Episode 70: The Financial Crisis You don’t Talk about

Mark Moses: It’s impossible to effectively manage or budget for an amorphous organization, yet that’s what our cities and municipalities become.

Michael Schaus: This is Free to Offend. I’m your host, Michael Schaus. Very excited about today’s guest. It is Mark Moses. He is the author of The Municipal Financial Crisis, which is a topic that kind of hits close to my heart because it’s something that we talk about all the time on this podcast.

Local matters. I mean, federal budgets are certainly scary. $30 trillion worth of debt on the national level is certainly something worth discussing. But what happens locally has so much more impact on your life. And that’s something that’s one of the big lessons we should have taken away from Covid, by the way. But especially when you’re talking about financial budgets and municipal budgets and things like that, a lot of times it’s overlooked.

So very happy to have Mark Moses. Mark, First of all, thank you for joining us.

Mark Moses: Yeah, I’m happy to be here, Michael.

Michael Schaus: Talk a little bit about your book, The Municipal Financial Crisis. What is the municipal financial crisis that’s going on right now? Just kind of perusing the internet, it doesn’t actually seem like any states or, more importantly, municipal or city governments are really panicked. Should they be? Are they panicked and we just don’t see it?

Mark Moses: I think they should be panicking. And one of the things I try to do in my book is demystify local government budgeting so that people can really read between the lines and understand.

And then with respect to where things are today, the 2021 federal relief, which you’d call a bailout if it was given to anybody else, has helped mitigate, or you might say camouflage the underlying crisis. Because there were a lot of cities across the country that were in trouble before the pandemic. So, they’re being kept afloat by the federal relief.

There was a shift in the way consumers purchased during the pandemic where they shifted from services that weren’t available because you couldn’t go to restaurants and hairdressers, but you could still order online and bring things into your house. So that pushed up sales tax.

I think property tax revenues are pushed up artificially by a lot of migration, either within states as people, their houses didn’t work for them anymore when they’re working at home or they move from state to state.

But what do all those things have in common? They have nothing to do with the local financial management. So, everyone’s happy that they’re afloat, but they didn’t have anything to do with it. Well, that’s why you’re not seeing a panic. But it’s also why you should be seeing a panic because this stuff is all wearing off.

Michael Schaus: And this is something that we pointed out at Nevada Policy. I know when they were first talking about the COVID relief tax dollars that were going to go to local governments that was a big red flag for me because, as you point out, there was already financial strain. Cities across the country were already talking about having to cut services or increase taxes, all the time.

Clearly, they were having financial difficulties. And then suddenly this windfall comes from the federal governments. They didn’t change, as you point out, any of the managerial process. They didn’t change the way that they’re spending money or their priorities. They just kind of used it as a cushion. But that’s not going to be something that lasts long, especially in our inflationary environment.

Mark Moses: Well, and sometimes it wasn’t even a cushion because they weren’t allowed to spend the money prudently in some cases.

Michael Schaus: Right.

Mark Moses: In other words, they weren’t allowed to pay down debt. They had a lot of restrictions. They couldn’t refund the money to the taxpayers, and so there were some of these choices that were just off the table to begin with. That just created an environment where it expanded the scope. It did the exact opposite of what they should have been doing.

Rather than managing their scope and limiting their scope of activity. They were expanding the scope with new programs and throwing money at local businesses. And all of a sudden, they had money to start new grant programs locally. And they didn’t have to be as careful about balancing the budget because they had this additional resource, which, again, they were as cautious as they may have tried to be, the whole system was set up to be imprudent.

Michael Schaus: Yeah. There’s also a big concern for me because I come from Colorado, and years ago I moved here to Nevada from Colorado in part to get away what was going on in Denver. And right now, Denver is literally run by a group of self-proclaimed socialists. The financial situation there’s not getting better.

But the reason why I bring that up is because when we started off, I said local is always more important. I mean, what happens on the local level really impacts your day-to-day life, your tax burden, the services that you can get from government.

And one of the things that I see is kind of a mission creep in local government, where they try to do more and more and more, and as they’re doing that, they’re just exasperating the financial problems that they have.

Is this something that’s unique to just, you know, a few cities in California and Colorado and some of those liberal places? Or is this something you see happening everywhere, including here in Nevada?

Mark Moses: The more I learn, the more I find out that it’s everywhere. And you know, California may be more extreme in some regards, but there are a lot of states and localities that follow California trends. And so, it is influential. It does trickle down and out.

I mean, when I wrote the book, I thought, “Well, I don’t want this just to be about, you know, California and Washington state and places like that where, you know, these kinds of activities are just more extreme.”
But when I get feedback from people in the Midwest that I kind of think of, “Oh, that’s more conservative. They’re going to be just naturally a little more cautious,” it’s like, no, they’re as out of control in their context as California is in its context.

And it’s just what you described. You know, what you refer to as mission creep kind of comes out in my book as scope creep. But it’s really the same thing. It’s the refusal or rejection of the idea that you need to define who you are and what you are and limit your scope of activity.

I mean, the real thesis of my book is that it’s impossible to effectively manage or budget for an amorphous organization. Yet that’s what our cities and municipalities become because they just decide who they are, what they do from week to week, or council meeting to council meeting.

And so, think about it. Whether you’re the city manager trying to administer the organization, if the organization keeps shifting on you, you really have an impossible job. I mean, you can be a good juggler, but you can’t really manage in a real sense of management.

And this really makes a farse of budgets where, you know, you have budget managers that just pour their hearts and souls into cranking through numbers and trying to get technical accuracy and then it all gets overridden by political concerns. Or what they’re doing is so after the fact, what’s called financial planning is not planning. It’s really just going through the motions of planning. And you might put it in a nice, glossy book and you might use good grammar in explaining things, but it still isn’t connected to the organization because the organization keeps shifting.

Michael Schaus: Well, you know, and I’ve got a question for you because you spent many years working in municipal government. I’ve gone to a lot of city council meetings, both here in Las Vegas, but also, back in the day when I first started getting into radio, I was doing local city councils for small cities. I mean, Fort Morgan, Colorado’s a tiny little city.

Something I noticed was the political aspect of it on the city council. Those folks who are running the city so often have a very difficult time saying, “No, this is not the city’s job.” You know? So, somebody would come forward, “Hey, we need new sports facility”, and their immediate instinct is, how do we make that work?
Or businesses come along, and they want a special district or something, and their immediate instinct is, how do we make that work? And that’s part of that kind of mission creep or scope creep.

Inside of the actual kind of nuts and bolts, the people that are actually doing the work in municipal government, is there that same mentality? What did you see when you were working in California? Did you see a kind of culture where everybody working for government actively took part in that mission creep? Or were they just trying to get their job done and those politicians keep on throwing more and more stuff at them?

Mark Moses: I think it’s more the latter because the closer you are to a real operational activity, the more you have to be realistic about what’s possible and what’s not possible. And you know, one of the areas that gets really neglected that I used to try to champion was the public works area, because it’s not sexy. It’s not flashy. It’s not the new thing that you get to do a ribbon cutting ceremony about. It’s somewhat mundane, but it’s an important discipline.

And here you’ve taken responsibility for all this infrastructure, but then maintaining it conflicts or competes with these new projects and new initiatives. They also have to compete with higher profile things like police and fire.
And so, one of the things I try to point out is that it’s not just, “Oh, were you able to balance the budget,” but how did you balance the budget? Did you do it at the expense of your streets and local infrastructure that’s going to be crumbling, that you can’t really see from year to year.

And I’ll tell you, the cities I’ve consulted, they don’t even want to know how much deferred maintenance is out there because I think on one hand, they’re intimidated by it. On the other hand, there’s this idea that well, we don’t have the resources to deal with it anyway.

So, they never even inventory the deferred maintenance. And then if they did, it would kind of put a number out there that would be a problem when they had some new initiative or something, you know, a new pet project of somebody’s that they want to put through.

Michael Schaus: All this kind of reminds me of, you know, the pension problems that every state, including Nevada, is going through where first of all it’s not really approachable for the average person. The average person doesn’t really get involved in, you know, what all these pension terms mean and stuff like that.
So, most people aren’t really aware of the problem to begin with, and then when you start to talk about it, their eyes kind of glaze over. You know, as you were writing your book and as you’ve gone out there and seen some interest in your book, is there kind of a hunger for this?

Is this something that, you know, the average activist working just improve government regardless of what their politics are, is this something that they’re kind of eager for? It doesn’t seem to me like there’s a lot of what you’re talking about out there in the literary world.

Mark Moses: No, and that’s the gap I tried to fill because I really felt for a lot of people who were either angry or frustrated because they sensed there was a problem, and they were right. I mean, there is a problem, but they didn’t know how to articulate a positive solution or articulate for their council members what the problem was or how to go about it.

And this would happen with what I’ll just call libertarian type council members. They would come on and, you know, they’d vote no on things, but they wouldn’t explain why they’re voting no. And so, they would get marginalized. And again, I felt for them because they were right. They sensed there was something wrong. They were correct; there’s definitely something wrong. But they couldn’t really articulate it.

Michael Schaus: So how do we get out of this? Cause the problem that we run into, and it’s mostly a political problem, but I completely understand the people who object to it. You pointed out you might have some good libertarian folks on city council or something like that, and they want to say no to more spending or taking on more responsibilities or what have you.

But there’s a real political challenge there where people say, “Look, you’re my city government. Why are you not taking care of the housing problem, downtown or the homeless problem downtown, or take care of this or that?”
How do we kind of break that cycle? And maybe this goes partially into what should the appropriate role of local, city government should be. How do you kind of identify that and then put that into some sort of action?

Mark Moses: Yes, and there’s a lot to untangle. And that’s why it’s so difficult because you can’t just get from A to B in one move. And that’s how insidious some of this is.

I go through this in the book because I used to work for a municipal utility. It was a wastewater district. Why do cities, municipalities, take over these things, right? Well, if a private owner runs a wastewater district, they’re going to run it as an effective monopoly type situation. They can charge whatever they want. They can squeeze out money now and let the infrastructure all deteriorate. They can shortcut environmental rules, you know. So, we need to take this over as a government.

Well, look what’s happened. I presented a budget to a municipal utility that recommended no increase in the rate, zero increase, because I came to the conclusion that it just wasn’t needed. And the board could not resist. I mean, here they were; they were adopting the budget for the year and looking at rates for the subsequent year. They basically could not resist raising the rate.

And then they made up all these reasons why, like, “well, maybe there’s something we don’t know that we want to allow for, and we don’t want a steep increase later.” All these rationalizations when what was presented to them was no rate increase was needed, but what they saw was an opportunity lost if they didn’t raise the rate. But remember, that’s a government run monopoly doing the same thing that you said you were afraid a private industry was going to do, right?

And there’s been some studies that show that governments don’t do as good a job complying with environmental requirements as private agencies because the private agencies are intimidated by the big fines, and so they can’t survive if they get fined. Whereas a government organization, again, it’s not their money. There’s more where that came from, so to speak.

And some of these regulatory agencies are sympathetic to the local agencies because they figure, “Oh, you’re short staffed,” or “Oh yeah, you’re really trying.” And they make bigger points when they fine a private company than when they fine a struggling local, you know, municipality.

So, look at all these things that were the justification for monopolizing the utility are coming back to haunt them, but it’s worse because now there’s no private alternative. There’s nobody to come in and buy out. There’s no one to come in and innovate around because they’ve monopolized. The municipality has monopolized this activity.
So, because we’ve gotten to this point where it’s so tangled, where the private solutions have been, you know, maybe decades and decades or maybe a century back to when the last time a private organization provided a service that’s now been taken over as a municipal monopoly, it’s going to take time to move past that.

And I think the first thing you have to do is inventory all your activities, because it’s back to your activities drive your costs. And if you don’t recognize that, you’ll never get a handle on your costs. So, you’ve got to look at all of your activities in terms of are these true legislative activities? Are they true enforcement activities?

And of course, there are some other issues about the laws and what you’re enforcing and all that. But at least you’ve got to classify them that way. You have to recognize what have you excluded the private sector from providing solutions because you’re running it as a monopoly? What activities are commercial? And when I say commercial, I mean they could be run by a profit or non-profit like recreation activities. And what are just other initiatives that are just advocacy that usually don’t even pertain to the issues of the locality. But you have to start.

Michael Schaus: Well, and I feel like there’s some good examples of municipalities that are actually making progress. And at the risk of sounding like a young socialist, I’m going to point to Denmark as an example. But Denmark has done things like privatized transportation. So, you know, they don’t solely run a lot of their municipal transportation. They’ve given that up kind of as a municipal activity.

And that was driven strictly by necessity. It’s not that they all wanted to go free market there. It’s that they had to. They just didn’t have the cash to keep running it. You know, I look at places like where I grew up, things like trash collection were all done by private companies, and it was really good as a consumer. You were able to go out and find lower prices or better service if you wanted recycling, you had multiple options, things like that.
So there definitely are options there. There are possibilities. It is, I think as you point out, really just kind of a cultural problem that we get into within local municipal politics, that mission creep, that kind of tendency of politicians to say,” Hey, it looks like a popular thing, so let’s do it. And we get that ribbon cutting ceremony. ”

What do you think, especially here in Nevada, since you live in Nevada now, do you feel optimistic about our, our local governments here in Nevada? Or is this something that you’re afraid that they are kind of heading the way that a lot of the cities in California headed? I mean, how far away is bankruptcy for Reno or Las Vegas or something? Do you feel optimistic or pessimistic looking at the state?

Mark Moses: I feel optimistic in the sense that there’s still time. I mean, one of the things by moving from California to Nevada, I cut my electricity costs by two thirds. I mean, the rate is one third what I pay in Northern Nevada.

Michael Schaus: And you actually have stable electricity too. Look at that.

Mark Moses: Exactly. Well, and actually one of the things that pushed me out of California was the horrific energy policy. I mean, I lived in California for six decades and I watched. You’ve got periods of drought and periods of rain and periods of drought and periods of rain. And it’s like, figure it out. It’s a pattern.

And what would inevitably happen would be when the rains would hit, any initiatives to try to deal with the drought conditions just went by the wayside. And the conclusion I came to was they don’t really want to solve the water problem. They want to tell you what day you can water your plants and that you can’t wash your car.
And because of the environmental regulations, you’ve got interest groups that can basically kill any development because of the lack of utility capacity, whether it’s water or wastewater capacity.

And so, Nevada is definitely more pro-development and open to development, but you still have those voices saying the same things every time there’s a new development, “Oh gosh, they’re billing more. It’s like, Oh, there’s all this sprawl.” It’s like wait a minute, where do you live? Maybe 10 years ago that was the new development that was springing up.

So, you’ve got I think more openness at least to debate the issues in Nevada, whereas there’s very little opening in California to challenge these things. And so, we can either learn from that here in this state because we haven’t been quite as aggressive, and we’ve got a little more time. Or we can basically follow the same path and say, are these really the policies that are good for our residents and businesses here? Or are they going to cut off our ability to flourish in the future? And are they going to make us, you know, push Nevadans out to other places where there’s more energy freedom or a little more sanity with respect to energy policy.

And that’s one that I do touch on in the book because cities go crazy with this. Everyone’s now competing to be more green than everybody else, even though no one really defines it or knows what that means.

And so, you’ve got little cities of a thousand people prohibiting plastic straws and reusable bags just because they want to go on record as we’re on board with all this. And that’s a huge distraction from the core activity of the organization.

Michael Schaus: So, what do you say to the critics of your line of thinking who will say, you know, take for example, the city of Las Vegas. The city of Las Vegas has to be environmentally conscious because we are struggling through a 20 plus year drought and we’ve got water issues and climate change obviously impacts us very big here in the middle of the desert. How do you kind of counter that?

I understand and I’m sympathetic to the argument that this is not your municipal government’s role to tell you whether or not you can buy a gas-powered vehicle. But how do you counter their argument that, Oh, well actually it is because it’s of their interest to keep their citizens, you know, living and watered and in Las Vegas?

Mark Moses: I think these are solvable problems. I mean, look at the Middle East, if you can build cities like Dubai. It’s a matter of, again, are you more interested in posturing and virtue signaling certain things? Or do you really want to solve the technical problem?

Because, I mean, go back to California. The water problem could have been solved long ago if they weren’t so strict on regulations and killing off desalinization plant proposals and pipeline. Yeah.

So, 99% of the time these problems are solvable if you really unleash the technical problem-solving capacity of people and don’t burden them with crazy artificial hoops that kill things in the meantime.

Michael Schaus: And this is where markets are so wonderful and amazing because you look at, for example, Las Vegas. If our growth in Las Vegas was truly outstripping, you know, the supply of water that is at our disposal, in a market environment that would be reflected through price.

Mark Moses: Exactly.

Michael Schaus: That would slow down organic growth.

Mark Moses: Exactly.

Michael Schaus: Unfortunately, we don’t have that because government gets so involved.

Mark Moses: Exactly. Because that politicizes price and then you get two problems. Well, and it’s always going to be a problem. It’ll either be the price is too high or the price is too low because they’ll get it right, because they’ve basically pushed away the market. So, there is no market.

Michael Schaus: Utah is a great example. Sorry, I have to throw this in there because we just recently went to Salt Lake City, and I love Salt Lake City. It’s beautiful out there. Most of Utah is just absolutely gorgeous.

One thing that I noticed was even in the middle of the desert in Utah, you go through these towns, and everything is lush and green. I ended up learning a little bit later that water is heavily subsidized in Utah, and as a consequence, they have some of the lowest prices for water out of the Intermountain West. And yet they’ve got some of the highest per capital usage.

So, the state that is largely a desert uses more water per person than anybody else because the prices are artificially low. And to me that’s such a good example of how the market gets distorted by local government expanding their mission or their scope to areas where it really shouldn’t.

Mark Moses: Well, and then the zoning does the same thing, right? With the way it basically outlaws certain kinds of building. And so, you wind up with the sprawling suburbs that are not as water efficient and are not as energy efficient. So, these problems just compound, which is also why the solution is not just change a law and it’s over in a day.

It takes a lot to unravel, whether it’s the zoning restrictions, the environmental restrictions, the fact that you’ve run local utilities as monopolies and excluded private sector solutions for so long. It takes a while to work your way out of that.

Michael Schaus: I like to relate it to education because we talk about education so much. A lot of our listeners kind of understand the argument against government monopoly on education and things like that. And to me it’s such a great example there.

I was talking to a critic of school choice the other day and they said, “Well, there’s not enough private school options for a lot of the kids who want to flee the public school.” And my point was, well that’s because up until recently there’s been no market. People can’t do that. If you start to open up that market, you’ll see those market solutions start to come in because there will suddenly be space for them. And to me, I think that’s the big challenge that we face in municipal government in general, is that, as you point out, for so long we’ve done things this one way that you don’t really have those market forces coming in to solve these problems because they’re just not welcome right now.

Mark Moses: Yeah. And then it just winds up being a vicious circle. The people will come into city hall. They want to get their money’s worth out of the taxes they pay, and so they’ll keep asking for more, even in the back of their minds knowing that maybe this isn’t the best place to come for this solution.

But they’ve marginalized the private sector. They’ve marginalized the philanthropic sector by taking over these activities. And I mean that seriously about monopolizing the philanthropic sector, because once a government decides this is our problem to solve, then, whether it’s churches or organizations that try to feed the homeless are shut down because they’re not following some health regulations or something.

Michael Schaus: Or those horrible stories of the government agents coming in and like pouring bleach over all the food at the church shelter because they didn’t follow the right regulation or something.

Mark Moses: Exactly. And then you get these real perverse situations where the city I moved from, the building department wanted to see specs and plans if I wanted to change a rotted board on my deck. But meanwhile down by the waterfront, you’ve got people building structures and makeshift housing just the whole confusion surrounding, you know, what you can and can’t do on public land. And once people settle, I mean, as difficult as this sometimes to get rid of a squatter on private land, it’s even worse once they get in on public land. And once they get some pro bono advocates behind them stopping enforcement from, you know, clearing them out. And all of a sudden they’ve got these makeshift living arrangements where they’re cooking and eating and sleeping. But meanwhile, me as a homeowner paying crazy property taxes, can’t even fix my deck without going through crazy hoops.

Michael Schaus: Yeah, yeah, it’s unreal. So, if people want to find out more about your book, they want to buy your book, read your book keep up with what you’re talking about, where’s the best place they can go?

Mark Moses: Yeah, they can go to my website, munifinanceguy.com. You can contact me mark@munifinanceguy.com . Follow me on Twitter @Munifinanceguy.

The California Policy Center publishes some of my articles. So, if you’re in California, they’re a good group. Better Cities Project, I’ve been working with them a little bit. In fact, I think they were the ones who introduced me to you.

Michael Schaus: They do fantastic work, by the way. I love what they’re doing.

Mark Moses: Yeah. So those are all good resources. I understand that not everyone is passionate about this. Either they don’t have the time or interest, but I would say this is an important local issue. So, if you can make your council members or council candidates or other people who are influencers in your local government aware There is a book like this out there that comes at this from a little different angle and from a more holistic perspective on untangling the mess that that our cities have created for themselves and for their residents and business owners.

Michael Schaus: Yeah. It is something that people should pay attention to. I’m always reminded of Illinois and the folks that I’ve talked to that have moved away from Chicago, and many of them were paying more in property taxes than they were on their mortgage every month. Local issues and local finances really have a tremendous impact on how free you can live and whether or not you can afford to live someplace.

Mark Moses: Yeah. And the trend is not good. I mean, one of the things I argue in the book is the problem is not that taxes are too high. The real fundamental problem is in the current way of operating, the taxes will always have to go higher. That’s what really we ought to be contending with is the fact that we’ve got this unleashed open-ended call for more and more that can only get its resources from one area. And that’s by sucking it out of the local economy.

Michael Schaus: And, and as you point out, it’s not just the cost today. It’s the fact that it’s going to continue to go up and up and we’re going to continue to throw more tax dollars to solve the same problems doing just as inadequate of a job. Mark, we really appreciate you coming on the program. Thank you so much.

Mark Moses: Yeah. Thanks for having me, Michael.

Michael Schaus: Again, Mark Moses, munifinanceguy.com. Yeah, it’s something that local matters. We talk about this all the time. Local matters.

Speaking of local, by the way, isn’t this a great segue? Go to Nevadapolicy.org/podcast and not only can you sign up for the podcast to go right into your inbox anytime that we’ve got a new one, but you can also reach out to us there and let us know if there’s anybody that you think we ought to have on the program or any topics that you think we ought to cover. Again, that is Nevadapolicy.org/podcast.

Thank you so much for listening today. This has been Free to Offend.