There are important debates taking place among elected officials regarding local government policy as it relates to conventional vs. comprehensive and transparent budget processes; taxation levels; and prudent stewardship of pension funds and policies. An additional layer of complexity is added with the interplay of trustee vs. representative styles of governance.
The importance of these debates cannot be underestimated. Currently, the majority on Council, led by City Manager Joyce Wilson, is leading the city into a level of debt and tax unprecedented in the history of El Paso. They assert their approach ensures prosperity in the long term.
Opponents of this manner of doing business counter that the City should go in another direction: less taxes, less reserve, less surplus and, consequently, more prosperity.
Jean-Baptiste Say's Law of Markets states that there can be no demand without supply. The more goods (for which there is latent demand) that are produced, the more those goods (supply) can constitute a demand for other goods. For this reason, prosperity should be increased by stimulating production, not consumption.
Rep. Robert "Beto" O'Rourke, spokesman for the current majority, can be said to argue from this point of view. Restoring the Plaza, creating Mercados, recruiting higher end retail and redeveloping the downtown will attract the (unsatisfied) demand for such supply. This is necessary and requires intervention in the marketplace and utilizing tools such as eminent domain. His recent efforts to obtain $72,000 in direct cash assistance for downtown businesses and his support of taking property from people with less money, to give to people with more money, who are in a position to redevelop downtown property, is consistent with this enhancement of supply strategy that assumes an unmet demand in El Paso.
This line of thinking implies more than meets the eye. Say argues the creation of more money in any given system simply results in inflation. In other words, simply enhancing the existing business environment and retail market downtown has little or no long-term impact. Without government intervention Downtown will continue pretty much the same. And, increasing standards for parks, quality of life projects, more stringent building codes and longer term redevelopment with the use of eminent domain will have an enhancement effect on supplying those things that are not meeting unsatisfied demand. In this view, there is an assumption of a latent demand for higher-end retail and entertainment.
This O'Rourke/Say perspective sees the city as a single economic unit and, therefore, a trustee style of governance is suitable to it. Decisions have to be made that may infringe on the perceived interests of particular groups. Moreover, the political will to tax in order to respond to budgetary shortfalls and pension deficits is necessary to steward the city in such a way that strengthens long-term borrowing capacity. This credit is necessary to gain long-term financing of major building projects.
Alternatively, Rep. Holguin, spokesman for the minority, can be said to argue from the Keynesian view that there is a multiplier effect for each dollar that stays in the hands of taxpayers. For example, consider the possibility that the city reduces taxes and finances increased infrastructure improvements and street repairs by using reserve cash accounts.
The resulting money would go to taxpayers' (consumers) pockets and also to the road builders, who would hire workers and distribute the money as wages and profits. The households receiving this cash inflow may save part of the money and spend the rest on consumer goods. These expenditures in turn will generate more jobs, wages, and profits, and so on with the income and spending circulating around the local economy. This means that existing demand expands, creating more businesses and, therefore, jobs which in turn increase the tax base as demand for commercial property increases. Prosperity is a function of more people in productive activity.
The view argues to allow the supply to respond to existing demand and, further, that demand should be stimulated by reducing taxes and repairing and expanding the city infrastructure. This perspective includes the view that governance is representative and has a responsibility to advocate for the interests of constituent groups. A strong political will is necessary to look to the interests of particular classes of people (constituents, elderly and disabled, business owners) and ensure that their particular interests are addressed as the city expands and needs prudent stewardship of taxes to cover the expansion.
The good news is the debates are passionate and the taxpayers and voters are benefiting from them. The bad news is one view predominates and has effectively shut out any compromise.
The above notwithstanding, the Wilson/O'Rourke high tax, high debt view seems flawed on its face: Tax and spend policies are creating an indebtedness that will undermine their agenda because long-term debt and a high tax and fee burden eats away prosperity. El Paso's economy is already strongly dependent on federal programs such as social security and driven by the growth in the military requirements of Fort Bliss. It will account for almost 40 per cent of the value of the local economy. Mexican retail consumption and maquila industry accounts for 32 per cent of value of the economy.
When all is said and done, the supply side strategy will indebt taxpayers, violate private property rights, maintain an increasing and crushing tax burden and, at the end of the day, have a negligible economic impact.
It is also evident their position does not take into account the enormous stresses of high tax, high debt on the vulnerable sectors of the community, particularly, the elderly and disabled.
The alternative strategy propounded by the minority view does.
Conventional budget process refers to the practice of treating unspent money in a given fiscal year as an asset at the end of the year. This new asset then does not roll over into the next fiscal year's budge as revenue - the comprehensive budget process refers to the practice of justifying each department, program or project each fiscal year. This forces budget planners to identify and calculate reserves, savings and unspent money in a given fiscal year as part of the revenue side of the budget for the subsequent fiscal year.
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This perspective first appeared in Border Observer, Jaime O. Perez, Editor