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01.17.03 Dear Citizen:
To the citizens of the great state of ______________________, I want to thank for choosing me as your leader. It is an honor to serve our state, our constitution and our people but it is with heavy heart that I should inform you of the changes that are afoot.
As you all know, our President has basically decided that a federal deficit is okay as long as he wants to wage war overseas. I recall President Kennedy once saying that "Those who make peaceful revolutions impossible will make violent revolutions inevitable.". Don't get me wrong, as governor I understand what an elected official must do, the tough decisions and the sacrifices. And I am not about to make this speech a criticism of this administration's misguided policies the cornerstone of my complaint, but you will understand in a moment, why I share my concern about the prudence of this newly targeted war on the recently identified "axis of evil".
Over the past several years, spanning back almost a decade, our great state has enjoyed the fruits of full economic development. Folks were working, companies were running at full capacity, and the coffers of the state treasury were overflowing with a new wealth. The previous governor did give some of the extra money back to you citizens in the form of a rebate when the money collected exceeded the budgetary needs. This was mandated by an amendment that you voted on and what you did was correct.
But things have changed since those halcyon days of fat pockets. Many of you have lost your jobs, companies have scaled back in an effort to keep Wall street interested in investing, and as a result, tax collections literally dried up right before our very eyes. Perhaps this was unavoidable. Perhaps the Federal Reserve should have been less interested in the promotion of equities and the creation of the market bubble than they should have been. Perhaps we should have been more diligent, but our understanding was limited in much the same way yours apparently was.
Your personal portfolios dried up like so much dust in the wind and like you, we also found our investments turn sour. We were also duped by the same folks who promoted untold wealth and endless bull markets. We believed, like you, that was an upward motion that would occur forever.
You need to understand two things. One, we are on our own and two, things are going to have to change. Unlike the Bush administration, we are constitutionally unable to run a deficit. We can't extend the state debt level because we are not allowed to have such a thing, let alone extend it to cover our immediate needs. And the federal government has decided that we should bail ourselves out of a predicament that they feel was our own doing.
Let me tell you right now, much of the proposed tax cuts offered by the President several weeks ago will be lost to the fact that we need to raise those very savings in tax dollars to cover some of the basic services that will be cut. Grim as it may sound, the President has business in a foreign land that he feels needs to be taken care of before he looks to the people of this great land. If I sound bitter, it is because I am. With a deficit of $200 billion, the President's estimate, that could climb to $300 billion, a more accurate estimate, all because we fear a somewhat deranged leader has weapons of mass distraction. Oops, that was a Freudian slip. Weapons of mass destruction. Divvied up among the states in the form of extended unemployment benefits for all workers, not those whose benefits ran out at the end of 2002, but for all citizens who have become either disparaged and have given up the search for work that has yet to surface.
I can understand the president's thoughts on stimulation but to use corporate tax handouts to companies that have paid a continually reduced tax burden is ludicrous especially when this savings will be plowed back into profits. Doesn't he realize that companies will not spend this money immediately. The corporations that are publicly traded in this state are as lean as they can be, having laid off as many workers as they possibly can to cut expenses and increase profits. This latest round of tax cutting proposals is just another way of propping up the balance sheet.
If I stand here and tell you that I want to raise corporate taxes to help offset our diminished budget, many of these employers will high tail it to the next tax friendly state. Suffice to say, this crisis is the worst fiscal problem we have faced since World War II.
There are three things that I would like to do to keep us solvent, two of which will be short of rebellion, and the third is a gamble that we are attractive enough financially to make it work.
First off, we need a stronger tax base. I hate to say it, but without this increase in taxes, services that you have come to expect from your state and local municipalities will need to be cut. Sure you will vote on it while every newspaper in the area trots out our financially lascivious behavior from the past decade. We screwed up but you didn't mind much when you were working. So we did it without remorse. Now we are sorry and I say that for those that have come before me. This month, 24 new governors were elected and I believe that one of us will be the president some day. We are cutting our leadership teeth on you by trying to correct the transgressions of our predecessors, all without directly blaming anyone, especially you the tax payer.
You have extremely high expectations and because of that, we felt as though whatever you thought you needed, we could provide. We cleaned up the streets of all of the petty criminals. Now we must release them. We do not have the money to run the jails, finance the courts to prosecute them, or allow our police to track down every minor offender. The chain reaction from this diminished service will leave you poorer and increase your chances of becoming a victim.
I was speaking to a retail outlet owner who expressed his concern about shoplifting. Realizing that the police will not arrest a petty thief anymore, his security force has been forced to turn a blind eye to persons who steal less than twenty five dollars worth of merchandise. As stores take this increased loss, they will pass the cost on to consumers who will spend more to get less. He suggested that they would simply spend less, forcing his store to add employees to the ranks of the unemployed. He added that he thinks Saddam doesn't care for the dilema he faces.
So we ask for more money from less working people and we still cut services. The only thing left is to issue debt obligations in the form of bonds. Don't think this will be an easy sell either. Credit agencies, the folks who rate us for our ability to pay back these obligations are becoming more and more skittish at the current state of affairs.
Issuing bonds that might not get a high credit rating would force us to increase the yields on those bonds. For those of you that don't know how bonds work, the short story is that when prices are down, yields are up. Low yields mean high prices. When the lower the credit rating is received from the folks who rate these things, the only way to make the bond attractive to investors is with high real rates of return.
The best news would be a quickly recovering economy. Ten year Municipal bonds that we would offer would be at about 3.5%. With inflation, that is pretty attractive. A slowly recovering economy would flatten those yield curves brings the bonds of longer duration down somewhat. But that is mostly trader talk. We still need to sell them.
If Mr. Bush does get his tax cut, the jury is out on whether or not it would effect the sale of those bonds. Just remember, the tax exempt status of these bonds won't be as attractive if Washington get it's way.
So in closing I want to say that this belt tightening forced on us by an underperforming, slow to recover economy will have lasting effects on all of us. We will get through this. I am confident. If we could only get the President to sit up and take notice of our plight, cancel his middle east folly, and help out the citizens who matter.
Previously, Dear TaxPayer
Previously, Dear Shareholder
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