer to relocate to the Wilmington area. The meeting at UC today may provide some great ideas but without also creating economic incentive for business, these will remain just great ideas.

The second issue was on Cincinnati Blogs concerning impending budget cuts in Hamilton County. Typically public sector agencies cut budgets by postponing expenditures on equipment or facilities. Training is cancelled or postponed. Another strategy involves some combination of furloughs, early retirements, hiring freezes, or eliminating positions. These measures are short-term at best, as the requirements for these expenditures didn’t change. Assuming the agency has done due diligence in creating these positions, reducing the workforce may help balance the books but it increases the workload of the employees left on the payroll. Incidence of sick leave, absenteeism or resignations will increase.
Eventually they will become frustrated and eventually may look for work elsewhere. The end result of these budgetary actions is an overall diminished effectiveness of the agency to perform its mission. In Hamilton County, we see the sheriff’s office painting a grim picture of rampant crime as patrols are eliminated and criminals will have to be released due to over-crowding in the jails. I have no way of knowing what analysis the sheriff has conducted to arrive at his decisions. I do wonder if these decisions were made in coordination with the city of Cincinnati to see which agencies could pick up the slack for other agencies? For instance, some of the patrols provided by the sheriff’s office were in the Other the Rhine area which is (I believe) in District 1 of the Cincinnati Police, could these patrols not be conducted by the police? Law enforcement agencies usually have mutual aid compacts in place, could these be modified to augment the reductions by the sheriff elsewhere in Hamilton County? Of course that assumes these patrols are required in the first place, if they are then a compromise of some kind needs to be reached. If they aren’t required, then they can be eliminated and funding used to conduct other critical functions.

Hamilton County is facing a budget crisis in part because of the economy but also because of the loss of tax revenues. I submit that Ohio has some of the highest taxes of any of the states, yet our tax revenues are plummeting. Higher taxes create disincentives to spending which in turn reduces tax revenues. We’ve all heard about business relocating their operations overseas. Wages are often pointed out as the reason which inevitably leads to finger pointing between labor and management. What gets overlooked is the need for workers to be able to earn a certain level in order to pay their taxes. Employers have to not only meet the need for a fair and competitive wages, they too have to pay taxes on their facilities and profits. Combined the situation creates a major disincentive to operate business locally and leads to employers leaving Ohio. Our college and tech school graduates have no choice but to follow those jobs out of the state.

Creating jobs in Ohio leads not only to a better quality of life for our residents, it will lead to safer communities as our public sector agencies (fire, EMS, law enforcement, public works) will have the funding they need to operate.