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Federal Government Efficiency Commission Trickle-Down to State and Local Municipalities

Patricia Healy, CFA
Wed Oct 23, 2024

Elon Musk was in the news stumping for Donald Trump and bringing attention to his petition supporting guns and free speech, by offering registered voters the daily chance to win $1million dollars by reading and signing the petition (https://www.wsj.com/business/elon-musk-is-giving-away-1-million-a-day-in-bid-to-be-the-secretary-of-cost-cutting-dc9c08d1?st=9AiGRb). While $1 million grabs headlines (and may run afoul of election laws), the article is mostly about Musk making the case to lead a proposed Department of Government Efficiency or D.O.G.E., or at least to spotlight the need for efficiency.

Government efficiency is always a discussion point – for example, there is the $600 the Navy spent for a hammer in the 1980s, as well as the increasing cost of building projects and pipelines. Delving into these examples shows the complex environment that the military operates in and the hurdles that project developers must jump. No matter which candidate wins the presidential election, the need to remove government waste and over-regulation will continue to be discussed, as will spending priorities.

Federal dollars flow to state and local governments as well as to individuals and businesses in many ways from direct payments, grants, subsidies, and tax credits; and we are always keen to assess how federal spending and regulatory changes may affect money flowing to municipalities.  For example, pandemic funding is coming to an end, and many are looking at using reserves, raising taxes, cutting expenses, and issuing debt.

The heart of the efficiency push is not to bring fewer dollars to state and local governments but to reduce over-regulation of projects and remove impediments to efficient operation. Philip K. Howard, chairman of Common Good (https://www.commongood.org/pkh), has for years promoted the idea of creating a less regulated operating environment and has recommended ways to address the process. He also discusses how regulation stifles creative thought and removes personal responsibility.

Both Musk and Howard point to the over-regulation, especially regarding infrastructure development, that has been delaying projects and making them more costly. As we have mentioned in the past, the Association of Civil Engineers Report Card on US infrastructure, conducted every four years, showed an overall grade of C- in 2021, indicating mediocre condition, although it had improved from a grade of D in 2017 and for the previous 20 years. The 2025 infrastructure report card is expected in March of 2025. 

The devastation of our infrastructure by natural disasters, especially the damage in western North Carolina from flooding due to Hurricane Helene, has brought attention especially to our water infrastructure. The report card for drinking water also had an improved grade of C- in 2021. In addition to maintaining, replacing, expanding, and improving our drinking water infrastructure, it is important to remove contaminants to provide safe drinking water, which generally adds cost, so it is important to be efficient. The infrastructure and Jobs Act did provide funding for water and sewer and other infrastructure improvements, so it will be informative to see what the next ASCE report card shows!

The process of improving efficiency in government and in setting or resetting regulations may not proceed quickly, given the myriad constituents involved. This may provide lead time for state and local governments, businesses, and individuals to prepare for change. At Cumberland Advisors we think high-quality munis like those we invest in with an average rating of AA, supported by diverse economic bases, improved budgeting and financial management, and ample reserves, will be able to accommodate changes in the availability of federal dollars as well as changing legislation and regulations. 

 

Patricia Healy, CFA
Senior Vice President of Research & Portfolio Manager
Email | Bio

 

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