The total countywide collection will be $370 million or more — very likely several tens of millions more.

The current round of SPLOST fell dramatically short of estimated revenues due to the steep decline in economic activity during the 2007 to 2009 recession and throughout the slow recovery since then.

Voter approved the last SPLOST by a 3 to 2 margin — and gave an extension of ESPLOST an even bigger margin a couple of years ago. But TSPLOST got thumped in the summer of 2012 and I’d say the SPLOST vote in November will be very close.

Here’s a screen cap of the County’s proposed spending. You can see this list, as well as the project lists for Savannah and for other municipalities in this PDF at the County’s website.

Click here to see the status of various approved County projects over the years.

This fall, we’ll be voting on a new round of SPLOST — a 1 percent sales tax to fund a specific list of projects compiled by the County and by each of Chatham’s municipalities.

Given the politics, I’d say that there’s a very good chance that the referendum will fail.

I can already tell I’m going to pull my hair out trying to answer the same questions over and over, so consider this short post my opening salvo .  . .

Sales taxes have an inherently regressive quality, but SPLOST is virtually the only mechanism for the community to make significant investments in infrastructure. It’s worth keeping in mind that somewhere around 1/3rd of the total tax is paid by visitors. There are some SPLOST projects that have been delayed dramatically over the years and some that haven’t been completed at all, but the majority have been delivered as promised. Click here to see a full list of Chatham County’s promised projects and their status.

Of course, the 2008-2014 SPLOST collection fell far, far short of original estimates because the economy tanked. Combined with other shortfalls, the City of Savannah’s planned arena and new police headquarters could not be funded.

So it looks like Savannah will seek $120 million from the next SPLOST to cover the new arena that we desperately need. Will city voters approve a list that has the same major project that they approved back in 2006?

I wrote about the problem in a column earlier this year:

Whether the vote is held this year or next year, elected and appointed officials are definitely going to have some explaining to do.

Citizens will be repeatedly asking why major projects from the 2006 list havenâ€t been finished or, in some cases, even started.

There are fairly straightforward answers for the inevitable questions, but thereâ€s so much cynicism right now that many voters simply arenâ€t going to accept the explanations.

Voters†frustrations about incomplete SPLOST projects are due primarily to the protracted economic downturn.

When voters went to the polls in 2006, officials estimated the tax would raise $445 million countywide.

After a deep recession and a weak recovery, SPLOSTâ€s final haul will be about 15 percent less than that, something like $379 million.

But the real effects of the downturn went much deeper.

Since Chatham Countyâ€s new jail was guaranteed full funding, the rest of the municipalities†project lists had to be trimmed by closer to 20 percent.

Even that number understates the problem, since some major projects were never expected to be fully funded by SPLOST dollars in the first place.

The city of Savannahâ€s proposed new public safety headquarters and new arena, for example, would have needed tens of millions from other revenue sources beyond the 1 percent sales tax.

The economic decline decimated those additional revenues too.

The city hasn’t done itself any favors with the questionable delays and occasional backtracking in plans for the new Cultural Arts Center, which was approved in 2006 and is one of the projects that will be completed, in part by diverting a portion of the money budgeted for other projects.

Despite the relatively clear explanations for the lack of money to build the arena or the police headquarters, we’re going to keep hearing people ask, “What happened to the money for the arena?”

It’s pretty simple: because of the deep recession and the way that the SPLOST monies were divided up via the agreement in 2006, we never came even close to raising enough money to pay for a new arena and all the other promised projects.

It would be possible, but quite difficult, for the city to pay for a new arena without a new round of SPLOST.

Do they really want a more libertarian society in which the old and sick will get less support from the government? Are they reluctant to say that flat out and so have decided to couch their arguments in terms of economic necessity? Or have they simply been watching too much TV and too many commentators who are paid to rile up viewers by insisting that we’re always on the verge of some sort of crisis?

Ironically, of course, the vast majority of those talking heads on TV scoffed at the credible warnings about the housing bubble and the financial crisis — a real economic crisis.

Are they now trying to make up for that big miss by manufacturing new ones?

Or are Americans just bad at math?

It’s a curious problem.

Anyway, on to a few snippets from and comments about last Friday’s A SUMMARY OF THE 2013 ANNUAL REPORTS from the Social Security and Medicare Boards of Trustees.

First, I should note that there is one impending mini-crisis in Social Security funding: the Social Security Disability Insurance program’s trust fund will be depleted in 2016, according to the most recent predictions, and yearly income will not match outlays. Disability recipients will face significant cuts by the end of the decade.

But the other larger components of Medicare and Social Security face no impending crisis. And if the economy continues to improve and/or if we provide an easier path for foreign workers to become legal residents, we could see the projected path of the programs improve dramatically.

From the report:

Social Security and Medicare together accounted for 38 percent of federal expenditures in fiscal year 2012. Both programs will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment and, in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per capita GDP. In later years, projected costs expressed as a share of GDP trend up slowly for Medicare and are relatively flat for Social Security, reflecting very gradual population aging caused by increasing longevity and slower growth in per-beneficiary health care costs.

That sounds like a stark problem, but over the long term, neither Social Security nor Medicare is expected to eat up more than 7 percent of GDP:

Now, that’s a significant increase from where we are now, but it’s hard to see a crisis in that data anywhere.

There are four significant trust funds that we’re talking about here:
Social Security Disability Insurance — projected depletion 2016
Social Security Old Age and Survivors Insurance (what we generally mean by Social Security) — projected depletion 2033
Medicare Hospital Insurance — projected depletion 2026 (two years later than last year’s projection)
Medicare Supplementary Medical Insurance (included Medicare Part B and Part D) — balanced each year by federal law

But even if the trust funds are depleted in those years, the yearly income under current law will pay for a significant percentage of scheduled benefits:

The combined OASDI trust funds have a projected depletion date of 2033, also unchanged from last yearâ€s report. After the depletion of reserves, continuing tax income would be sufficient to pay 77 percent of scheduled benefits in 2033 and 72 percent in 2087. […]

The projected HI Trust Fund depletion date is 2026, two years later than reported last year. Under current law, scheduled HI tax and premium income would be sufficient to pay 87 percent of estimated HI cost in 2026 and 73 percent by 2087.

So we face long-term issues, and I agree — sort of — with the authors of the report on this point:

While considerations of equity and adequacy will inevitably accompany any legislative effort to restore these programs to long-term financial balance, a broadly accepted solution becomes less likely the longer that financing corrections are postponed.

Given today’s highly polarized and ideological political climate, I’m not sure that now is the best time for this fight.

I’d take a few basic steps now, if I were in charge: begin some minor means testing of both SS and Medicare payments, raise the income cap for payroll taxes, etc.

But there’s a good argument to be made that we should wait before doing anything beyond addressing the Disability Insurance program. From a nice sober analysis in the LA Times:

1. There’s still no reason for panic in “fixing” Social Security. The projected depletion date for the Social Security trust fund is still 2033, the same as it was in last year’s report. If the projection comes true, there then would be be enough money coming into the system from the payroll tax and other revenue sources to cover about 77% of currently scheduled benefits.

But that’s 20 years off, and projections at that range are inherently uncertain. “Only time will tell how accurate or inaccurate our projections turn out to be,” said public trustee Charles Blahous, making a point that is almost always overlooked in the Social Security debate. But Blahous is the most hawkish trustee, and he segued instantly into an appeal that Congress act to close the projected deficit now. He did this by contrasting the cost of doing so today versus waiting until 2033.

But of course those aren’t the only two choices. It makes sense to wait at least several years for two reasons: The risk of making irrevocable but unnecessary changes in the program become higher with haste; and the scale of the problem to be solved — if there is one — will become clearer as time passes.

Here in Georgia, for a number of years before we felt the worst of things, state and local officials maintained a pretense of immunity from the housing bust and the inevitable collapse, while at the same time holding up California — which was hit early and hard by the recession — as an example of liberal profligacy.

I got a little weary of warning my readers here that Georgia was in line for a much harder hit than most of them realized and of saying that California — a state rich in resources and human capital — would sort out its problems sooner than many imagined.

In his post States: Mo Money Mo Problems, Calculated Risk’s Bill McBride quotes from the NYT about disagreement among California officials on the size of this year’s budget surplus — somewhere between $1.2 billion and $4.4 billion — and on what to do with the extra money.

And this improvement has come despite the fact that California still has one of the nation’s highest rates of unemployment, but it’s down dramatically from the peak and falling steadily. That seems to guarantee increased revenues for the foreseeable future.

From McBride, a California resident:

The article notes three possibilities for the small surpluses: “restore programs cut during the recession, finance tax cuts or put into a rainy-day fund”. With the surpluses just starting, I think tax cuts should be off the table (they are too hard to reverse if revenue falters). My suggestion would be to pay down debt (rainy-day fund) and cautiously restore some cuts.

McBride also notes that the economic drag from cuts to state and local government has likely ground to a halt nationwide. The declines in government spending and the cuts to the labor force have slowed the recovery. Here in Georgia, about half of all state and local job losses in recent years have come in education — a policy that raises serious questions about Georgia’s competitiveness going forward.

Here’s Calculated Risk’s updated graph on employment in the U.S. by state and local governments:

If we consider that demand for many local government employees — e.g., teachers, sanitation workers and public safety officers — is a function of population, then this graph is even more problematic. As the nation adds people, the demand for workers in those fields should increase.

I never understood the baseless optimism before the recession and during the first full year of it in 2008. And I sure don’t understand why so many people keep using the word “crisis” to describe the current state of the federal budget. We have some long-term issues — really important ones — but the American economy is hardly facing any sort of crisis, unless it’s a politically manufactured one.

If the private sector continues to add jobs at the current pace through the end of the year, 2013 will be the best year for private sector employment growth since Bill Clinton was President.

And federal budget deficits, which ballooned because of collapsing revenue and increased spending (some discretionary, some mandatory) during the recession, are falling fast. And it looks like part of the decline is related to a surprisingly persistent slowing of the rate of increase in health care spending.

From the latest projections by the Congressional Budget Office:

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO)
estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.

Because revenues, under current law, are projected to rise more rapidly than spending in the next two years, deficits in CBOâ€s baseline projections continue to shrink, falling to 2.1 percent of GDP by 2015 (see Table 1 on page 8).

But wait? Why should we be happy with any deficit at all? Isn’t all this unsustainable? We could and should shoot for budgets that balance, but the U.S. has been running yearly deficits for a few generations now, excepting only a handful of years. Such long-run deficits would seem to be the very definition of “sustainable.” As long as interest payments on the debt remain near historical norms, there’s no indication that our economy will suffer some new plague.

But shouldn’t the federal government spend only what comes in, just like American households do? Ha. How many households out there are literally carrying no debt? How many Americans pay cash for their homes, cars, and every other big ticket items?

Take a look at this graph from Calculated Risk regarding deficits as a percentage of GDP. Note that this year’s deficit, as the nation is still in the long recovery process from the housing bust and financial crisis, will be less than it was for several years under Reagan and the first Bush. By the time Obama leaves office, our deficit/GDP ratio will be lower than it was through much of the Bush II presidency.

There are a number of reasons for the brighter forecast (which I suspect will be revised even more favorably at a later date): an improving economy, the tax increase on the highest earners, faster-than-expected repayment of bailout funds, the expiration of the payroll tax cuts, and sequestration and other substantive cuts in federal spending already enacted.

I don’t agree with all the recent cuts, and I think the best argument out there right now is that we’re cutting the deficit too fast.

Sure, we have longer term issues regarding the deficit and the debt, both of which are likely to increase again in a few years as Social Security and Medicare eat up a bigger and bigger chunk of the federal budget as the population ages.

I’d love to see some sort of “grand bargain” that deals to some degree with these longer term issues, and I think the cuts of sequestration are doing and will do considerable damage to certain sectors and in some locations.

But there are lots more reasons to be optimistic than pessimistic about the U.S. economy over the next few years.

The truth is that the federal government, as seen through the budget, is a massive insurance conglomerate with a large standing army. Social Security, Medicare and Medicaid make up almost half of federal spending. Defense is a bit less than as fifth. Thatâ€s not to say weâ€re spending the right amount on those programs. Itâ€s just to sat your money isnâ€t going to “waste and fraud,” or to a bloated foreign aid budget. Itâ€s going to big, visible and broadly popular programs. Thatâ€s why deficit reduction is so hard.

I’ve hit this same point over and over and over again through the years. It really can’t be said enough. There is no way to cut federal spending substantively given the public’s demand the major categories of Social Security, Medicare, Medicaid, and defense.

Klein’s post also notes that federal tax revenue for 2012 is expected to be 15.8 percent of GDP:

Tax revenues are only expected to be 15.8 percent of GDP in 2012. Theyâ€ve not been above 16 percent of GDP since 2008. But before 2008, you have to go back to 1950 to find a year when they were below 16 percent of GDP. So taxes really were historically low last year.

Thatâ€s not necessarily a good thing. Itâ€s partly attributable to the weak economy, and partly attributable to the huge raft of tax cuts passed to strengthen the economy (the payroll tax cut, the extended Bush tax cuts, the stimulus tax cuts, etc). But the facts are the facts: Taxes were really low in 2012.

In the late 1990s, federal tax revenues topped 20 percent of GDP.

Should he have proposed those items?

As I understand it at this point, the Medicare cuts would come primarily from reduced payments to drug companies and from some means testing that would force wealthier seniors to pay more into the system.

Those seem like reasonable changes — maybe too reasonable. I would advocate a more aggressive form of means testing, including some significant increases in Medicare premiums for seniors who can afford them. I would also raise the cap on income that is subject to payroll taxes.

The use of chained CPI to reduce the rate of increase of Social Security is more problematic. Social Security can remain solvent through minor adjustments in the income cap for payroll taxes and through some form of means testing. It’s also worth saying that a large percentage of Americans within a couple of decades of retirement are totally unprepared for their retirements. It’s likely that we will have no choice but to beef up Social Security for some percentage of seniors.

In effect, Obama has called the Republicans’ bluff on entitlements, as the Washington Post’s Wonkblog notes.

Will Republicans now actually support entitlement cuts — ones they have already voted for — now that there’s a chance of those cuts really happening?

House GOP campaign head Greg Walden has already called Obama’s budget a “shocking attack on seniors.”

While seniors have been the GOP’s most solid supporters in recent elections, seniors broadly and strongly oppose the very cuts that the GOP has championed, a form of which now appears in the President’s budget.

Click here for a great interactive graphic about federal spending and you can get a better sense of the difficulties in this process. About 2/3rds of federal spending is “mandatory” — it’s on programs that cannot be cut without congressional action. That category is dominated by Social Security, Medicare, and Medicaid, but also includes federal retirement, a variety of military benefits, and the like.

About half of discretionary spending currently goes to the military, cuts to which many politicians — including a significant number of Republicans — oppose.

Obama also wants to close part of the budget gap through targeted tax “reforms” that will reduce deductions for wealthy Americans and generally raise their taxes. I approve of those changes. Without those additional revenues, we’d likely have to make draconian — and politically impossible — cuts to entitlements for seniors.

Let me add that I don’t sense any crisis here, although the recovery remains sluggish for a variety of obvious reasons, and even though we are going to feel some real pain because of the sequester. In fact, with the deficit reduction already in place, the “federal budget deficit is shrinking rapidly.” As a percentage of GDP, our yearly deficits have been cut in half, and Obama’s budget would reduce yearly deficits to less than 3 percent of GDP over the next decade. That would stabilize the current debt as a percentage of GDP, but it would do nothing to actually reduce the debt.

If we want to reduce the debt, we’ll need deeper cuts to the military and to entitlements and/or additional tax increases.

There is no easy answer here.

I’m surprised by all the public rhetoric about the dangers of deficits and debt after there was so little concern, especially from the right, during the Bush years. Yes, we need to keep the debt from consuming us, but America is an incredibly wealthy and resourceful country. While I would prefer a budget blueprint that includes additional spending cuts and additional tax increases to bring the budget into full balance and begin reducing the debt by 2020 or so, the president’s budget is a credible one.

By the way, I don’t regard some budget blueprints as credible. Those that do not detail savings by identifying programs to be cut are simply not credible.

Today, Ezra Klein — in another great post at the Washington Post’s Wonkblog, must reading for anyone following the links between politics and economics — responds to criticism after a recent commentary in which he suggested that seniors are getting more in benefits than they pay into the entitlement programs and that those “mandatory” benefits will “squeeze out” other worthy spending.

From Have seniors really paid for Medicare and Social Security?:

Few seniors have actually paid for their Medicare benefits. According to an Urban Institute estimate, the typical retired couple paid $122,000 in lifetime Medicare taxes but can expect to receive benefits worth $387,000. Social Security is another story. There, the average retired couple paid $600,000 in lifetime taxes for $579,000 in benefits. Put together, itâ€s $722,000 in taxes for $966,000 in benefits. (All figures are adjusted for inflation.)[…]

Thereâ€s nothing unusual about Social Security and Medicare in this respect. We all pay into most everything the government does, and weâ€re all paying less than weâ€re ultimately receiving. Thatâ€s why thereâ€s a large and persistent deficit.[…]

The point here isnâ€t that seniors donâ€t deserve their benefits, or have done something wrong. Itâ€s that the structure and politics of the federal budget right now are leading to a situation in which spending on retirees and keeping taxes low on current workers could really shortchange needed investments in our future.

For now, Social Security is not nearly as big a problem as Medicare, but, going forward, we will need to either cut benefits or increase revenues to support both as we have in the past. There are some straightforward ways to tackle the future shortfalls, a couple of which are mentioned in the post, including raising the cap on the income subjected to payroll taxes, means testing to some degree, raising the edge of full eligibility, and asking for larger co-payments or premiums for wealthier Medicare recipients.

It’s not rocket science. But if the relatively simple math is beyond the ken of those who think seniors have all paid enough into the system to cover their current benefits, then it might as well be rocket science.