Many towns and cities throughout the central corridor don’t have enough workers to fill all the available jobs. If they do, sometimes there’s no place to house them. Home prices in North Dakota are up 17 percent over the past five years, which is one of the highest in the nation but also reflective of the state’s severe housing shortage.16 Housing demand in North Dakota is being driven by the need for living quarters, not by easy credit or get-rich-quick speculation. “Man camps” and “tent camps” are being used as temporary housing for workers from Odessa, Texas, to Williston, North Dakota.17 Companies like Target Logistics that fill the temporary-housing void are fast becoming big business. The growth of companies like Target Logistics hints at a significant multiplier effect. More jobs and more people mean more demand for stores, movie theaters, restaurants, and, yes, banks. Bank consolidation will be most prolific in this region in coming years, as the growing credit needs of a booming economy create demand for superregional banks—none of which exist in the region today.
The cities and states of the central corridor will step up their investments in the kind of infrastructure most likely to attract business, and they’ll have the tax revenues to do it. Duluth, Minnesota, just finished construction on a new $78 million airport.18 Wichita Falls, Texas, has broken ground on a new $100 million terminal.19 And Texas recently opened a new $1.3 billion toll road connecting Austin and San Antonio.20 These are the kinds of investments likely to attract even more new businesses. The central-corridor states are better able to cut taxes too. As of January 2013 six of these states were considering cuts to state income-tax rates, and a seventh—Kansas—had dropped its top rate from 6.45 percent to 4.9 percent. In neighboring Missouri, Kansas’s aggressive tax cutting sparked fears of a westward jobs exodus. “I do think it’s hard to be anywhere near Kansas right now,” said Amy Blouin, executive director of the Missouri Budget Project, a St. Louis–based nonprofit group that analyzes state spending.21
For the housing-bust states there are no easy fixes. Budgets at every level of government are so strained that there can be no repeats of the bailouts Orange County received from the state of California in 1995 or New York City solicited from the federal government in 1975. The damage is done, but hope is not all lost. Since 2010 thirty-six new governors have been elected with broad mandates for change. Many of them probably didn’t realize how much of their terms would be shaped by triagelike budget decisions necessary to preserve the solvency of their state finances. Few of them could have imagined that they would have to tackle the politically toxic issues of deep budget cuts and pension reform. Fewer still likely realized that they would have to choose between honoring labor contracts and bond covenants and providing basic services to constituents. The key question all governors face is when to expend political capital for longer-term gains—gains that might not even be fully realized until after they’ve left office. Willingness or unwillingness to take political risks and make tough decisions increasingly will determine which states dig themselves out of their fiscal holes and which become the twenty-first-century economic heirs of Lowell, Detroit, and Mississippi.
Ultimately no amount of cost cutting or entitlement reform will be enough without a rebound in revenues, and new revenues will have to come from job creation. Job one for any governor or big-city mayor has to be attracting human capital and jobs that contribute to the tax base. Raising taxes to uncompetitive rates is simply not going to work because it’s just too easy these days for businesses and taxpayers to pick up stakes. Perhaps twenty years ago paying a big premium to live in California might have been reasonable—there’s the great weather, good schools, beaches, mountains, redwood forests, and on and on. But today that premium is just too high. Californians aren’t getting enough for their taxes and mortgage payments. With the money they save by moving out of state, they can afford ample vacations to Disneyland and Yosemite.
How can governors create more good jobs in a bad economy? One good example comes from North Carolina and its former governor Beverly Perdue. In 2009 Perdue used $13 million in ARRA money to launch the state’s JobsNOW “12 in 6” job-training program. Operated out of the state’s fifty-seven community colleges, the program aimed to provide up to six months of training in one of twelve different in-demand fields ranging from health care to manufacturing. A 2011 study by the North Carolina Community College System found that people who completed the course work increased their quarterly income by an average of $415. For those who chose health-care training, the increase was $700.22 Overall the state added eighty thousand new jobs and $16 billion in new investment during Perdue’s tenure. Other initiatives states should consider to restart job growth include opening up oil and gas production, passing right-to-work laws, and, whenever possible, cutting personal and corporate income taxes. There are legitimate political arguments to be made against all of these, but the simple reality is that states are engaged in a bare-knuckle fight for jobs and these happen to be the issues employers care about.
Winning back jobs for states and cities also means finally fixing the fiscal problems and making the tough decisions others had put off for years. There are solutions to the budget woes of the housing-bust states. The challenge is getting voters and unions to accept them. When it comes to state and municipal budgets, compromise has become a game of high-stakes chicken. Most elected officials want to avoid tough choices that in the near term might cost political support. That puts taxpayers at a disadvantage because public-employee unions are disinclined to compromise. Politicians have no explicit obligation to fight for the financial interests of taxpayers, but union leaders do have such a duty to their members. Take a look at the member handbook of the National Education Association, the big teachers’ union. One clearly articulated NEA goal is “to preserve and expand collective bargaining rights for education employees and to improve members’ compensation and benefits (including pension and health care benefits).”23
Teachers and other public-sector employees want what was promised to them, but suddenly voters are pressuring politicians to fight as hard for their interests as unions fight for their members. And what voters and taxpayers want is good public services with the lowest tax burden possible—a goal incompatible with the mission of public-employee unions. In the private sector the threat of layoffs and business failure has been unions’ biggest incentive to compromise. Perhaps a similar dynamic will promote compromise with the public-employee unions. In Central Falls, Rhode Island, the unions would have been better off taking the deal on the table before the city filed for bankruptcy. Since 2010 the ranks of state and local government workers have declined by almost seven hundred thousand; state spending growth is decelerating nationally and declining in many of the populous coastal and Sun Belt states. The issue of willingness to pay bondholders and pensioners is now coming to the forefront of the debate in local politics. Citizens—even prounion ones—are demanding an end to cuts. “In a liberal city, in a blue state, I got a near 70% yes vote,” said Reed, the San Jose mayor, of the pension reform vote he thinks will become a national model. “There has to be something here.”24
Pensions and retirement benefits are the key to fixing state and local finances, but there are smaller steps that can be taken too. Shared services is one such example. Everybody likes the idea of having their own local police department. The town of Mamaroneck, New York, actually has three—one police force for the town, one for the village of Mamaroneck (a district within the town’s borders), and one for the village of Larchmont (another district). Of course, having three separate police forces for a town of 19,000 makes little fiscal sense. A Grant Thornton study found that nearby Nassau County, New York, could save millions of dollars a year by streamlining the police force under one reporting structure (down from four), which in turn would lead to better monitoring and lower overtime pay (including scheduling shifts in accordance with actual crime patterns) as well as the consolidation of procurement and other back-office functions. Outsourcing and privatization
are other options. In 2008 the town of Molalla, Oregon, spent $507,973 on employee salaries and other expenses to handle building permits, inspections, and other construction-related regulation. After outsourcing most of these duties, the town was spending only $150,000 a year for the same work. All of this requires political will, but these are the low-hanging fruit available to governors, mayors, and other local lawmakers.25
Despite so many dreary economic headlines, the potential still exists for a powerful recovery in the United States. Manufacturing is bouncing back, adding some five hundred thousand new jobs since 2010. The growth rate of our biggest economic rival, China, continues to slow, and Europe seems stuck in a Japan-in-the-2000s-style malaise. Domestic oil and gas production is increasing for the first time in over twenty years. We now boast the lowest natural-gas prices in the world, which is a giant magnet to global manufacturers. Clearly there’s a lot to like. However, if states don’t have the money to build business-friendly infrastructure and to educate and train their people, their communities will suffer because of it. The real-estate industry that transformed the nation over the past thirty-plus years has now left much of it weakened, sparing only those states that it ignored during the bubble. The damage can be fixed, so long as states get serious about digging themselves out of debt. Good leaders acting quickly is the only hope for the worst-off states, for they’ve been left with the smallest margins of error. As my grandfather used to say, you can’t expect to make a lot of money if you owe a lot too.
Acknowledgments
This book was born out of my love of history and my deep appreciation for all of the advantages that living in America has given me. Although I have written prolifically for years, I never had any intention of writing a book. All of that changed one night over dinner in New York with Michael Ovitz and Andy Walter. I credit Michael not only with convincing me to write a book but also with introducing me to Adrian Zackheim, the publisher of this book. He, Niki Papadopoulos, and the team at Portfolio were excellent partners throughout the process and I thank them for that. For a first-time author, patience is a scarce commodity. Adrian had enough patience for both of us. Thank you also to Bob Barnett at Williams & Connolly.
On the research side, Angela Cantu, Marc Lombardo, Brittani Caetano, and the rest of the MWAG team have been invaluable. Brittani, you are wise well beyond your years. Thank you.
This book benefited greatly from the cooperation and contribution of the people on the front line of state issues. Thanks go to the governors, mayors, and other representatives who were so gracious with their time: Mitch Daniels, Rick Scott, Mary Fallin, Terry Branstad, as well as Gina Raimondo, Chuck Reed, Edward P. Mangano, Susan Combs, and so many more.
Thank you to Jon Birger, the excellent writer who helped get me over the finish line.
Mom, I cannot thank you enough for all of the wonderful encouragement you have always given me.
Lavelle Layfield was both supportive and constructive with his feedback.
Leigh Gallagher and Shawn Tully, thank you for all of your smart, sage, and extremely generous feedback. You are dear friends. Maria Bartiromo, one of the hardest-working people I know, thank you for both your support and friendship.
I am so very grateful for the consistent support and example of Ken Wilson, Diane Taylor, Ed Herlihy, Tom Hoenig, Rich Handler, Molly Ashby, Jim Robinson III, Ken Langone, Rodgin Cohen, and Michael Lewis.
Finally, to my husband, John Layfield, who is exhaustively curious and makes me smarter every day.
Notes
Introduction
1. Michiyo Nakamoto and David Wighton, “Citigroup Chief Stays Bullish on Buy-outs,” Financial Times, July 9, 2007, http://www.ft.com/intl/cms/s/0/80e2987a-2e50-11dc-821c-0000779fd2ac.html#axzz2JwvzZCZO.
2. Steve Rosenbush, “Citi: That Sinking Feeling,” Bloomberg Businessweek, November 1, 2007, http://www.businessweek.com/stories/2007-11-01/citi-that-sinking-feelingbusinessweek-business-news-stock-market-and-financial-advice.
3. Corey Hajim and Adam Lashinsky, “How Bear Stearns Lost Its Way,” CNNMoney, August 21, 2007, http://money.cnn.com/2007/08/20/magazines/fortune/bear_stearns.fortune/index.htm.
4. Credit Writedowns and Global Macro Advisors LLC, “Credit Crisis Timeline,” Credit Writedowns, 2009, http://www.creditwritedowns.com/credit-crisis-timeline/.
5. Susan Burhouse and Yazmin Osaki, Federal Deposit Insurance Corporation, “2011 FDIC National Survey of Unbanked and Underbanked Households,” September 2012, http://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf.
6. Federal Housing Finance Agency, “City HPI Data, MSA HPI Comparisons,” 2012, http://www.fhfa.gov/Default.aspx?Page=216&Type=compare&Area1=11180&Area2=27260&Area3=38060.
7. U.S. Department of Labor, Bureau of Labor Statistics, “Historical State Unemployment Rate Maps,” http://www.bls.gov/lau/maps/stseries.pdf; U.S. Census Bureau, “Quarterly Summary of State and Local Taxes,” table 3: “Historical State Tax Collections by State,” http://www.census.gov/govs/qtax/table_3.html.
8. William La Jeunesse, “California Residents, Businesses Consider Bailing on Golden State over Taxes,” FoxNews.com, January 23, 2013, http://www.foxnews.com/politics/2013/01/23/california-residents-businesses-consider-bailing-on-golden-state-over-taxes/.
9. Monica Davey, “Questions Persisting as Illinois Raises Taxes,” New York Times, January 12, 2011, http://www.nytimes.com/2011/01/13/us/13illinois.html?_r=0.
10. U.S. Department of Labor, Bureau of Labor Statistics, “Historical State Unemployment Rate Maps,” http://www.bls.gov/lau/maps/stseries.pdf.
11. Steven Greenhouse, “Tentative Pact for City Teachers Increases Pay, and Workweek,” New York Times, June 11, 2002, http://www.nytimes.com/2002/06/11/nyregion/tentative-pact-for-city-teachers-increases-pay-and-workweek.html.
12. Kenneth C. Wolensky, “Barbara T. Zolli on ‘A Drop of Oil,’” Pennsylvania Heritage, 35, no. 2 (spring 2009), http://www.portal.state.pa.us/portal/server.pt/community/history/4569/drake_well__oil150/471308.
Chapter 1: It Starts at Home
1. World Trade Organization, “International Trade and Market Access Data,” http://www.wto.org/english/res_e/statis_e/statis_e.htm; U.S. Energy Information Administration, “Countries: Overview,” http://www.eia.gov/countries/; United States Department of Agriculture, Foreign Agricultural Service, “Frequently Asked Questions About Agricultural Trade,” http://www.fas.usda.gov/itp/Policy/tradeFAQ.asp.
2. Michelle V. Rafter, “Manufacturing Jobs Making a Comeback in Southern U.S.,” NBC News, December 20, 2012, http://www.nbcnews.com/business/manufacturing-jobs-making-comeback-southern-u-s-1C7660234.
3. Eugene R. Dattel, “Cotton in a Global Economy: Mississippi (1800–1860),” Mississippi History Now, October 2006, http://mshistorynow.mdah.state.ms.us/articles/161/cotton-in-a-global-economy-mississippi-1800-1860.
4. “America the History of Us, Episode 4: Division,” History.com, http://www.history.com/shows/america-the-story-of-us/articles/episode-4-division; Heidi Ridgley, “An Industrial Revolution,” National Parks, Spring 2009 Issue, http://www.npca.org/news/magazine/all-issues/2009/spring/an-industrial-revolution.html.
5. Amanda Ripley, “Kerry’s Massachusetts: The Not So Favorite Son,” Time, August 2, 2004, http://www.time.com/time/printout/0,8816,994770,00.html; History of Lowell, Massachusetts, Wikipedia, http://en.wikipedia.org/wiki/History_of_Lowell,_Massachusetts.
6. Chris Isidore, “GM Bankruptcy: End of an Era,” CNNMoney.com, June 2, 2009, http://money.cnn.com/2009/06/01/news/companies/gm_bankruptcy/.
7. U.S. Census Bureau, State Government Tax Collections, “2011 Annual Survey of State Government Tax Collections,” http://www2.census.gov/govs/statetax/2011stcreport.pdf; U.S. Department of Commerce, Bureau of Economic Analysis, Regional Data: GDP and Personal Income, Gross Domestic Product by State, http://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=1#reqid=70&step=1&isuri=1.
8. Meredith Whitney Advisory Group, “Tragedy of the Commons Third Edition: 2012
Update”; U.S. Department of Commerce, U.S. Census Bureau, “Quarterly Summary of State and Local Taxes,” table 3: “Historical State Tax Collections by State,” http://www.census.gov/govs/qtax/table_3.html.
9. William H. Frey, “The Great American Migration Slowdown: Regional and Metropolitan Dimensions,” Brookings Institution, Metropolitan Policy Program, December 2009, http://www.brookings.edu/~/media/research/files/opinions/2011/1/12%20migration%20frey/1209_migration_frey.pdf.
10. Wendell Cox, “The Export Business in California (People and Jobs),” Fox & Hounds, May 11, 2012, http://www.foxandhoundsdaily.com/2012/05/the-export-business-in-california-people-and-jobs/.
Chapter 2: Housing Revisited
1. Library of Congress, Primary Documents in American History, “Homestead Act,” http://www.loc.gov/rr/program/bib/ourdocs/Homestead.html.
2. Mary Evans, “Better Homes in America/Making Bricks with 1st Graders,” National Archives, Hoover Blackboard, October 15, 2010, http://blogs.archives.gov/hoover-blackboard/2010/10/15/better-homes-in-america/; Wenli Li and Fang Yang, “American Dream or American Obsession?: The Economic Benefits and Costs of Homeownership,” Federal Reserve Bank of Philadelphia, 2010, http://www.philadelphiafed.org/research-and-data/publications/business-review/2010/q3/brq310_benefits-and-costs-of-homeownership.pdf; Eduardo Porter, “Buy a Home, and Drag Society Down,” New York Times, November 13, 2005, http://www.nytimes.com/2005/11/13/weekinreview/13port.html.
Fate of the States: The New Geography of American Prosperity Page 16
