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History lesson: fiscal fallacy during the Great Depression
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| By: Anita Zimmerman |
May 27, 2009 |
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It's not the Great Depression, folks. Still, Barron County Supervisor Jerry McRoberts was looking for fiscal guidance a couple of months ago when he asked Finance Director Jeff French to do some homework.
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"We [the board] were talking about the budget-even the recession of the 1970s wasn't quite to this level," Administrator Duane Hebert recalls.
Faced with decreasing income and rising costs, county officials wanted insight into how their predecessors dealt with recession, specifically the big one-the Great Depression.
Instead, they learned what not to do when French rolled out the history lesson at their May meeting.
Armed with a lot of numbers and an immersion in 1930s culture-he was simultaneously reading Alan Jenkins' memoir "The Thirties"-French found that county forefathers relied on borrowing large chunks of money to pay the bills.
In 1930, Barron County borrowed $165,000 for highway improvement, the equivalent of $2.3 million now, then another $61,000 the following year, comparable to $854,736 today. Two years later, they took out a loan for $100,000 (more than $1.6 million today) for ordinary expenses.
The trend continued. In 1935, the county issued $50,000 in promissory notes (current value: $776,552), then borrowed another $200,000 (almost $3.1 million today) in 1936, $50,000 (now $742,146) in 1937 and $50,000 ($723,490 today) in 1941.
Total tab: a lot. The certified indebtedness of the county was $440,000 in 1941 (around $6.4 million now), or 1.3 percent of total equalized valuation.
Borrowing was a response to a confluence of factors. Highway tax money went from $101,003 in 1929 to zero in 1932, when the money was otherwise allocated. French noted there was no tax levy for the highway in 1934, but the General Fund was forwarding funds on a per-project basis and getting loans for regular maintenance.
"All they did was just push off the problem," French commented.
After the housing market crashed, equalized valuation, which crested at nearly $55 million in 1929, dropped incrementally to a point below $30 million in 1933, then hovered between $31 and $33 million through 1940.
Despite the steadily low valuation, the mill rate skipped around. As French pointed out at the meeting, it jumped to accommodate each big loan. The lowest rate, 6.11, was in 1931. At its height in 1937, the mill rate spiked at 12.38, then stayed between 10 and 11 through 1942.
Not surprisingly, the financial needs of the county's towns, cities and villages also increased. Special loans, at $197 in 1930, vaulted to $4,021 the following year, and doubled to $8,377 two years later. Loans stayed at that level through 1937.
Then, there were the side effects of poverty. The county devoted nearly $5,000 to infrastructure improvement (remodeling the courthouse) in 1934, then spent more than that ($5,600) in the first three months of 1935 to hospitalize and bury the poor. In 1936, the board passed a resolution that the state be required to guarantee timely reimbursements for old-age assistance, blind pension and aid to dependent children.
Delinquent taxes were a continuing problem, as were jobs: in 1934, a resolution was passed barring women from holding public office if their husbands were employed, and vice versa. The board passed a resolution in 1932 requesting that teachers' salaries be reduced from $75 to $50 per month and from $120 to $75 per month in first-class cities.
While we're seeing similarities between now and then-the housing market slump, debates over cutting workers' wages, rising costs and declining income-Hebert and French agree this isn't the second Great Depression.
Safeguards are now in place to prevent wildly swinging markets, French explained at a later interview. Just as the New York Stock Exchange closes down after losing a set number of points in a day (the trading curb, or "circuit breaker"), other markets have since been regulated to prevent long-term economic damage.
Housing assessments used to be conducted by a government office, so almost as quickly as demand for houses receded, the county's equalized valuation plummeted. Now, valuations are contracted out to private assessors and based on regional statistics accumulated over several years.
As a result, property tax income is more stable, negating the need for huge loans, ensuing surges in mill rates-and the resulting impoverishment of landowners.
In the 1930s, poor people had little access to government-generated safety nets-most charity was provided by volunteer organizations and churches. Nowadays, unemployment and disability compensation, nutrition and health care assistance, Social Security and other short-term assistance programs are built into the system.
Special loans are no longer an issue, because townships and cities are less dependent on the county than in the 1930s, Hebert says.
"That relationship has changed," he adds. "The whole structure has changed."
Plus, the county is just in better shape financially than in the past, Hebert and French believe. Paying off loans takes between 10 and 20 years; in the 1980s, Barron County was borrowing to make payroll. Throughout the 1990s, county taxpayers had to pick up that bill through levy increases-they were "playing catch-up," Hebert says.
Due in large part to the efforts of forward-thinking supervisors, the county regained solvency at the beginning of this decade and now maintains a budget surplus.
What hasn't changed since the Great Depression are the debates over how and when to spend taxpayers' money, French says.
In the 1920s, the board discussed whether to repair, replace or close the Old People's Home (the project, along with the building of a county hospital, was tabled indefinitely in 1936). In the 1930s, supervisors debated whether to close the school in Rice Lake, dealt with snow plow problems and handled road disputes.
Government is as government was, French thinks.
"It was going on back then, and it's going to be going on long after I'm dead and gone," he concludes.
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©The Chetek Alert 2009
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