“Nothing so focuses the mind as being shot at, and missed.”

— Winston Churchill

 

We’ve all had sudden, startling surprises followed by the flash of realization, “Whoaa, that could have been really bad!” On the highway, a stone flies off a passing truck and smacks our windshield. On the ski slope, we catch an edge and tumble into the woods. A micro-burst topples a “widow-maker” pine that just misses our house.

I had just such an incident last week in Rhode Island.

It wasn’t on the highway or a hiking trail, but in a United Way board room where I heard a presentation by state and Federal Reserve officials about the status of the Rhode Island economy and the efforts of its new independent governor, Lincoln Chafee, at fiscal reform and economic development.

It was a profoundly frightening litany of economic bad news — collapse and disappearance of major segments of the manufacturing base, high unemployment, low education attainment and high dropout rates, high foreclosure rates that show no signs of abating, declining property values, several municipalities in receivership and more on the brink. Now that was scary.

And the scariest statistic concerned municipal pension and other post-employment (primarily health-care-related) benefits.

Thirty-nine Rhode Island municipalities have pension liabilities of $4.8 billion. To cover those promises, they have assets of $2.4 billion.

For nonpension benefits, they have liabilities of $3.5 billion and assets of $26.8 million — yes, that’s million. Combined, their unfunded liability is approximately 78 percent.

On a personal level in terms of discounted present values, it’s as if I promised myself that I would pay myself $100,000 per year for the next 30 years to cover all my living and health care expenses. “Excellent,” you say, “and how much have you got in the bank today to keep that promise?”

“Two hundred thousand dollars,” I reply, “but it’s going to grow twice as fast as inflation and general health care costs over the next 30 years.”

Your only possible response to that analysis would be to walk away shaking your head and wondering, “What kind of fantasy world does that guy live in?”

So what does the new R.I. governor propose to do about the situation (stop me if you’ve heard this story before)? Institute “a 21st-century sales tax.”

Recognizing the reality of the service economy and following all the best principles of economic analysis (broad base and low rate), he has proposed extending the sales tax to the entire gamut of services — computer software, hairdressers, diet centers, business services, clothing, repair services and currently exempt purchases made by manufacturers.

The combination of adding these and other items to the tax base, while lowering the rate from 7 percent to 6 percent, is expected to raise an additional $165 million each year to help address the fiscal crisis.

As we in Maine might have predicted, such rationality has been greeted with outrage and opposition from all those who theoretically are in favor of paying public bills but resist efforts to collect money from them to do it.

In a similar effort, the governor has proposed eliminating a variety of loopholes from the state’s corporate income tax, changing the base and lowering the rate. Again, good in economic theory but hard to sell politically.

And that’s my essential takeaway from this whole frightening picture. This could happen to us here in Maine.

Continually kicking the can of fiscal responsibility farther down the road just makes the solution harder and harder. Somehow we’ve got to muster the political maturity to grow up and face our collective problems now while we have some latitude for solving them.

At some point, we won’t be able to say, “That could have been us.” We’ll be forced to say, “Now it is us.”

Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at:

clawton@maine.rr.com

 

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