Check out Mark Reutter's stories on minority contracting in Baltimore. P&J Contracting, which gave heavily to Mayor Stephanie Rawlings-Blake's campaign, won a contract to stabilize a building even though its bid was $146,000 higher. The reason: Competitor Bob Andrews' bid included only 27 percent minority- and women-owned participation, not 37 percent as required by the city:

While the mayor called the matter “an unfortunate misunderstanding,” Andrews, who had never before bid on a city contract, was bitter.

“This whole thing’s a joke,” he said after the meeting. “We don’t need this contract, but the people of Baltimore need to know that a lot of money is being wasted by misapplying MBE [minority business enterprise] goals.”

Here is Reutter's post on how P&J met the minority-participation rules: by hiring the owner's son.

Posted by Jay Hancock at 9:13 AM | Permalink | Comments (6)
Categories: Government & Business
        

This is a blow to the $1 billion-plus, heavily subsidized project to develop State Center in midtown Baltimore. Comptroller Peter Franchot, who's expected to run for governor in 2014, tells state agencies: "...I must respectfully inform you that I cannot and will not support further efforts to complete this project as currently proposed."

UPDATE: More here on the Maryland Politics blog.

Franchot is one of three members on the Board of Public Works, along with Gov. Martin O'Malley and Treasurer Nancy Kopp. BPW approves large state contracts. He previously has cast "yes" votes in favor of the project, which the Maryland Public Policy Institute has calculated will cost more than $100 million in public subsidies. (Backers of the project say the public benefits will be far higher.)

However Franchot voted against a proposal last year to sell bonds to finance a parking garage associated with the project. Among Franchot's objections now, as stated in his letter to the agencies:

It is difficult, for example, to justify the willingness of State agencies to rent space at above-market rates at a time when Maryland’s structural budget deficit continues to exceed one billion dollars. I believe that taxpayers who have been forced to make sacrifices to survive the economic downturn – and are now hearing speculation from Annapolis about further rounds of tax increases in the coming months – will justifiably question our decision to pay premium rates in a bargain-rich market where high vacancy levels will, unfortunately, be the norm for the foreseeable future.

Continue reading "Franchot: I can't support State Center in current form" »

Posted by Jay Hancock at 1:23 PM | Permalink | Comments (18)
Categories: Government & Business
        

Huge federal spending and BRAC have/are juiced/juicing Maryland's economy, keeping it in much better shape than that of the nation as a whole.

The Greater Baltimore Committee's Don Fry thinks this is very bullish. I think the inevitable plateauing of federal spending will eventually harm Maryland's economy. We can't keep on invading countries, bailing out banks and paying for unlimited, needless health care for much longer. Still, I think the military/espionage industry will undergird Maryland's economy for a long, long time. Here are WMPT's Jeff Salkin and me talking about it.

Posted by Jay Hancock at 12:29 PM | Permalink | Comments (1)
Categories: Government & Business
        

I don't know how I missed this, but in case you did, too, here is Eleanor Holmes Norton doing what is completely legal and what congress members of both parties do every day -- and what is deeply unsavory. What probably distinguishes her from others is that she did it while being recorded and was perhaps a little more candid about the shakedown than many members of congress might have been.

The NYT accepts the voicemail and transcript as accurate, so I will too:

I was, frankly, uh, uh, surprised to see that we don’t have a record, so far as I can tell, of your having given to me despite my uh, long and deep uh, work. In fact, it’s been my major work, uh, on the committee and subcommittee it’s been essentially in your sector.

I am, I’m simply candidly calling to ask for a contribution. As the senior member of the um, committee and a subcommittee chair, we have (chuckles) obligations to raise, uh funds. And, I think it must have been me who hasn’t, frankly, uh, done my homework to ask for a contribution earlier. So I’m trying to make up for it by asking for one now, when we particularly, uh, need, uh contributions, particularly those of us who have the seniority and the chairmanships and are in a position to raise the funds.

Posted by Jay Hancock at 2:52 PM | Permalink | Comments (1)
Categories: Government & Business
        

Marjorie Censer and Peter Whoriskey have a pessimistic piece in today's Washington Post on what shrinking defense spending will do to the D.C. regional economy, including Maryland and Northern Virginia. (Well, it's pessimistic for the regional economy. It's probably positive for the national deficit, wasted taxpayer money and possibly for world peace.)

Several in the industry said the downturn could be as severe as it was in the early 1990s, when, among other things, the Navy largely pulled out of Crystal City.

"We're seeing the start of another down cycle," said Randy Jayne, managing partner for executive search firm Heidrick & Struggles's aerospace, defense and aviation practice.

Posted by Jay Hancock at 8:15 AM | Permalink | Comments (1)
Categories: Government & Business
        

Well, it's not really secret. But it's under-appreciated. Jamie Smith Hopkins reports the latest figures on federal procurement spending in Maryland and other states. The Census Bureau is getting better at reporting this stuff on a timely basis. Contractors spent $34 billion in Maryland in fiscal 2009, Smith Hopkins reports, a whopping $9 billion more than in the year before. Credit federal stimulus spending, ongoing boondoggles for homeland security and war and other stuff.

Total federal spending and assistance in Maryland (contracting, Social Security, Medicare, block grants, salaries for federal employees, loan guarantees etc.) surpassed $100 billion. Holy cow! The state's whole economy is only around $300 billion.

Gov. O'Malley likes to take credit for recent job growth and Maryland's low unemployment rate relative to other states. In truth he has little or nothing to do with it. (I would be saying the same thing of a Republican governor making the same claims, as s/he surely would.) The question for Maryland, as I keep saying, is what happens when Washington cuts off the deficit-spending spree?

The data are interesting. ($3.4 million for the "Forensic Casework DNA Backlog Reduction Program." Nearly $1 billion for highway construction. $2.8 million for "earmark grants.") Check out the latest Consolidated Federal Funds Report, which breaks down the numbers by state and spending category and even county, if you want to see them.

Posted by Jay Hancock at 8:35 AM | Permalink | Comments (3)
Categories: Government & Business
        

This may amuse some of you who think I'm a flaming pinko liberal. Today's Rodricks show on WYPR (listen here) was about my Sunday column on unsustainable government pension trends and how Baltimore County's Jim Smith is one of the few politicians in Maryland to be doing anything about it.

I took the most economically conservative position on the show (admittedly it wasn't very hard, considering the other guests), arguing that retiree benefits for government employees are a looming trainwreck. I said that the disparity between generous government benefits and shrinking private-sector benefits is increasing contempt for government among the people who pay the taxes that make government possible. And that's dangerous. After the show a listener emails: "Get that tea partier Hancock off the show and never let him come on again." Or words to that effect.

Posted by Jay Hancock at 4:40 PM | Permalink | Comments (5)
Categories: Government & Business
        

It's been said many times, but it bears repeating many times. The non-defense, non-discretionary parts of the U.S. budget are very small. President Obama's pledge to freeze domestic spending for the remainder of his presidency is a signal that he's concerned about the deficit, not an indication he plans to do much about it. As AP reports, the president plans to announce a freeze on $477 billion in domestic spending.

But the budget is $3.5 trillion. So the freeze, while it will put pressure on health care, education, transportation and law enforcement programs, will do almost nothing to reduce the deficit. It would save $10 or $15 billion a year, an official told AP -- like 1 percent of last year's deficit of $1.4 trillion. Obama can't cut defense very easily -- he just escalated the war in Afghanistan. What's left are entitlement programs such as Medicare that Americans -- including the tea partiers -- love.

The only way to attack the deficit is to do what responsible politicians such as Ronald Reagan, George H.W. Bush and Bill Clinton did: raise taxes. But Obama has two problems. He can't raise taxes now: We're still in a terrible economic slump. And he has pledged not to raise taxes on the middle class, which narrows his options considerably.

Posted by Jay Hancock at 8:58 AM | Permalink | Comments (27)
Categories: Government & Business
        

Nice description from Krugman of capitalism's central flaw along with the accurate observation that it's the only system that works in the long run, via Brad DeLong:

At the heart of capitalism's inhumanity--and no sensible person will deny that the market is an amoral and often cruelly capricious master--is the fact that it treats labor as a commodity. Economics textbooks may treat the exchange of labor for money as a transaction much like the sale of a bushel of apples, but we all know that in human terms there is a huge difference.... An unsold commodity is a nuisance, an unemployed worker a tragedy; it is terribly unjust that such tragedies are created every day by new technologies, changing tastes, and the ever-shifting flows of world trade. There would be no excuse for an economic system that treats people like objects except that, as Churchill said of democracy, capitalism is the worst system known except all those others that have been tried from time to time...

Posted by Jay Hancock at 7:44 AM | Permalink | Comments (9)
Categories: Government & Business
        

A couple other quick thoughts on the Seagirt lease, the subject of today's column.

The column notes that there are no guarantees if Ports America doesn't produce the promised 5,700 jobs. The state and its consultants will argue that corporate projects never come with job guarantees. Not true. The economic development deals crafted by the Department of Business and Economic Development come with "clawback" clauses that give the state recourse if a business getting subsidies doesn't hire the specified number of people.

Also: The state is making much of the "multiple" of present Seagirt profits being paid by Ports America. Over 50 years this is virtually meaningless. The first thing they teach you in business school is that the worth of any asset is the discounted present value of the future cash flows, not what something is earning now. I have seen no analysis that suggests Ports America is paying a fair price based on what it will earn from the port of Baltimore over half a century.

Posted by Jay Hancock at 8:26 AM | Permalink | Comments (2)
Categories: Government & Business
        

Today's column is about Maryland's imminent deal to lease Baltimore's Seagirt container terminal for 50 years to a company owned by private equity fund. A 50-year lease is little different from an outright sale.

From the state that brought you electricity deregulation -- we know how that worked! -- comes a new plan to surrender crucial public assets to a private corporation. Today the Maryland Board of Public Works votes on whether to lease Baltimore's premier port terminal to Ports America for 50 years.

Private companies make profits in these "public-private partnerships" by minimizing the money they put in over time and maximizing the revenues. The longer the lease -- 50 years is a long, long time -- the bigger the possibilities. That's why it's important to correctly calculate the "present value" of the dollars everybody is committing and to make sure the rents Maryland collects keep up with inflation, which over half a century can do terrible things.

First, the inflation. Ports America's lease payments will increase with the consumer price index each year -- but only up to 3.5 percent. As the column notes, that's substantially less than inflation over the past 50 years (4.1 percent) and very probably less than what inflation will be in the next half century. The only way the United States is going to get its $12 trillion in debt under control is to depreciate the dollar through inflation and pay back old, expensive borrowings with new, cheaper dollars.

Ports America would start paying Maryland annual rent of $3.2 million, and the inflation kicker starts at year 5. Say the state got the full, 3.5 percent raise every year. By 2060 the basic annual rent paid by whoever owns the lease then would be $15 million. But if inflation were much more, $15 million wouldn't be very impressive. Say average inflation were 6 percent. Then, thanks to 50 years of compounding, the real value of $3.2 million in 2060 would be $59 million. But Ports America would be making only $15 million in lease payments -- much less in real dollars than it pays now. So in nominal dollars Ports America's rent would go up only fivefold while what it could charge shippers could go up 18-fold. PA's profit-sharing deal with Maryland, in which it would pay the state $15 for every container over 500,000 a year, is also subject to the 3.5-percent inflation cap.

Continue reading "Maryland needs to slow or alter its Seagirt deal" »

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (3)
Categories: Government & Business
        

Paul West reports that earmark queen Barbara Mikulski and others of the Maryland congressional delegation have brought home the pork again. The new batch of spending is $100 million. That, West reports, "is on top of nearly $700 million in spending for Maryland projects that was requested by President Barack Obama in his 2010 budget."

Some of these projects are probably justified. Many assuredly are not. In any case, they mean more federal dollars showered on a state that is well accustomed to them but always wants more. Maryland has been basting in federal sauce ever since the Bush administration started to blow money in the name of homeland security after the September 2001 terrorist attacks. Total federal spending and obligations in Maryland in 2008 was a record of $77.9 billion, according to the Consolidated Federal Funds Report. That's up 60 percent in nominal dollars from the 2001 level. In a state economy of about $300 billion, $77.9 billion from Uncle Fed is real dough.

Much of this comes from taxes paid by New Jersey, Connecticut and other hapless places with high incomes that don't happen to be right next to D.C. Maryland sucked in $67 billion in federal spending in 2005 but paid only $49 billion in federal taxes, according to the Tax Foundation. New Jersey, on the other hand, paid out $86 billion in federal taxes that year but got back only $59 billion in federal spending. Thanks New Jersey!

Posted by Jay Hancock at 6:23 AM | Permalink | Comments (2)
Categories: Government & Business
        

The state is giving $306,050 in taxpayer money to arts & culture enterprises under the "Maryland Arts Employment Stabilization Program." As the economy struggles and the state faces further budget gaps, is this a good way to spend resources? Discuss.

GOVERNOR O’MALLEY ANNOUNCES ARRA GRANTS AWARDED TO 29 MARYLAND ARTS ORGANIZATIONS

Maryland State Arts Council Grants $306,050 to Preserve 40 Jobs in Nonprofit Arts Sector

Maryland Arts Employment Stabilization Program Grantees ($306,050)

Organization Name Grant Amount County
Academy Art Museum
$10,000.00 Talbot
Art Institute and Gallery $8,500.00 Wicomico
Art on Purpose $10,000.00 Baltimore City
Ballet Theatre of Maryland, Inc. $10,000.00 Anne Arundel
Black Cherry Puppet Theater $15,000.00 Baltimore City
Candlelight Concert Society, Inc. $12,500.00 Howard
Caroline County Council of Arts, Inc. $10,000.00 Caroline
Cecil County Arts Council Inc. $7,500.00 Cecil
Chesapeake Arts Center $7,500.00 Anne Arundel
CityLit Project $12,500.00 Baltimore City
Collective, Inc., The $1,000.00 Baltimore City
Contemporary Arts, Inc. $6,800.00 Baltimore County
Delaplaine Visual Arts Education Center $10,000.00 Frederick
Dorchester Arts Center, Inc. $15,000.00 Dorchester
Footworks Percussive Dance Ensemble $15,000.00 Anne Arundel
Garrett Lakes Arts Festival $10,000.00 Garrett
Imagination Stage, Inc. $12,500.00 Montgomery
Jewish Museum of Maryland $17,500.00 Baltimore City
Maryland Hall for the Creative Arts $10,000.00 Anne Arundel
Maryland Historical Society $10,000.00 Baltimore City
Maryland Symphony Orchestra, The $12,500.00 Washington
National Philharmonic $12,500.00 Montgomery
Olney Theatre Center for the Arts $10,000.00 Montgomery
Pro Musica Rara $5,250.00 Baltimore City
Pyramid Atlantic Art Center $15,000.00 Montgomery
Queen Anne's County Arts Council $2,000.00 Queen Anne's
Round House Theatre $15,000.00 Montgomery
World Arts Focus $12,500.00 Prince George's
Young Audiences of Maryland, Inc. $10,000.00 Baltimore City

Can't find a link. The whole press release is below the fold.

Continue reading "Should O'Malley give taxpayer $$$ to puppet theaters? " »

Posted by Jay Hancock at 10:42 AM | Permalink | Comments (44)
Categories: Government & Business
        

Greg Mankiw points out that President Obama wants to hugely increase government spending on research and development while Obama advisor Austan Goolsbee has published a paper arguing that government R&D spending doesn't accomplish as much as people think. From Goolsbee's abstract:

The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers.

Fortunately, elsewhere on his blog Mankiw provides the solution to an inelastic R&D worker supply: more H-1B visas.

Posted by Jay Hancock at 10:22 AM | Permalink | Comments (3)
Categories: Government & Business
        

Johns Hopkins economics prof Steve Hanke, libertarian, hard-money advocate and sworn enemy if the International Monetary Fund, is dismayed that the IMF and every other form of big government is making a comeback, ratcheting up from the plateaux they reached during the previous crises. This is from his latest column for GlobeAsia magazine.

As Robert Higgs verified in his 1987 classic, Crisis and Leviathan, crises act as a ratchet, shifting the trend line of government’s size and scope up to a higher level. History provides many illustrations of how damaging this fallout can be.

Take the Great Depression. At that time, the organized farm lobbies, having sought subsidies for decades, took advantage of the crisis to pass a sweeping rescue package, the Agricultural Adjustment Act, whose title declared it to be “an act to relieve the existing national economic emergency.” Seventy-six years later, the farmers are still sucking money from the rest of society and agricultural policy has been enlarged to satisfy a variety of other interest groups, including conservationists, nutritionists and friends of the third world. Indeed, even though agricultural prices hit record highs last year, the river of government farm subsidies kept flowing.

Here is the whole thing:

The panic of 2008 has sent the political classes into fits of hyperactivity. Their favorite ploy has been to scare the public into supporting gigantic interventionist policies designed to inflate government budgets and re-regulate economic activity. These scare tactics were on display as world leaders prepared for the London meeting of the Group of 20 on April 2. The countries represented in this grouping account for two-thirds of the world’s population and 90% of its gross national product. After failing to predict a slow-down, let alone a panic, the International Monetary Fund finally issued a scary forecast on March 19—just in time for the G-20 meeting.

Continue reading "Hanke: Crisis is perfect excuse for big-government fans" »

Posted by Jay Hancock at 10:14 AM | Permalink | Comments (0)
Categories: Government & Business