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Kansas was supposed to be the GOP’s tax-cut paradise. Now it can barely pay its bills.

Kansas’ tax cuts haven’t worked out as planned

Brownback’s tax cut proposal came as Kansas’s revenues were on an upswing. Spending cuts and a one-cent sales tax passed by Brownback’s Democratic predecessor had combined with economic growth to give Kansas a surplus. Now, Brownback argued, his tax cuts would lead to even more success. “I firmly believe these reforms will set the stage for strong economic growth in Kansas,” he said.

The governor proposed to cut income taxes on the state’s highest earners from 6.45 percent to 4.9 percent, to simplify tax brackets, and to eliminate state income taxes on most small business income entirely. In a nod to fiscal responsibility, though, he proposed to end several tax deductions and exemptions, including the well-liked home mortgage interest deduction. This would help pay for the cuts.

Yet as the bill went through the state Senate, these deductions proved too popular, and legislators voted to keep them all. The bill’s estimated price tag rose from about $105 million to $800 million, but Brownback kept supporting it anyway. “I’m gonna sign this bill, I’m excited about the prospects for it, and I’m very thankful for how God has blessed our state,” he said.

Democrats, and some Republicans, weren’t buying it. “It bankrupts the state within two years,” said Rochelle Chronister, a former state GOP chair who helped organize moderate Republicans against Brownback’s agenda. And the House Democratic leader, Paul Davis, laid down a marker. “There is no feasible way that private-sector growth can accommodate the price tag of this tax cut,” he said. “Our $600 million surplus will become a $2.5 billion deficit within just five years.” In return, Brownback’s administration claimed the bill would create 23,000 jobs by 2020, and would lead 35,000 more people to move to Kansas.

After the cuts became law, it was undisputed that Kansas’s revenue collections would fall. But some supply-side analysts, like economist Arthur Laffer, argued that increased economic growth would deliver more revenue that would help cushion this impact.

Yet it’s now clear that the revenue shortfalls are much worse than expected. “State general fund revenue is down over $700 million from last year,” Duane Goossen, a former state budget director, told me. “That’s a bigger drop than the state had in the whole three years of the recession,” he said — and it’s a huge chunk of the state’s $6 billion budget. Goossen added that the Kansas’s surplus, which had been replenished since the recession, “is now being spent at an alarming, amazing rate.” 

This is crazy.  His paid for bill went from $105 million to $800 million and he still signed it.  No wonder Brownback’s popularity has hit rock bottom. 

The Death of the American Shopping Mall

Maybe it isn’t that American’s aren’t shopping at malls anymore but rather they are out of money.

“You came, you shopped, you dressed nice – you went to the mall. That’s what people did,” says Lawless, a pseudonymous photographer who grew up in a suburb of nearby Cleveland. “It was very consumer-driven and kind of had an ugly side, but there was something beautiful about it. There was something there.”

Gazing down at the motionless escalators, dead plants and empty benches below, he adds: “It’s still beautiful, though. It’s almost like ancient ruins.”

Dying shopping malls are speckled across the United States, often in middle-class suburbs wrestling with socioeconomic shifts. Some, like Rolling Acres, have already succumbed. Estimates on the share that might close or be repurposed in coming decades range from 15 to 50%. Americans are returning downtown; online shopping is taking a 6% bite out of brick-and-mortar sales; and to many iPhone-clutching, city-dwelling and frequently jobless young people, the culture that spawned satire like Mallrats seems increasingly dated, even cartoonish.

According to longtime retail consultant Howard Davidowitz, numerous midmarket malls, many of them born during the country’s suburban explosion after the second world war, could very well share Rolling Acres’ fate. “They’re going, going, gone,” Davidowitz says. “They’re trying to change; they’re trying to get different kinds of anchors, discount stores … [But] what’s going on is the customers don’t have the fucking money. That’s it. This isn’t rocket science.”

Of course it didn’t help that they were built with no urban planning principles in mind.

For mid-century Americans, these gleaming marketplaces provided an almost utopian alternative to the urban commercial district, an artificial downtown with less crime and fewer vermin. As Joan Didion wrote in 1979, malls became “cities in which no one lives but everyone consumes”. Peppered throughout disconnected suburbs, they were a place to see and be seen, something shoppers have craved since the days of the Greek agora. And they quickly matured into a self-contained ecosystem, with their own species – mall rats, mall cops, mall walkers – and an annual feeding frenzy known as Black Friday.

“Local governments had never dealt with this sort of development and were basically bamboozled [by developers],” Underhill says of the mall planning process. “In contrast to Europe, where shopping malls are much more a product of public-private negotiation and funding, here in the US most were built under what I call ‘cowboy conditions’.”

Shopping centres in Europe might contain grocery stores or childcare centres, while those in Japan are often built around mass transit. But the suburban American variety is hard to get to and sells “apparel and gifts and damn little else”, Underhill says.

Same thing in the largely empty Confederation Mall.  The mall emptied out after rents skyrocketed in Saskatoon.  What used to be disposable income is now needed for rent.  In that way, malls are a reflection of the economic health of the surrounding communities.

World Cup financial gains rarely materialize for host

Which is why no one of note is bidding for the 2022 Winter Games

Although some countries and cities have managed to profit from well-run major sports events such as the FIFA World Cup and the Olympics, they’re far from the norm, a prominent professor of economics says.

Victor Matheson, a professor of economics at the College of the Holy Cross in Newton, Mass., says prospective hosts need to think twice about whether the massive outlays of cash are worth it in the long run.

“The economic benefit is typically zero,” Matheson says in an interview set to air on CBC’s Lang & O’Leary Exchange on Tuesday. And even when there is a modest gain, “it’s not enough to justify the price tag,” he says.

I think we know who to blame

Because the IOC and FIFA make their money from selling TV and merchandising rights, they have no incentive to keep costs from ballooning, Matheson says.

“On paper, the IOC and FIFA don’t care whether it costs $51 billion to host the Olympics in Sochi or $14 billion to host the World Cup in Brazil, because ‘I’m not paying those costs,’” Matheson says.

Mayors don’t create jobs or grow the economy

The next time you hear Don Atchison or any civic politician try to take credit for the economy or job creation, read this article.

It always rings false when political candidates promise to create heaps of new jobs. Conservative Tim Hudak claims he would wave his magic wand and create no less than one million, just like that.
When candidates for mayor vow to spin jobs out of straw, the boast sounds especially hollow. Most job creation comes from economic growth, and mayors have very little power over that. Even prime ministers and premiers exaggerate their influence over the business cycle and they have far more than mayors.

That hasn’t stopped this year’s crop of mayoral candidates from posing as magicians of job creation. Start with John Tory, a former Conservative leader and business executive who should know better.

On Wednesday his staff sent a bulletin to the media: “John Tory to unveil plan to create 70,000 jobs.” When the promised unveiling came the next day at an east-end coffee wholesaler, it turned out that he was merely expressing support for a private company’s existing proposal to develop some industrial land near the mouth of the Don River.

First Gulf wants to build a new business hub on the site, an ambition it announced a couple of years ago. Its chief executive says the development could bring “as many as” 70,000 jobs to the city. In other words, up to 70,000 people could work there one day. Making a place for 70,000 people to work is not the same as creating 70,000 jobs.

Though the proposal is promising, there are big hurdles to jump before it can happen. Making the land usable would require rerouting the east end of the Gardiner Expressway and running new roads and transit lines into the area at the cost of many millions. All of this is already being studied at city hall. Mr. Tory’s endorsement of someone else’s proposal that is years from fruition hardly amounts to “a plan to create 70,000 jobs.”

His other job promises are almost as implausible. He wants to start a new medical school at York University, exploiting the coming subway link with Humber River Regional Hospital and creating a “high-tech employment corridor.” Mayors don’t create medical schools. That is a provincial responsibility.

He wants to lean on companies to hire more young people, a plan that, according to his website, would “result in thousands of new youth-employment jobs in his first term.” He would use his personal connections, too, calling business contacts to remind them of their “civic responsibility” to hire the young. Even a man as plugged-in as Mr. Tory is unlikely to create many jobs just by picking up the phone.

How to cities encourage economic growth?

Rather than pressuring or forcing companies to hire, city hall should be creating the conditions that make them want to hire. That means keeping taxes reasonable, cutting red tape, providing good services, building and maintaining infrastructure – all the things that make a city an attractive place to live, work and do business.

Saskatoon has the tax part down, now if we could just cut red tape, provide good services, and maintain our infrastructure, we could become something some day.

Dundurn MEGA Mall

CKOM’s Ashley Wills has this

Construction has not begun on a massive trade and exhibition centre South of Saskatoon.

“I think with a project of this magnitude, there are small delays that are along the way and I think they just want to make sure they got all their bases covered,” said Rural Municipality of Dundurn Reeve Fred Wilson on Monday.

The first phase of the Dundurn International Exhibition Centre is expected to start this spring, but repeated requests for an update from Brightenview Development International Inc. have gone unanswered.

Last fall, crews were doing pre-construction work like filling sloughs and clearing brush on the piece of land that was purchased from the rural municipality.

In November, Lorne Nystrom, public affairs with Brightenview, said the project was advancing as planned.

“Different builders are being interviewed over the fall and early winter, that will all be in place in time for starting construction sometime in the spring,” he said back on Nov. 1, 2013.

The first phase of the project is expected to take 18 to 24 months to build at an estimated cost of $120 million. The building will be 300,000 sq. ft., and hold 350 showrooms for businesses from China.

Help me out here.  Saskatoon has a nice looking airport but it is no where near busy enough to be a hub which means we don’t get a lot of flights from major cities where retailers are headquartered.   This is supposed to be a business to business enterprise centre but why build one in a location that would require a layover in Toronto, Calgary, or Edmonton and then an additional drive.  These places are traditionally built near airport hubs and are normally located in China where retailers and companies can liaison with the factories easily.  In fact infrastructure means so much to these deals that Chinese cities are going deep into debt to facilitate them getting built.  

I know land is cheap around Dundurn but this deal makes no sense. This feels like so many of those Devine era ideas that never happened for one reason or another.  

Economist: We are almost out of fish

According to this report by the Economist, we are almost out of fish.  It’s an industry that 200 million rely upon and 3 billion people rely on for food

One of the biggest issues facing our economy

Our businesses are having a hard time competing globally.

While we tend to celebrate private entrepreneurship, the state is crucially important in driving and shaping innovation. The question of which economies will thrive and which will lag behind on innovation has a lot to do with sound public policy.

With an economy historically reliant on natural resources and one with high rates of foreign ownership, the role government plays is even more important for Canada.

For 30 years Canadian economic policy has been focused on the supposed need to liberate private enterprise from the heavy hand of the state. The focus has been on slashing corporate tax rates, reducing public interest regulation and liberalizing trade and investment.

But has this “pro-business” agenda worked?

Since 2000, the Canadian economy has actually regressed in terms of producing highly innovative products and services for global markets, with major technological champions from Nortel to BlackBerry foundering. Over the last decade, labour productivity in Canada grew at a dismal pace and Canada is running record high trade deficits.

The key to Canada’s falling competitiveness is the fact that Canadian firms are not reinvesting their profits in areas that support long-run competitiveness — human capital and especially research and development. In 2011 the Canadian Conference Board gave Canada a “D” on R&D spending, ranking 15th out of 16 peer nations.

Canadian governments played vital roles in the development of innovative sectors in the past, for example in aerospace and information technology. Since then, however, the Canadian economic landscape has become increasingly dependent on natural resources, with privatization of the profits from its exploitation retarding rather than supporting industrial policy.

While profits may soar when taxes fall, investments don’t. Canadian businesses are hoarding cash at record levels — $626 billion according to Statistics Canada — and the investment that is taking place is in the resource extraction of the old economy rather than the innovative technologies of the new economy.

The combination of lagging private sector investment and public sector austerity puts Canada’s ability to be a world leader in new technologies in doubt.

I have always wondered why provincial governments don’t take the profit out of renewable resources and start incubating new technology or renewable resource industries like other countries have.  I think our resource economies have made us complacent and there is literally hundreds of examples of technologies that we have let stagnate and pass us by that the rest of the world is jumping on and making a lot of money while doing it.

Is Losing Crimea a Loss?

Could losing Crimea be a win for the Ukraine?

Ukraine’s initial losses are obvious: defeat in a land war, surrender of territories and populations, and the sacrifice to violence of thousands — perhaps tens of thousands — of Ukrainians. Once the war is over, however, Ukraine would emerge more compact, more homogeneous, and more unified in purpose: Along with its eastern territories would go much of the electorate that routinely votes for the Communist Party and for former President Viktor Yanukovych’s Party of Regions. As a result, anti­-Ukrainian and anti-Western sentiments would decline. The new Ukraine’s government could confidently proceed with a radical political and economic reform program (a more solidary population would be more likely to accept the belt-tightening that reform entails) and pursue rapid integration into European and international structures. Unburdened of some of its most unprofitable rust-belt industrial sectors, Ukraine’s economy would be more open to foreign direct investment and could be poised for takeoff. Without Crimea and its southeastern provinces, Ukraine would be smaller, but it would survive and, in all likelihood, be much stronger.

 

Justin Trudeau on the Economy

How Heenan Blaikie’s stunning collapse started with a rogue African arms deal

It’s amazing how quickly Heenan Blaikie fell apart

The stunning collapse of Heenan Blaikie LLP, once one of Canada’s largest and most prestigious law firms, stemmed from a “loss of trust” in management over international business activities including dubious forays into Africa, where former partner Jacques Bouchard and former prime minister Jean Chrétien lobbied governments on behalf of clients, former Heenan partners and associates say.

Founded in Montreal in 1973, Heenan grew from 18 lawyers to more than 500, in offices across Canada and in Paris, where it established a beachhead in 2009. It was considered a rock-solid full-service firm — and a favourite of the Canadian establishment — until a crisis of confidence caused its foundations to crack. Lawyers began leaving, first in a trickle, then in droves, and the whole enterprise came crashing down this month.

Increasing financial pressures and friction between partners in Montreal and Toronto were key factors behind Heenan’s failure, the biggest ever for a law firm in Canada. “Montreal didn’t understand Toronto; Toronto felt the Montreal office was way overpaid and overpraised,” said one former partner.

But many also agree that Heenan’s excursions into Africa caused so much tension and tumult that partners began shaking their heads and taking their leave. “People like me said to themselves, ‘I want to work at a firm that values the practice of law in Canada, not international dictators,’” another former Heenan partner told the National Post. “It’s not what I signed up for.” He quit the firm last year.

There came “a point where confidence and faith started to disappear,” said Jean-Francois Mercadier, managing partner of the firm’s former group in Paris, Heenan Blaikie AARPI. “Partners started to lose any kind of faith in the management of the firm. There was a loss of trust in the partnership, and I think the origin is in the Jacques Bouchard story.”

Related: The End of Big Law: What Happens When the Money Dries Up

via @dlcrawford

King of the Hill?

While the story is about Wal-Mart, the interesting point is that failure comes very, very quickly in retail.

Wal-Mart recently reported that it will be laying off 2,300 workers at its Sam’s Club subsidiary, reportedly to cut the fat of middle management. Layoffs in and of themselves aren’t uncommon at any large company — competitor Target (NYSE: TGT ) also recently said it would lay off nearly 500 employees and keep hundreds more positions vacant — but such personnel reductions also aren’t something a growing company does very often.

What’s worth keeping an eye on is whether the Sam’s Club layoffs are a symptom of much larger problems at Wal-Mart. The company has been a giant of retail for decades, but there are signs that its reign is coming to an end.

Retail is a tough business to be in.

It doesn’t take long for a retailer to go from the top of the world to bankrupt. Kmart lost just $22 million in the second quarter of 2001, but was bankrupt by Jan. 22, 2002. In the four months leading up to bankruptcy, same-store sales fell 1.8%, 4.4%, 2.6%, and 1%, respectively, from a year earlier. You don’t need a big decline in sales to suck up all of your profits in retail.

Circuit City reported a 4.2% rise in same-store sales as late as December 2006, even raising its fiscal-year guidance to growth of 7%-8% in U.S. stores. But by December 2007, same-store sales were down 11% for the month and the company would be out of business by November 2008. From optimism to bust in less than two years.

The reason that retailers are sensitive to declines in sales is that there is a lot of overhead that goes into selling in brick-and-mortar stores. Wal-Mart spent $89.2 billion on overhead over the past year, and based on current margins and overhead spending, it would only take a 13.6% decline in sales to eat up all of Wal-Mart’s profits.

Amazon is Wal-Mart’s biggest competitor

What makes Amazon a bigger threat today is the company’s sheer size. It’s now bigger than Target, and every percentage point of growth takes growth away from Wal-Mart. In fact, Wal-Mart’s budget-conscious consumers are probably more likely to shop on Amazon than Target’s consumers.

Changing face of the United States

I read this and I can’t help but think that the United States is going through a massive societal reordering because of horrible economic decisions made because of globalization

Some improvement in the U.S. economy and declines in the jobless rate, plus gains in stock and home prices, are failing to resonate with many Americans whose incomes are struggling to catch up to where they were before the financial crisis.

But to many retail experts and economists there are other less cyclical factors at play. Consumers are spending more. Government figures show monthly personal consumption has risen for seven straight months, with November’s outlay marking the fastest increase in five months. But they just are not spending in the shopping malls like they used to.

And that means that, even if the economy picks up significantly, retailers of many products could still struggle.

“We are in a something of an evolutionary process, said Bill Martin, founder of data firm ShopperTrak, which monitors foot traffic in about 60,000 retail stores. Americans are spending more online and becoming more careful about what they buy, he said.

Some of this has been unfolding over a long period, although the changes might be picking up pace.

For example, department stores have found themselves on the wrong end of trends for some time. According to data compiled by Reuters, they now capture just $3.37 (U.S.) of every $100 of U.S. retail spending, the lowest since records began in 1992, when the number was nearly $9.

Some of that is explained by the rise of Wal-Mart Stores Inc. and other big-box discount retailers. But the pace of decline has picked up, with department stores losing about 0.28 percentage points of market share at an annualized rate between 2002 and 2011, compared with 0.22 in the prior 10 years.

The problem is two-fold. The middle class consumers to whom the likes of J.C. Penney Co. Inc. and Kohl’s Corp. cater have struggled with stagnant wages and a payroll tax rise, prompting them to reduce spending on apparel, said Scott Tuhy, a retail analyst at Moody’s Investors Service in New York.

I am not sure if the payroll tax increase is that big of deal but you get the point that stagnate wages are hurting America’s middle class who are leaving behind middle class stores in favour of deals online and in retailers like Wal-Mart which in turn hurts them even more as more and more of their products are made elsewhere.  It’s a vicious cycle that could take decades to run its course.

The Night Oven Bakery

My friend Bryn Rawlyk is opening a bakery called the Night Oven Bakery at 629-b 1st Avenue North which I think will be an important part of the North Downtown revitalization.  It opens next month but I decided to link to the site now and also this great post showing the wood oven under construction.  I can’t wait until it is finished and open for business.

How Athletes Go Broke

Basically it is easy come, easy go.

What the hell happened here? Seven floors above the iced-over Dallas North Tollway, Raghib (Rocket) Ismail is revisiting the question. It’s December, and Ismail is sitting in the boardroom of Chapwood Investments, a wealth management firm, his white Notre Dame snow hat pulled down to his furrowed brow.

In 1991 Ismail, a junior wide receiver for the Fighting Irish, was the presumptive No. 1 pick in the NFL draft. Instead he signed with the CFL’s Toronto Argonauts for a guaranteed $18.2 million over four years, then the richest contract in football history. But today, at a private session on financial planning attended by eight other current or onetime pro athletes, Ismail, 39, indulges in a luxury he didn’t enjoy as a young VIP: hindsight.

“I once had a meeting with J.P. Morgan,” he tells the group, “and it was literally like listening to Charlie Brown’s teacher.” The men surrounding Ismail at the conference table include Angels outfielder Torii Hunter, Cowboys wideout Isaiah Stanback and six former pros: NFL cornerback Ray Mickens and fullback Jerald Sowell (both of whom retired in 2006), major league outfielder Ben Grieve and NBA guard Erick Strickland (’05), and linebackers Winfred Tubbs (’00) and Eugene Lockhart (’92). Ismail (’02) cackles ruefully. “I was so busy focusing on football that the first year was suddenly over,” he says. “I’d started with this $4 million base salary, but then I looked at my bank statement, and I just went, What the…?”

Before Ismail can elaborate on his bewilderment—over the complexity of that statement and the amount of money he had already lost—eight heads are nodding, eight faces smiling in sympathy. Hunter chimes in, “Once you get into the financial stuff, and it sounds like Japanese, guys are just like, ‘I ain’t going back.’ They’re lost.”

At the front of the room Ed Butowsky also does a bobblehead nod. Stout, besuited and silver-haired, Butowsky, 47, is a managing partner at Chapwood and a former senior vice president at Morgan Stanley. His bailiwick as a money manager has long been billionaires, hundred-millionaires and CEOs—a club that, the Steinbrenners’ pen be damned, still doesn’t include many athletes. But one afternoon six years ago Butowsky was chatting with Tubbs, his neighbor in the Dallas suburb of Plano, and the onetime Pro Bowl player casually described how money spills through athletes’ fingers. Tubbs explained how and when they begin earning income (often in school, through illicit payments from agents); how their pro salaries are invested (blindly); and when the millions evaporate (before they know it).

“The details were mind-boggling,” recalls Butowsky, who would later hire Tubbs to work in business development at Chapwood. “I couldn’t believe what I was hearing.”

What happens to many athletes and their money is indeed hard to believe. In this month alone Saints alltime leading rusher Deuce McAllister filed for bankruptcy protection for the Jackson, Miss., car dealership he owns; Panthers receiver Muhsin Muhammad put his mansion in Charlotte up for sale on eBay a month after news broke that his entertainment company was being sued by Wachovia Bank for overdue credit-card payments; and penniless former NFL running back Travis Henry was jailed for nonpayment of child support.

In a less public way, other athletes from the nation’s three biggest and most profitable leagues—the NBA, NFL and Major League Baseball—are suffering from a financial pandemic. Although salaries have risen steadily during the last three decades, reports from a host of sources (athletes, players’ associations, agents and financial advisers) indicate that:

• By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.

• Within five years of retirement, an estimated 60% of former NBA players are broke.

The Flying Banzini

Most long term residents of Saskatoon woke up listening to Rambling Dave Scharf on C95.  A lot of people came and went but there was always Rambling Dave.  Well one day he announced he was leaving to move with his wife Heather to Ottawa.  My mornings have never been the same.

For those of us who have followed Dave on Twitter, we were intrigued to see that he was opening a restaurant and he was going to document how it all went.  There has been some good times and some bad times and I have been struck by how honest he has been.  

This is from one of his recent posts.

With my consultants, I have just completed a careful review of our operations. Specifically, I am trying to figure out two things:

(1) What amount do we need to hit for weekly sales such that I no longer see bank accounts going down? I pay myself a modest salary so at this point I will be happy to see break even. We had very strong sales in September. October was OK. November has been weak. This is probably an annual reality. We will do very well in the spring summer and fall and not as well in the cold and dark. Presently, we are between $2K and $4K below where we need to be breaking even. We are still well financed so there is no worry but, of course, it’s not fun to be losing money. We planned to lose money for three months. And… well… three months is up next week. The biggest area of growth for us in takeout. I should have been working on the takeout part of the business a long time ago but some rather remarkable life circumstances had me out of the game for a couple of months. I am back. And, I am focused on growing the take out business. Online takeout ordering is now available (link at the top of the page). Please help me out and pass the word. Place your order and it’s ready for you at the time you choose.

(2) Food costs. We have been aggressively working on getting more efficient with labour. We have made remarkable progress in this area and our labour cost is WAY down from where it was with no noticeable change in customer service. In fact, I think our service is better than it was because we are each getting better at what we do. But, we do not have a good handle on food cost. We need to know what everything on our menu costs so that we can ensure that it is properly priced for our customers. We started out with a pretty clear picture, lost our focus, and now must get it back.

I have great confidence in The Flying Banzini. Every day I delight is seeing customers in my restaurant enjoying the vibe and the food. I great almost every customer at the door and I ask, “Have you been in before?” I think at least 50% have someone in their party who has been. In the long term, we are going to be just fine. Word will continue to spread and I am confident that my little restaurant will continue to grow. In the short term, though, we need to stop the slow bleed.

The food looks so good that I want to head to Ottawa to check it out but it is posts like this that are so cool and add to the story of the restaurant.  It’s a big risk opening any business and I am glad that Dave is letting us in on the ups and downs of the experiment.