It's not a spending problem . . . It's a revenue problem

We sat on the brink of closing down the Federal government and all we heard from the right side of the fence was "CUT TAXES--CUT SPENDING." So how do you manage to do both and maintain services?

We often hear from this same side that we need to either run government as a household or as a business. So let's examine what the tea party and the right is suggesting in that light:

HOUSEHOLD MODEL

Say you're running a household with both parents working and you're feeling a budget pinch. The first thing you'll do is to start cutting expenses. You'll forgo that night out at the fine dining restaurant, you won't buy that new car, you might put off a vacation. OK, cutting spending seems to be working, but then things get a little worse, you have to start cutting more. Now you cut out the trips to McDonalds, you put off some of the car maintenance hoping to get a few more miles out of it before something breaks, you deny the kids their high school yearbook. But it's not enough. So the father gets a second job to increase the family income. You DON'T, while cutting expenses, decide that the wife should quit her job and become a stay-at-home mom. That would be insanity.

BUSINESS MODEL

You have a small business, making widgets. You have a workforce which is costing you about 20% in wages and benefits and you're making good money. Because the markets expect you to not only make good money, but to have year-over-year increases (otherwise you become a takeover target), you need to increase revenues, but the business is slow and your market share is fixed. So you cut expenses. You begin by looking at your biggest expense which is labor. So you don't give increases and reduce staff, you then look at benefits and negotiate lower health care costs or reduce the retirement benefits. In a business environment you never consider deferring equipment maintenance. But as things get a little worse you need to cut even more. However, you see an opportunity to expand and need to purchase more equipment. Is this the time to cut prices? Your staffing is at minimum, your equipment is older, and you need to modernize. NO business ever reduces income during an expansion phase.

So why do we think that we can both cut costs AND taxes (revenue) at the same time we're in financial trouble AND we're fighting two wars? At no other time in history has any government ever cut taxes while trying to fight a war. If we learn nothing else from history, we should at least learn that the downfall of the great societies, Rome, Greece, etc. has been because they could not sustain economically while fighting expensive wars.

More on this subject in my next posting which will cover where we've come from and where we're actually at regarding revenues and spending.

Thoughts on Outsourcing--Part III

I've given a little of the history of why cities have employees and what the core mission of a city should be, to protect the commons. I've also given some of the background as to how we got to the situation we find ourselves in today. So now let's take a look at what's happening in our city and some suggestions on how we might move forward.

Moving Forward?

So, today we have a "Great Recession" with lowering wages in the private sector, an unwillingness of those who have to pay their share (cut taxes) of the costs of preserving and protecting the commons (although they are the biggest users of the commons) and spiraling costs in healthcare and a reduction of income from investment for government pension plans. Basically, we don't have the money to make good on the promises that we've made to our city employees. So how shall be deal with it?

The answer today seems to be, fire the bunch of 'em and bring in cheaper workers. But, because of the "commitments" to the unions, we can't do that. So, the alternative, is to eliminate their job and outsource it to cheaper labor. And this is different, how?

One of the earliest examples of this in Pomona was (and I recognize that the reasons were not econmic in this case, but the example still holds) the outsourcing of the Fire Department. We got rid of our firefighters, equipment, and said we'll hire an outside department to come in and take over this job function, (again, in history fire fighting was one of the first functions considered to be a "common" need for all citizens, or a core function of a city). So today, we have an entrenched vendor, who raises prices every year and who does not have the same responsiveness to the needs of our community. Yes, they are good at firefighting. Yes, they are a good department. But they are also a department that has a large geographic area that it is responsible for, and Pomona is only one very small part of that.

Let's compare the costs of our city Police Department with our outsourced Fire Department.

In the past several years, as money has become tight, the Police Department has taken a large number of cuts to staffing and funding. During that same period, the Fire contract has maintained the exact same staffing and has had year-over-year increases in the price it charges the city. Why? With the Police, our city creates the police budget, looks at all items and trims where they feel they can. With the Fire Department, the county negotiates these items, not our city, and "supposedly" passes on the savings or increases in the amount that is charged Pomona.

With the Police Department, our city negotiates the salaries of our police officers and staff directly, working with the unions to get concessions on pay and benefits. And, they are dealing with a union that is local to Pomona, that understands Pomona. With the Fire Department, their contracts are negotiated by the county, and with unions that are spread over the entire greater Los Angeles area with thousands more members than our local unions. And, we're not at the table. We have to take whatever the county agrees to and have those costs (or savings) passed down the line. The proof is in the putting, our bill from the county has increased each year of the contract while our police (and I recognize that police is still the largest part of our budget) has gone down.
Of course, there are those who are still advocating for outsourcing our police department as well.

Another long-term outsourced service has been our city attorney. Unfortunately, we don't have anything to compare it to (not like police and fire) but there have been questions about whether or not there have been any cost savings in this area.

As I mentioned in a previous post, when we as homeowners have a reduction of income, we tend to bring outsourced services back in-house. With cities it appears to be the opposite. So now we in Pomona have outsourced our fire, city attorney, building and safety, much of our park maintenance, street sweeping, and some other functions, all in an effort to reduce cost and get rid of those damned expensive city employees. Sounds a little like union busting to me, but since most of our city council people are democrats who were supported by unions, that certainly can't be the case (a note of sarcasm, in case you didn't get it).

So we've given away the ability to deal directly with those who work for us and have abrogated that responsibility to some outside vendor. Let them deal with the hiring, firing, wages, equipment, etc. And the trade off? We, the citizens of Pomona don't have a say in any of it. We can now either fire the outsourced company and hire a different one, or live with whatever service we get. We've sold out the commons to the highest bidder.

I know that I promised to look at where we go from here. But it's not an easy thing to do. Our city's infrastructure is falling apart. We need more services, not fewer. Unfortunately, Pomona has a very low economic demographic. We don't have the kind of money that we need to do the work that has to be done. We've decided to go from an city where we control our destiny to one where we let those who think they can make a profit off of us do the important work of protecting us. I think that there must be a better solution out there, but it will take some thoughtful work to accomplish it. It will also mean that we've got to decide if we're willing to pay the price that it will take to make the improvements we need.

Right now, as I've said, no one wants to pay their share. We all want to not have to pay for the services we get. Increases taxes so we can have more police protection? Not if it means I have to get rid of my smart phone. Increase fire protection? Not if it means I have to limit myself to over-the-air TV. Fix our parks and streets? Not if I have to brown-bag my lunch.

One of the things that I've always admired about the American spirit is the way that we've always been able to come together for a common cause. The ideal of America is NOT a place where no one pays taxes. It's not a place where you can become wealthy on the back of someone else. It's a place where people recognize a problem, and solve it. We need to get that American spirit back!!

Tax Thieves

So, am I the only one who is really upset over the television commercials with the happy couples touting how much they were able to settle their tax bills for. "I owned the government $4 million and only paid $1 million." While I understand that law firms are trying to entice business from people, is this the message that we as a society want to send? I can't wait for the "I murdered my wife and was able, through Bob the Lawfirm to get my sentence reduced from death to 6 months probation."

Don't we, as a society realize that it is our obligation to pay for the services we receive? If we all "settled for pennies on the dollar," how would we pay for our military, healthcare (I know), road systems, courts, police, fire, etc.?

When these smiling faces make their "happy" declarations of how much they were able to "save" all I can think of is that I pay my full taxes, so I'm not only paying my share (at the current TOP tax rate) but I'm helping to pay their share as well.

I'd be much happier to see those people who owned $4 million with their faces and voices distorted, showing shame at having gotten into a situation where they owed $4 million that they couldn't pay. At a 30% tax rate, they'd have had to have made about $13 million in taxable money (that's after all their deductions). Now if we assume that about half of the $4 million that they owed was in fines and interest, they still owned about 2 million on about $7.5 million. AND they got away with not paying for a significant amount of time. There was a time in this country when people who cheated others were shamed, but I guess that today they're heroes.

So, according to the commercials, we're supposed to be thrilled that these law-breaking, selfish (not paying their fair share) people, who probably also made some money on the money that they didn't pay in taxes, were able to cheat the rest of us and not pay their fair share.

So people who make a lot of money and scam the system out of their share of the tax burden are heroes, but illegal aliens are criminals. As Yakov Schmirnov used to say, "America, What a Country!"