Local government revenues and LETS
Sat, 4 Oct 1997 03:38:40 -0400 (EDT)

*Date: Sun Sep 28 15:46:12 1997
*From: dillonph@northcoast.com ("Paul H. Dillon")
*Subject: Local government revenues and local currency systems
*To: econ-lets@mailbase.ac.uk
*Once again I query the econ-lets collective experience/wisdom.
*A city council member with whom I was speaking about our efforts to
*organize a local currency system asked me what the effect would be on
*local city taxes. She told me that the new city manager had issued a
*memorandum pointing out that city revenues from sales taxes had
*declined 40% during the preceding year. The memo continued to state
*that given the decrease in local revenues, council members should
*not be so quick to jump on the local currency bandwagon since that
*would only decrease the already shrinking city revenue base.
     JCT: That depends on how much of the Green the city takes in it
manages to spend. Evidently, every time it pays for something with
local rather than interest-bearing money, there is a saving.

*My immediate reaction was that the city could begin to use the local
*currency itself but I don't have any experience in this issue and
*I've really never heard anyone address it.
     JCT: Your immediate gut reaction is absolutely correct though
they could start with just a percent of transactions to test it out.

*So I throw it out to anyone out there who has had similar issues
*arise. What was done? Have local currency systems been used by
*local governments?
     JCT: The most recent large-scale use of a LETS 1/s currencies was
by 6 Argentinian provinces. Back in Sep 1982, fifteen years ago,
Toronto police removed from the site of the IMF and World Bank meeting
for having passed out my flyers to the world's bankers titled: THE
CHRISTIAN CREDIT PROGRAMS. I hope the front page stories about a 2-man
picket got their attention on the primary program which was "the
Abolition of interest rates:"

"Consider how governments presently finance their activities: If the
city has expended the money allocated for snow removal and is hit with
a major snowstorm, Council authorizes the issuance of $1,000,000 in
municipal bonds. The mayor prints them up and exchanges the $1,000,000
in bonds with a banker for $1,000,000 in bills bearing 20% interest
which happen to weigh 100 pounds in all.
Council pays for the $1,000,000 job of snow removal with the 100
pounds of bills ($1,000,000). The merchants and their employees accept
the 100 pounds ($1,000,000) of bills in exchange for their goods and
services but at the end of the year, because the banker demands the
repayment of 100 pounds ($1,000,000) in principal and 20 pounds
($200,000) in interest at 20%, Council must levy 120 pounds of bills
($1,200,000) in taxes from the citizens who only received the original
100 pounds ($1,000,000).
A Christian Credit government would also authorize the printing of the
$1,000,000 in municipal bonds to get the snow cleared except that the
mayor would bypass the banker by printing up $1,000,000 in dollar
bonds bearing no interest which happen to weigh 100 pounds. Council
will pay for the $1,000,000 job of snow removal with the 100 pounds of
small-denomination interest-free bonds instead of 100 pounds of small-
denomination interest-bearing bills.
Because the bonds retain the value of the original services performed,
inflation will cease to exist. The merchants and their employees can
accept the 100 pounds in bonds from the civil servants in exchange for
the same goods and services that they would have delivered for the 100
pounds in bills when they realize that the end of the year, because
the banker-middleman has been cut out, Council will only have to
demand the 100 pounds ($1,000,000) of bonds in taxes to pay for the
principal saving them all the 20 pounds ($200,000) in taxes to pay for
the interest.
Having demonstrated that small denomination interest-free bonds
cleared the snow as well as small denomination interest-bearing bills,
Council will print up enough bonds to hire all the able-bodied people
on welfare and the unemployed to build themselves some affordable
houses that can be bought interest-free because they were financed
with our new interest-free paper. With less people on welfare and
unemployment, our taxes must be reduced. With more people paying their
share, our taxes must again be reduced. The abolition of interest must
benefit even the rich man..."

     JCT: I was pleased to find in Tom Greco's book of LETS resources:
New Money for Healthy Communities ISBN 0-9625208-2-9" page 73, an
article that showed that my efforts may have paid off as small
denomination government bonds were being tried and had shown startling

Thursday November 28, 1985,
The Charlotte Observer,
By Andres Oppenheimer, Knight-Ridder News.
MIAMI -- Two remote Argentine provinces, short of cash to pay
public employees, have come up with an easy solution.
They're printing up their own money, to the chagrin of the
national and international banking authorities.
"We are paying all our public employees with provincial bonds,"
Roberto Romero, governor of the northern Argentina province of Salta,
said in a telephone interview. He said Salta started printing its own
IOUs because it wasn't getting sufficient federal currency fast
"People can change these bonds for money at any bank," Romero
said. "They can use them to shop at supermarkets and to buy cars or
any other products."
The Argentine government is not smiling, and world bankers are
worried that other cash-starved states will copy Salta's financial
extravaganza and jeopardize Latin efforts to curb inflation and pay
huge foreign debts.
The International Monetary Fund (IMF), the world's main financial
inspector for debt-ridden countries, was concerned enough to bring up
the issue in recent talks with the Argentine government, said sources
in Argentina and Washington. The IMF does not comment on negotiations
with individual countries.
After Salta started quietly issuing its own IOUs in September
last year, the nearby province of La Rioja started printing its own
bonds too. Four other Argentine provinces have either begun adopting
similar programs or are preparing to do so.
In all cases, the bonds are good only within the province where
they're issued.
But the government of President Raul Alfonsin says the provincial
bonds are expanding the country's money supply and are undermining
efforts to remove Argentina from the list of world inflation leaders.
Earlier this year, Argentina had a 1,000% annual inflation rate.
Alfonsin made headlines worldwide in June when he launched an
austerity program built around a commitment to stop his government
from printing money. Since then, inflation has dropped to 3% a month,
a record low in recent history.
The bonds printed in Salta come in denominations of 10, 100, and
1,000 australes, the same as ordinary Argentine currency bills. They
pay no interest and can be either exchanged for Argentine currency or
used to buy goods.
Romero, of the opposition Peronist Party, and officials of other
provinces claim their bonds are not really new currencies because they
are no good outside their provinces.

     JCT: They might say their bonds are no good outside of the
country but I'd take them for my Canadian products as I'm sure
everyone in those Argentinian provinces will honor them too. Note once
again that not only did inflation not go up with the injection of more
local money but, contrary to orthodox economic laws, inflation went
down from 1,000% to about 36% a year.
This should be repeated as LETS breaks sacred economic laws.
"The Argentinian Provincial Government LETS 1/s local bond
currency being added to circulation made inflation of the federal
money go down. To understand how reducing foreclosures makes inflation
go down, you have to grasp the difference between inflationary Shift A
and Shift B detailed in my LETS Engineering Mathematics Analysis.

*Are sales taxes (where applicable) levied on exchanges conducted in
*local currencies? If so, have they been paid using local currency or
*are the taxes paid in federal currencies on the value of the local
*currency exchanges?
     JCT: So far, taxes which would be incurred using the federal
medium of exchange are owed if incurred using the local medium of
exchange though governments using and accepting their own Green
currency seems the inevitable next step. It is the logical thing to
expect that once government itself needs it to pay off its own bond at
the Treasury LETS, it will accept them itself. But even if LETS isn't
yet acceptable for payment of taxes, having public transit accept it
could deliver the same benefit to the city.

*Thanks to anyone who can help. For us, this might be the pivot issue
*for generating a very strong base of support for developing our local
*currency system. Paul H. Dillon
     JCT: And well it should. Once you can pay your taxes or ride your
buses with any local currency, then everyone in your neighborhood
becomes your trading partner. So, from my poem on LETS, here is how a
city council should use a LETS:
A mayor faced with rising costs and shrinking revenues,
To study any proposition, he would not refuse.
"So many think the job of being mayor is such a snap,
But the decisions that I'm faced with are an ugly trap.
With tools, materials and trades that cover total range,
Yet one ingredient is lacking, money to exchange.
If snowstorm hits the city and there are no funds to pay,
What does my council have to do to clear the snow away?
We pledge a million dollar bond to banks to get the cash,
With which we pay the skillful men who clear snow in a flash.
The merchants gladly take the funds for soon they have to pay,
The taxes for the snow removal that was done that day.
But though a million principle was spent, we must request,
That citizens be taxed for principle and interest.
To budget who gets scarce resources isn't ever fun,
But interest on city's debt is always number one.
Whatever rate the bankers set is due amount I pay,
Unhappily, which projects live or die's my only say.

But if it's true Greendollars serve as well as Locals tell:
Why shouldn't government be one to try it out as well?
When another snowstorm hits without the funds to pay,
We'll test to see if LETS Greendollars are a better way.
This time we pledge the million bond to Treasury instead,
And see if use of Green will get us very much ahead.
The merchant should accept Greendollars as another way,
His taxes needed for the snow removal, he can pay.
Again we'll spend a million but the tax to be assessed,
Including only principle without the interest.

Before the budget allocations are completely spent,
Could LETS Greendollars help reverse project abandonment?
If council members for their tax took part of pay in Green,
We'd have some cash left over which is something rarely seen.
If civil service took some Green at least for taxes due,
The extra cash would guarantee that extra jobs ensue.
We'd offer Green to fix a pothole to a company,
Wishing to pay their tax with unemployed capacity.
With Green we'd pay for road repairs and all would gladly take,
Greendollars from the working men so payment all could make;
And we could build our hospitals and all would take as pay,
Greendollars to buy medicine and service they purvey.
Today, in our society, where money clearly lacks,
Who could refuse some paper anyone may use for tax?
Greendollar paychecks could be earned by all desiring work,
The opportunity to pull their weight so few would shirk.

With Green the unemployed around the world will save the day,
Without it they will idly sit and die their lives away.
And best of all we'd have the Green to save environment,
A way to pay to save our lives and make us affluent.
The only question left is how the tax should be assessed,
For goods and services? A simple formula to test.
For services, we'd levy tax at end of every year.
For assets, tax to pay depreciation. It's so clear.
The government that spent the most and had the highest tax,
Would be the government providing citizens the max.

The most successful Royal LETS was in the British Isle,
Where "Tallies," sticks of money, left King Henry I with smile.
Accountants in the Treasury would split the stick in two,
One half would be the money and the other half its due.
A Tally worth a pound of gold to pay the King's expense,
The other half amounted to taxation that makes sense.
The tax collectors through the land all had an easy way,
Since people had their tallies and enough the tax to pay.
The tallies funded projects and could pay for everything,
With tallies matching tax, a hero, Henry I, their King.
I'll pay Your tax for army and police to handle strife;
I'll pay Your tax for doctors, nurses who protect my life;
I'll pay Your tax for all engaged repairing road and sewer;
I'll pay Your tax for social servants helping out the poor;
I'll even pay Your tax for bureaucrats with no regret;
But I'll resist Your tax for any interest on debt.

Politicians and bureaucrats will have to be real sure of the tax
end of it before they will consent. The prime question is:

*The only question left is how the tax should be assessed,
*For goods and services? A simple formula to test.

The prime response is:
*For services, we'd levy tax at end of every year.
*For assets, tax to pay depreciation. It's so clear.

Just like King Henry The First's Treasury tallies, if he spent a
million tallies to rebuild roads he did not expect to have to rebuild
for 10 years, he'd add one hundred thousand tallies to each year's tax
levy always matching the remaining tallies in circulation to the
remaining value of the roads.
If he spent a million tallies providing health care and public
services, he'd add the whole million tallies to that year's Dec. 31
tax levy.
Since the government has an infinite supply of tally credit to
sit on, he didn't really have chase anyone for tax money to spend. A
whole ugly tax-collector industry turned into a benevolent fund-
So, I don't know what city council you're talking about but let's
give concrete examples for both the tax for service expenditure and
tax for capital expenditure.

Should the city need to purchase two new $25,000 trucks for their
road maintenance crews expected to survive 5 years, I don't see how
many truck dealers wouldn't consider taking city currency they'll
often need for tax anyway. If no one wants to sell for city Green,
you're in the same predicament with nothing lost. The benefit is when
a merchant decides he'll be able to make full use of the G$50,000 in
city local currency that everyone will need over the next year for
taxes. If this is the only LETS transaction that takes place and their
next tax levy would have been 1 million dollars payable in federal
currency, they add the G10,000 Green to the bill and raise the levy to
$1,010,000 payable in Federal OR Green!
The city has now managed to pay with its own interest-free LETS
account rather than its interest-bearing cash account. Again, the city
has had to levy the tax for us to pay for those vehicles as they
depreciate. Getting the Green back is easy because they injected it
and getting the federal remains the same problem it was before. Notice
that the advantage to only this one LETS transaction is saving the
interest on the $50,000 the city would have had to borrow to obtain
the trucks using the federal currency system.

Though the city only benefited from the one LETS capital
transaction on the trucks, let's say that the city decided to spend
another half a million in Green to fund a formerly volunteer
neighborhood watch program which had been of great service.
At the end of the year, the tax the city must levy is $1,510,000
payable in either cash or Green; the original $1,000,000 in federal,
the whole G500,000 Green spent for neighborhood services and only
G10,000 Green for the depreciation of the trucks.

Finally, what happens when the city is so broke that though their
budget is for only $1 million, there are really $3 million in programs
necessary and with staffing ready to go.
In this case, the city would print up and fund the G3,000,000 so
that at the end of the year, the tax the city must levy is $4,010,000
payable in either cash or Green; the original $1,000,000 in federal,
the whole G3,000,000 in Green spent for all programs and the G10,000
depreciation for the trucks.
My point is that though the local population is now facing an
additional 3,010,000 in taxes added to their regular $1,000,000 cash
tax bill, they have also received an additional 3,050,000 in Green
currency to pay it with.

The Green currency side of the equation always balances. It can
expand to supplement every funding gap. That's all you have to do. Buy
people's time and services and levy Green taxes accordingly. And
welcome Green taxes because you get the same value for your Green
payments and no interest as you would have received for your federal
and interest payments.
Simply spend as many of your Green tallies doing your municipal
jobs as best you can and then add that figure to the original cash
levy but making the final overall levy payable in either cash or
I think a nice touch might someday be the use of notes honoring
the actual services performed by citizens. Numismatists would love it.

Men and women building roads? Settings in labs? In hospitals? In
schools? Why not have a series of municipal currencies honoring the
actual people they are being paid to? Unnecessary but easily done.

JCT: My final point is to do everything you can to find any one
of the city's suppliers who will agree to take the city's LETS Dollars
for some of their trade and expect an explanation for why they are not
taking advantage of that offer. There are so many Time Dollar
sponsored by dozens of American states that having municipal
government simply join and accept the Time Dollars like everyone else
would effect the same relief.
I see my safety when I and my government both have accounts on
the same LETS without any bankers as middlemen. Get your Governor on
your LETS with you and you'll find out what I mean once he gets to
understand that you don't mind him spending as much Green as needed as
long as he's getting full value for it in goods and services and not
money's time, interest. Government becomes a whole new ball game.
On that note, I wish you success in finding a LETS connection to
your municipal government. Ridding yourself of the banker middleman
should really set you free.

Send a comment to John Turmel