August 16, 2011
In a recent issue of The Delaware Gazette (August 3), I was stunned by two articles; one for its substance and the other for its tone. Particularly upsetting was the fact that the underlying “messages” were being delivered by public employees, not politicians.
The first article titled “Ohio plan would trade electric rate cuts for jobs” described a proposal from the Public Utilities Commission of Ohio (PUCO) to lower electric rates for businesses that created jobs for Ohioans, with discounts of up to 20 percent. So far, so good given the need for jobs.
But then reading further, one gets the full impact of the proposal and suddenly the idea doesn’t seem quite so praiseworthy. To qualify for the discounts (aside from some start-ups with high energy usage) the companies would need to hire at least 75 new employees and have a payroll of no less than $5 million, or engage in investment expenditures on plant and equipment of at least $50 million. Obviously, this program is not aimed at mom-and pop stores or even most mid-sized companies, as the minimum requirements produce a hurdle virtually impossible to clear. So, while the PUCO does not say so explicitly, these cost savings are directed only at the state’s major employers. It’s a little less satisfying to this point, given the very limited population of potentially impacted businesses, but again, there’s that need for jobs.
The real rub associated with this lovely proposal is in the means by which it will be funded. The cost savings to provide this incentive to big businesses will come from two sources: the public utilities themselves (20 percent) and other customers (80 percent). And who are these “other customers?” That would be you and me, as well as any businesses that don’t qualify for the giveaways. Put differently, so as to give large Ohio employers a reason to create jobs, everyone else will pay the price.
As this cost-shifting occurs, other ratepayers will see their utility bills rise and inevitably (other factors held constant) produce a retreat in spending that may otherwise have occurred. For households, that means discretionary income (after higher utility bills are extracted) will fall and thus their spending ability falls. That could mean fewer purchases at various retail and service-provider outlets. Over time, those businesses will be forced to adjust and part of that adjustment process may well be fewer employees.
And then think about the non-big businesses that don’t qualify and are forced to pay for the power usage of large companies through higher rates. As with households, they also will be forced to make adjustments which may impact their employment levels and/or their relations with their suppliers. In the end, this wonderful little proposal to “create jobs” through a perverse cost-shifting structure may well imperil both family and non-qualifying business budgets and produce far more job losses than the number created. Hardly a cause for celebration for those picking up the tab, but then PUCO bureaucrats seem to consider them and their livelihoods a reasonable casualty in the latest bid to circumvent market forces.
The second Gazette article came with the title “Year-end budget ‘dangerously close’.” According to Delaware City School administrators the year-end figures will be extremely close to a breakeven point in operational funds, where revenues and expenditures will be approximately equal, with only a slight estimated surplus ($167,000).
For many families in our community, the past few years have provided them little better than their version of exactly this situation, and so school officials lamenting such an experience seems troublesome, since it is not the responsibility of taxpayers to provide a financial comfort zone for any government unit, including public school districts. To be sure, reductions in both federal and state aid to schools will make life in the future extremely difficult, as evidenced by the substantial give-backs provided by school district employees, but then that’s present day life for many taxpayers.
Even more disturbing was a quote from the Delaware school superintendent that since a levy has not been passed since 2004, Delaware taxpayers are “due for a levy anyways” — as will be seen this November. While sheep may be “due” for shearing, the same is most certainly not true of taxpayers. While additional funds may be needed (as determined by voters), the tone of such a statement indicates bureaucrats need to consider well the financial stresses faced by those “due” for higher taxes.
Dr. James Newton serves as chief economic advisor to Commerce National Bank and is an auxiliary faculty member in economics and statistics at Ohio State University-Marion. Dr. Newton’s views do not necessarily reflect those of Commerce National Bank or OSU-Marion.