November 29, 2012

Forbes calls OH a ‘Death Spiral State’

Filed under: Economy,Ohio Economy,Ohio Politics,Taxes & Government — Tom @ 5:05 pm

Makers vs. takers.

This post went up with slight revisions at Watchdog.org earlier this afternoon.

In a November 25 item at Forbes, William Baldwin warned readers that Ohio is a “death spiral state” which is “at high risk of a fiscal tailspin.”

Baldwin used two factors to identify what he describes as the nation’s “fiscal hellholes”:

The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector.

… The second element … is a scorecard of state credit-worthiness done by Conning & Co., a money manager known for its measures of risk in insurance company portfolios.

The Buckeye State’s “taker-maker” ratio is 1.00, meaning that Baldwin determined that it has just as many takers as makers. Other states with worse ratios, indicating that they have more takers than makers, include Hawaii (1.02), Illinois (1.03), Kentucky (1.05), South Carolina (1.06), New York (1.07), Maine (1.07), Alabama (1.10), California (1.39), Mississippi (1.49), and New Mexico (1.53).

Ohioans should take little comfort in having the least objectionable situation of the eleven states Baldwin identified. The state is paying the price for years of entitlement expansion under its previous governor. Current governor John Kasich, despite all he has accomplished in the past two years, has failed to stem the tide of dependency.

Food stamp program participation in the Buckeye State is out of control. In August, despite a seasonally adjusted unemployment rate of 7.2 percent, 1.68 million individuals, over 14 percent of the state’s population, were on the food stamp rolls — an astonishing one-month increase of over 110,000. In October 2008, the last time the state’s unemployment rate was about that low, it had over 25 percent fewer participants.

What happened? For starters, state government, with federal blessing, loosened the program’s eligibility requirements to the point where, as shown in early 2009, a couple with $80,000 in the bank and a paid-off house in an upscale suburb was able to qualify. College students, even those with wealthy parents, can receive benefits if they claim that they are receiving no or little support from them. Beyond that, I suspect that many who have found work which would disqualify them from receiving benefits or cause them to be greatly reduced have been slow to report their improved situation — if they have reported it at all.

In September 2008 Ohio had almost 179,000 people receiving benefits under the Temporary Assistance for Needy Families (TANF, also known as “traditional welfare) program.  At the end of 2011, apparently the latest data available, it was over 193,000, a significant decline from a peak of over 240,000 the previous year. That’s fine, but Ohio’s 1.61 percent of the population on welfare was still 60 percent above the non-California national average of barely over one percent.

As to credit quality, the Conning scorecard to which Baldwin referred ranks Ohio 47th out of all 50 states. In their view, only New York, New Jersey, and Connecticut are worse off. The scorecard uses a variety of factors in its evaluation, many of which relate to a state’s economic vibrancy, an area where Ohio badly trails its peers.

Baldwin’s bottom line: Unless things change, his “death spiral states” are ones which “can look forward to a rising tax burden, deteriorating state finances and an exodus of employers.”

What should Kasich and Ohio’s state leaders do? Besides limiting programs for the needy to the truly needy, prosecuting those who are gaming the system, and maintaining what has for the most part been a fiscally conservative posture, they need to recognize that a longer-term solution is right beneath their feet in the form of retrievable oil and gas resources. Rather than heavily tax the companies in these industries, as Kasich has proposed, Ohio should be encouraging them to explore and drill. Rapid economic growth is what has the greatest potential for solving the “taker-maker” problem, and these industries have the greatest potential for such growth.

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