Beware of exuberant optimism

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By George Chandler

Dear Editor,

A long eight years ago, in Washington, D.C., notice was taken of a budget surplus that had arisen. The surplus was quickly eliminated by giving tax cuts to people who didn’t need them. We then launched two wars, one right and one wrong but both expensive, so that we reestablished the usual deficit.

Meantime some financial geniuses found a new way to make money. They disguised risky debt instruments as high-return safe havens where bankers could put those unproductive reserves they had to keep on hand in case of bad debt. That house of cards collapsed because reserves must match risk even if risk is sliced into pieces and spread around. Clever ain’t necessarily smart.

Monday night the council considered a proposal to reduce property taxes, based on a temporary bump in projected Gross Receipts Tax revenue. That proposal was quickly followed by another, based on the same temporary bump, that would have reduced the reserves held by the county. Déjà vu all over again!

Staying carefully neutral with respect to the tax proposal, the county budget director gave us all a lesson in responsible financial policy. He carefully explained how the county’s reserves are based on the county’s debt load, the risks associated with potential fluctuations in revenue, especially the notoriously fickle Gross Receipts Tax, and the ongoing costs of government including maintenance and in-progress capital projects. The reserves are sized so that current projects could be completed and a minimal reduction in county services would be necessary in the event of any reasonably foreseeable downturn in revenues. Not real sexy, but really, really smart.

Unlike the Federal Government and the international financial system, the county has pursued a conservative (small c) financial policy, and it’s paying off. You may, with me, criticize the county for various things once in a while, but you’ve got to be proud of our financial policies and those who crafted them - and the council that rejected, 5 – 2, a proposal that would have wrecked them.

Los Alamos