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!!

Thoughts on Outsourcing -- Part II

Last time I talked about how cities started hiring their own workers and some of the reasons behind it. Now let's look at what's going on.

Why Outsource?

Having worked for many years in the corporate world as a manager, I have had to deal with outsourcing on several levels. Traditionally, for most companies, outsourcing is done for two major reasons:

1. A function is outside the core competencies of the company. That is, if you are in the business of building cars, is it really in your interest to also build the radios that go into the cars, or would it be better to let a company whose sole expertise is in radios?
2. You don't do enough of the specific job to make it worthwhile to bring it in house.  You are a printing company, someone needs a book to be bound. The majority of your work does not require bookbinding. So for the few jobs that you get, it's more economically feasible to have it done by an outside source.

When we look at personal outsourcing, we find that there are a variety of other reasons. By personal, I mean the way you and I run our households.
When things are good, we have good paying jobs, and are making ends meet, we might outsource some of the everyday functions such as:

• food preparation (that trip to McDonalds or somewhere better)
• having a caterer take care of that holiday party
• gardening
• light housekeeping (calling in Molly Maids)
• home repairs (painting, landscaping, etc.).

With cities (and where we say cities we might include most government jurisdictions), the initial idea was to save money for taxpayers by hiring employees directly for those services which are "core" to the running of the city just as a business conducts its core competencies. It made more sense to control costs by eliminating the profit that is required when you outsource. The larger the city, the more this made sense. You could, as a larger city, get volume pricing in materials.

While cities (and schools by extension) are taxpayer based and do not involve a need for profit there were savings. In addition, lower wages were often offered. In order to still get qualified workers, cities often would add other benefits to employment to offset the gap between what a person could make in private industry and civic work. Citizen's demanded that they have good, qualified policemen, firefighters, building inspectors, etc. So cities offered job security, and pensions as a "deferred" payment to entice workers. But even then, the total cost of an employee or function was still below that of the private sector because they didn't have to show profits for investors.

Where Did It Go Wrong

Over the years, civic employees negotiated higher wages and better benefits as did all Americans. As wages and benefits increased in private industry, civic employees also negotiated better deals and the cities were more than willing to provide them so that they could keep "top notch" people to serve the public. In some cases, the cities overstepped with promises that may have been ill-advised, including not taking into consideration the impacts of the aging baby boom generation.

As with anything, once you've given something it's very hard to take it away, so as the private sector saw wages stagnate, pension plans disappear, and benefits no longer being offered in the same way they had been, it became expensive for cities to maintain their highly paid, highly benefitted workforces. Even though they were still, all in all, commensurate with the best of private sector.

So how to reverse that trend in an era of "no new taxes." Cities have decided that if they can't take away the benefits, then they'll just take away the jobs! By outsourcing, the city doesn't have to worry about how much those doing the job are paid, what kinds of benefits they have, etc. So outsource vendors can hire the cheapest labor, not offer job security, not offer health benefits, and NOT offer pensions. Supposedly, this results in a cost savings to the city.

Let's Look At The Logic Of This

So a not-for-profit city can not do the same job as a private, for profit, company doing the exact same work. How can this be? There are several possibilities. One is that they somehow can manage things better. How do you mange street sweeping in a way that saves the kind of money that we're talking about? Can a company see extra savings by sweeping more efficiently? Hmmm. In reality, the only way that they can do the same job AND make a profit, is to pay their workers a lot less money. So what kinds of workers do we get when we go to an outsourcing plan? Since workers are getting low wages, one would assume that they would always be looking for an opportunity to advance out of these jobs and you would see a fairly high turnover rate. Since the company that is hired is only in it for the money, and are not committed to our community any more than they would be to any other community, you can't expect to see the same commitment to quality.

It just doesn't make sense to me that you can cut costs by making a profit that you couldn't realize by NOT making a profit. Again, unless you're doing it by taking something away from someone else.

So cities (and government) has decided that outsourcing is good. Well, at least they're outsourcing the extras, right? Things that they only do periodically and that don't require full time attention? Things that city employees just don't have the expertise to do?

No, And this is where I really fail to understand the logic. In our personal lives when things get tight, we often will forego the McDonalds trip and cook at home, buy our own paint and brushes and do a DYI project, mow our own lawn, and clean our own house. But for some reason we're told that in government, when things get tough you go to McDonalds, and hire a gardener. WTF?

In business, sometimes when things go wrong, they do cut jobs and sometimes outsource. We've seen a lot of outsourcing of core competencies to places like India and China in the private sector. The reasons are to side-step US regulations and to go where there is cheap labor, where there is no guarantee to workers of social safety nets (health care, social security), etc. Is this what we really want for our cities? This is something we all need to decide.

Next time What Should We Do?

Thoughts on Outsourcing

As the city of Pomona moves forward with a "policy" of outsourcing city services to save money, it's time to look at the history of civic services, how we got into the situations we're in today, what are the perceived benefits of outsourcing, and my perception as to why we're taking the current actions.

Today, A History Lesson

When cities were originally formed, the main purpose for creating a city government was to manage the "commons," that is those things that are common interest to all the citizens. Things such as police protection, fire fighting, the management of "common" property (this probably included public pastures for grazing, town squares, and parks), etc. As cities grew, other common interest items were taken on such as maintenance of the roadways, public lands management, ensuring cohesive development, etc.

To do the work of the city, under our form of government, citizens formed community councils (sometimes they included the entire city in town-hall meeting type situations, today it's city councils) which went about determining needs, setting taxes to pay for those needs so that everyone contributed to the "shared" costs, and hiring either companies or individuals to do the work necessary to carry out the needs of the community.

Hiring police, firefighters, maintenance people, etc. in a political situation such as a city is fraught with dangers. Early on, much of this work was done through political appointment which became what is today called a "spoils" system whereby the winner of an election can distribute the spoils to his/her supporters. Soon the electorate determined that this type of system resulted in corruption and in many areas a "civil service" system was instituted so that these important jobs were given to "qualified" people rather than through the problematic spoils system.

Individuals who were hired for civic service were often hired at salaries that were well below what was common in the private sector. So cities began to offer other incentives to attract and retain good employees. Retirement plans, healthcare plans, assured job security plans (such as tenure), were all ways that cities attracted people out of the private sector and into civic service.

Enter collective bargaining: As unions became strong, city employees formed unions so that they could collectively bargain for their wages and benefits. City council's bargained with the employees and, in good faith, employees agreed to terms of employment. Unions only got what cities were willing to give them. Any city, at any time, could have held out for different conditions. The idea that unions somehow coerce their way to benefits is as ludicrous as the idea that cities coerce employees to take cuts. It is a negotiated process. Each side tries to get the best deal that they can, and in the end both sides make a promise to act in accordance with the final contract.

Over the years, during good times, unions were able to negotiate contracts which included some very good benefits. The cities were willing to give them these benefits because they felt that this was the way that they could compete with private industry for workers, many of whom were getting the exact same benefits but higher pay.

Subsequently, private industry started to cut benefits and pay. As the economy started to falter, the gap between benefits and pay for public employees was catching up with the private sector and for some jobs surpassing it. Where in the past cities could work "on the cheap" by hiring their own workers, now that benefit has dissolved and cost savings can be made by "hiring out" or outsourcing the work.

Next time: Why Outsourcing

NUMBER vs. VOLUME

I was reading the Inland Valley Daily Bulletin this morning and one of my MAJOR issues was there staring me in the face. Was it corruption in Pomona? No. Was it the dismantling of our history? No.

I was faced with this sentence in an article on page A3 by Canan Tasci on parking problems at Chaffey College: ". . . and that increases the amount of people trying to park on campus." Because the offending phrase was used in a direct quote I can't blame Canan Tasci, but it's usually OK for a reporter to clean up any obvious grammar problems. I'm sure that there was probably a "you know" or "like" in there that didn't make it into the quote (just speculation). The problem is that I've seen this type of thing in a LOT of stories in the newspaper (from some good writers) and heard in constantly in TV and radio news reporting. I guess copy editing is one of the victims of the changes in the news industry.

The grammar rule is that if you use a number word (few, fewer, more, less, number, amount, etc.) that a singular noun has to be an amount. You cannot have a number gasoline, but you can have an amount of gasoline so it would be "less gasoline," not fewer gasoline. When a noun is a plural, such a cows, you have a "number of cows," not an amount of cows. Amount refers to "volume" while number refers to (hold on) number. The same is true for less and fewer. Less refers to volume and is used on singular nouns (less gasoline, less cereal, less stress) and fewer refers to plural numbers (fewer cars on the road, fewer accidents on the highways, fewer pills I have to take for the stress).

One of the places where this first reared its ugly head was in grocery checkout lines. The sign above one or two of the lines began reading "10 items or less." The noun items is clearly plural, so it should have been "10 items or fewer" which just didn't sound right. Actually a better sign would have read "fewer than 11 items," but we don't want to go there. This has caused the whole, plural vs. singular noun numbers words thing completely out of whack. We now hear that there were "less people than last year," "less cars on freeway on Fridays," etc.

AT LEAST: Our own local Stater Brothers market does have a sign above the two registers at the south end of the store that state, "15 items or fewer."

This post is repeated on the M-M-M-My Pomona blog. I promise not to do that again.

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!"

Healthcare Vs. Insurance

I am so pissed off over the current state of healthcare in this country. Those on the right seem to want to close their eyes and pretend that we still have the "greatest healthcare system in the world." So if it's so great, why are 40% of Americans completely, or partially locked out of it?

My answer is simple, INSURANCE.

Just what value does insurance add to the healthcare of Americans? Let's take a step back and look at what insurance is:

Wikipedia defines insurance as: "Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss."

The modern concept of insurance (although there were variants prior) probably started in the coffee shop of Edward Lloyd. The British Empire was built on the concept of materials coming from the colonies and finished goods going back to the colonies. However, shipping is fraught with dangers and many ships went down in bad weather, due to mutinies, and from piracy. To spread the loss out, Lloyd came up with the concept of syndicates that would "insure" ships against loss. They would pool money together and take a percentage of the shipments returning to England if the ships arrived safely. If they didn't, Lloyd's syndicate would pay the ship owner for his loss. The concept was built on the idea that the majority of ships would arrive safely, so that the risk was less than the profits from the insurance. Thus was the founding of the first insurance company, Lloyd's London.

How Insurance Works

Life insurance is probably the easiest example of insurance to understand. You purchase insurance. The insurance company figures out how long you'll probably live (actuarial tables) and calculate the risk against you dying earlier. A cost for the insurance is set based on the idea that you will pay into the insurance more than you will get out of it. You only "win" if you die before you've paid in the amount that they will pay you (the benefit). Yes, it's kind of like Vegas gambling and the analogy is quite apt. If there are too many "winners" then the risk is considered greater and the costs of the insurance go up. You try to limit those risks as much as possible. With life insurance, you make sure that the insured doesn't have an illness or condition that will cause them to die earlier than expected or that they don't have a dangerous occupation or hobby (demolition derby?). In addition, the insurance company gets to use your money for all of the years that you're still alive. They invest that money and receive additional profits on those investments. So they not only do the gambling thing, but they also double-dip.

Healthcare insurance is based on the idea that investors can make money by charging for insurance against getting sick. They limit their risk by denying insurance to unhealthy people. The whole idea is that you need to deny services because it will negatively affect the "bottom line" and investors will lose money. Again, it's gambling. And the house always gets their cut.

Again, what value does insurance add to healthcare?

Insurance has to pay not only for those who become ill, they also have to pay for salesmen to sell the policies, bureaucrats (yes government would have bureaucrats, but we also get them with insurance) to make sure that people aren't getting more than what they're paying for, executives to run the whole process (and this is VERY expensive), actuarials to determine the amount of risk, and, most importantly, the investors.

It is estimated that our current healthcare system (private insurance, government, employer insurance, etc.) amounts to about $3 trillion a year. Of that, about 31% goes to administrative costs. That's almost $1 trillion that doesn't cure anyone, help anyone, or go for medicine, medical equipment, or anything else except for the profit of stakeholders (salesmen, employees, etc.) and investors.

We spend 16% of our gross domestic product (GDP) on healthcare according to McKinsey & Company. More than any other country. And again, what do we get for it. All the other industrialized countries cover every person who gets sick while we only cover about 60% of our population.

Costs to Business

100 years ago, large companies would hire doctors and nurses to staff healthcare facilities for their employees. These "company hospitals" ensured that a company's workforce was healthy and able to contribute to the work being done. Because this was such a great benefit, employees wanted to work for companies that offered such a wonderful benefit so, just like Lloyd, syndicates (insurance companies) were formed to offer something similar.

At first, this was great because the cost was negligible and the benefits were great. The population was young and the young who were healthy could maintain the cost for the older folks who got sick and the investors made lots of profit. Then the population started to age and many more people demanded that their employers also add this benefit.

The costs started to skyrocket and the businesses, who had now "promised" their employees (or in the case of unions had negotiated contracts) coverage for healthcare, saw that a very large percentage of their costs were involved in providing healthcare, a business that they know nothing about and that they have trouble controlling. But why is healthcare actually the burden of business? In other industrial countries, the government takes care of healthcare and business doesn't have to contribute except through their taxes (I'm sure that someone will note that the taxes increase. Yes, but not nearly as much, or as fast as insurance). If we take the costs of insurance out of the healthcare, then it becomes much more affordable. So much for any chance of American business being on an equal footing with their foreign competitors.

The Effect of Health Insurance on Individul Workers

Also, the main reason that people stay in dead-end jobs that they hate is that they're afraid to lose their healtcare. This makes for an unmotivated, miserable workforce and society. Without the threat of losing healthcare, many more individuals might even decide to become entrepreneurs and start new businesses.

The arguments against healthcare reform (especially single payer)

Long lines/waits: so when is the last time you didn't have to wait for a doctor? I'm fully insured and I have to wait days/weeks to see my GP and even longer if I want to see a specialist

Rationed Healthcare: Yes, now we all have equal access to healthcare (yeah, right). Without insurance, kiss the idea of seeing a doctor goodbye. In current America the rationing is based on how much money you have. So the rich get the greater rations and the poor (uninsured) get nothing. But lordy don't ration healthcare!!

We just can't afford it: So we let the wealthy get treated and the poor get left to rot and die miserably without any care at all (is this what America is really about?).

People from other countries with free healtcare come here for treatment: Of course. In their home countries they are treated for what they need to be treated for with the sickest getting priority. Some time ago the Daily Bulletin had a story about a Canadian resident who got a groundbreaking treatment at Loma Linda. The story noted that they would have had to wait in Canada for about a year to 18 months to receive such treatment. A letter writer noted that this is proof that our system is better. BUT: What it really proves is that if you have the cash, you get the treatment. How many of OUR citizens could even get the treatment, let alone wait 18 months for it. So the great benefit of our healthcare system is that we let people with money "cut in line."

Let's look at the facts

For all the right wing's horror at the concept of universal, single payer healthcare, there is not a single country in the world who has tried it and abandoned it. There are some systems that are better than others, but all countries that have it, and have had it for a long period of time (England since shortly after WWI) are sticking to it.

The costs would be spread out among all taxpayers. The amount of money you're paying for healthcare now would go toward the program as would the money going into government programs such as Medicare, VA, Congressional healthcare, Medicaid/cal, Well Children programs, etc. So the costs are already there. What will the increased costs be to include those not currently covered? Probably not that great as we get rid of payments to investors, insurance companies and their executives, etc. AND if we can negotiate prescription prices such as other countries do, we can probably also reduce additional costs as well.

So, basically I'm for getting insurance out of the healthcare field (they can insure for lost income in the case of accidents or illness, or for "additional services" such as the upgrade costs for private rooms, or elective treatments. But get them completely out of standard/baseline healthcare, where they don't belong in the first place.

My Blog

OK, so after a prolonged period of blogging about Pomona on M-M-M-My Pomona and previously on Foothill Cities, I've decided to expand to my own blog.

This blog will NOT concentrate on what's happening in Pomona, I'll continue to work with Meg, K, Ed, Calwatch, Pomona Joe, etc. over at My Pomona. This blog will be my take on some of the larger, national issues that just bug the heck out of me. I'm sure that my opinions will offend some, and, hopefully, get others to think about some issues from a little different perspective.

Remember, I'm not a person in power anywhere, I'm not trying to run the world. I just enjoy my freedom of speech.