Worshiping the false god of fiscal rectitude in D.C.
A few weeks back, I tried to apply the premise of a Paul Krugman column to D.C. politics. It went so well, I'm gonna try it again.
Today Krugman tackles what he calls the "hypocrisy" of fiscal hawks calling for governments to take severe austerity measures even amid severe economic hardship. Not having a particularly distinguished background in macroeconomics, I will not judge the merits of his argument. But it reminded me deeply of a major local campaign issue these days -- the state of the city's "fund balance," the accumulated surpluses that have padded the city coffers in recent years.
Writes Krugman: "[T]he policy elite -- central bankers, finance ministers, politicians who pose as defenders of fiscal virtue -- are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods."
In the D.C. version of the analogy, Council Chairman Vincent Gray and Chief Financial Officer Natwar Gandhi are the policy elite, the invisible gods are Wall Street bond raters, and the sacrifices are most certainly human.
As colleague Nikita Stewart explained wonderfully a week ago, Gray has hammered Mayor Adrian M. Fenty for proposing budgets that have spent down the fund balance from about $1.5 billion to a projected $605 million in fiscal 2013. (Gray, Fenty correctly points out, has passed through all of those budgets.) And Gandhi issued a letter in July, warning Fenty and Gray that Wall Street had "expressed concern" about the "precipitous drop" in the fund balance and will be "watching carefully" to see how city leaders handle the issue. "To fail to address these challenges effectively would clearly threaten the District's hard-earned bond ratings, and could be viewed very unfavorably by rating agencies and investors alike," Gandhi wrote.
But the question is: Why do we keep these reserves if not to spend them in times of need? And is this not a time of need? Wall Street can bluster about bond ratings, sure. But in the universe of states, counties, cities and other governmental and quasi-governmental bodies with bonding authority, has the District of Columbia really been so irresponsible by spending the money it has in the bank during a generational recession in order to keep cops on the street and homeless residents off the street? (For the record, the D.C. Fiscal Policy Institute says it hasn't.)
Color me skeptical.
Fenty certainly hasn't done a very good job explaining the sacrifices we've been able to avoid by spending reserve dollars. But there would have to be sacrifices.
"Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland," Krugman writes. And anyone who holds a hard line on maintaining a fund balance equal to a quarter of the city's yearly local spending should acknowledge the suffering that decision would cause here in the District.
August 20, 2010; 3:19 PM ET
Categories: Adrian Fenty , DCision 2010 , The District , Vincent Gray
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