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Three years ago, in March of 2011, I wrote the blog post you will see below. I guess that around tax season I spend more time thinking about all the taxes we pay and where they go and why they are so high. This post is much as I would write it today, except that I would likely have have added the additional costs to the city of “The Affordable Care Act.” I think when I have the time I am going to make a long list of all the things government does for us and highlight the ones it does better today or more effectively today than it did them 10 years ago. Here is the 2011 post:
Here is a simple example of the changes that have resulted in an increase in the cost of government without an increase in services to the tax-paying public. To simplify, my example uses constant 2011 dollars. This is not a bedtime story and you may want to read it slowly. You will likely shake your head slowly when you are done reading.
It is 1975 in Hometown, Georgia. The Public Works Department of Hometown has 2 laborers who spend the vast majority of their time repairing and maintaining sidewalks. Their total pay and benefits (adjusted for 2011) is equivalent to $20,000 each per year or $40,000. The tools and equipment they use were purchased at a cost amortized over 5 years of $8,000 per year. They use about $2,000 annually in materials. So, without getting fancy, Hometown spends $50,000 a year and the city has a nice looking, well cared for sidewalk system. The 25,000 resident tax-payers of Hometown are pleased with what they get for the $2 per capita annual expenditure on sidewalk repair/maintenance.
In 1980, the City Council decides to save money. They let both laborers go and they contract out for sidewalk services. They budget $40,000 for sidewalk repair and maintenance. Seven local contractors bid on the work. The winning contractor has added one of the ex-city employees to his contracting crew and can do the job with existing equipment. The contractor will just have to work a bit harder and more hours, but he has incentive since this contract will increase his profit by almost $5,000 a year. The sidewalks are equally or better maintained and the City has saved $10,000.
In Neartown, just 20 miles from Hometown, there is a big scandal in 1982. The Public Works Director is found to have given a sewer cleaning contract to his brother-in-law for about 25% more than the contract bid at the previous year. In response to the outcry in the neighboring town, Hometown passes a new law that all contracts over $10,000 must go out to bid. All contractors must apply and qualify to bid.
By 1985, the Public Works Director feels overworked and begs for help in administering City Contracts. The City hires a Contracts Administrator for $35,000 per year. The low bid on the sidewalk repair contract for 1986 comes in at $45,000. The increase is due to the increased costs of the paperwork needed to qualify to bid and the increased number of inspections and specifications required by the contract. Since the contract administrator has 10 major contracts to watch, we assign $3,500 to the cost of the sidewalk repairs. Hometown is now spending $48,500 annually. City savings have dropped to $1,500.
In 1988, the city’s employees are organized by the SEIU and the first City Labor Contract with the SEIU is negotiated. Since the City is a bit strapped for money, it tries to hold off on wage and salary increases, but it does allow for a large increase in benefits and pension promises. The actual cost to the City of the Contracts Administrator (her new pay grade is Administrator III and she now qualifies for a step increase because of her 3 years of service) with all benefits is now $42,500 per year. The new contract cost comes in at $47,500. Add to that the 10% of $42,500 for contract administration and Hometown is now paying $51,750 annually to keep up the sidewalks. The City now pays $1,750 more per year than before and has accrued a pension liability for the Contracts Administrator that is equal to $4,250 per year. Fortunately, City revenues have increased as property values have gone up, and, the pension liability won’t come due for many years.
In 1990, the SEIU opens negotiations with the City on its contract with a demand for a 10% increase in pay and benefits plus a simple 7% cost of living allowance (COLA) for each year of the contract. The SEIU claims its demands are very reasonable since 50 miles away in Atlanta the contract is approximately 15% more expensive than the contract with Hometown. There is a protracted period of negotiation. The SEIU members are encouraged to slow their work down to put pressure on the City. Finally after 6 months, the contract is settled and signed. The City accepts a 5% increase in pay and benefits and a 6% COLA for a three year contract. Part of the deal the City had to accept included hiring of an assistant (Administrator I) for each of the five City employees rated as Administrator III and above. The Contracts Administrator is assigned one of the Assistants, along with his $30,000 in pay and benefits. The low bid on the sidewalk contract comes in at $51,500. Again, contractors complained about all the new requirements, the new inspections, and the costs of increased paperwork to do the job. Ten percent of the cost of the Contracts Administrator and her Assistant now comes to $7,462.50, not counting the ever growing pension liability. Now the city is paying $58,962.50 for sidewalk repair. Because of the slowdown during contract negotiations, repairs and maintenance are behind schedule and sidewalks are starting to show significant wear and tear.
The City does not have the revenue to support the increased costs. The City Council debates four choices: 1. Defer a large part of maintenance and repair of sidewalks; 2. Increase revenue through an increase in property tax; 3. Add to the sales tax; or 4. Float a City Bond of $1,000,000 to pay for a number of repair and maintenance projects around the city. The City Council determines that the most politically viable solution is to ask the taxpayers for an increase in property tax. The vote is very close, but the forces in favor of the tax convince enough people to vote and the tax measure passes. Tax proponents were successful in making the argument that the extra money will help the city keep sidewalks and parks and the library, etc. in much better shape thus protecting the City’s investment in infrastructure. Among their strongest arguments was that this very small tax will improve property values and a taxpayer would more than recover his tax dollars when he sells his house.
Each ensuing year, with the increased costs of the COLA and new pay raises granted with each new contract, the initial surplus created by added property tax goes away. Two years after the property tax increase, the City asks for and gets a 0.5% addition to the sales tax. Three years later the City Council needs to further defer sidewalk repair and maintenance. It seems the addition of the second administrative assistant to help with Contracts Administration plus the increased costs of asphalt and concrete have increased costs beyond the City’s ability to pay.
By the year 2000, the City, in a move to save money, consolidates all Contracts Administration under a new Purchasing Division. All three Contracts Administration employees now work for the new Director of Purchasing for the City (an $80,000 job plus benefits). The Purchasing department now employs eight people. The new department finds time to write a complete new set of purchasing guidelines, specifications, and inspection requirements. The application form to bid on City Contracts is now an 11 page document that must be notarized to be submitted to the City. A $50 fee for submitting a bid has been added to defer the cost of handling the paperwork. Four bidders on the sidewalk maintenance contract decide not to bid this year because they can’t afford the paperwork overhead. Only the two largest contractors (both from Atlanta, not Hometown) are approved to bid and not surprisingly, the new contract for 50% of the work previously done (more deferred maintenance) goes for $75,000 in 2000. ABC Construction, the winning Sidewalk Contract bidder the previous year closes shop. One of ABC’s ex-employees gets a new job with the City as an inspector for City Contracts. He is hired due to his experience with sidewalk repair and maintenance. Inspectors now make $47,500 a year to start.
In 2010, the SEIU and the City almost come to blows as the combination of higher union demands and lower tax revenues would require that either the City lay off 25% of its workforce or reduce pay, benefits, and pension contributions. The SEIU leads its members out on strike. It lasts almost a month. The parks are overrun with trash, sidewalks go unrepaired, the city sewage plant overflows and sends raw sewage into the river. The strike is finally settled and the City agrees to a “modest” 2% increase in pay plus a “reduced” COLA of only 4% per year. To pay for the higher costs, the City must do as it threatened and lay off almost 25% of City employees. The Council is now considering the idea of the Bond Measure to raise needed revenue to meet their budget.
Don’t think this could happen?
It just did, while you were going about your daily business.
So how do we stop and then reverse this? Any ideas?
The WordPress.com stats helper monkeys prepared a 2013 annual report for this blog.
Here’s an excerpt:
The Louvre Museum has 8.5 million visitors per year. This blog was viewed about 330,000 times in 2013. If it were an exhibit at the Louvre Museum, it would take about 14 days for that many people to see it.
Celebrate our Veterans and what they have done to help preserve our freedoms and thank them for their service on November 11. Below are four brief video messages that I think are appropriate for the day. I hope you enjoy them. And while you are at it, say thanks to a veteran on 11-11.
See my related posts here (11/18/2011),
here (11/09/2010), and,
my favorite, here (11/11/2010).
Hard for me to believe, but today, or at the latest, early tomorrow, this blog will have received over 1,000,000 views.
I think its time I either start posting more often or move on to something else. What do you suggest?
I have a hard time with my ‘elevator speech’ about the Cement Trust. For me it is one of those things that defies the simple description/explanation. Having said that, I’ll give it a go anyway…. well not exactly an elevator speech, but a brief outline of the Cement Trust.
The Cement Trust is the brainchild of Bruce Christensen, the General manager of Cart-Away Concrete Systems in McMinnville, Oregon. On January 12, 2010, in the area surrounding Port Au Prince, Haiti, literally thousands of buildings collapsed after a relatively mild earthquake (6.9 on the Richter Scale), killing almost 300,000 and making well over a million homeless. Very poor quality concrete and poor construction methods produced buildings with barely enough strength to hold up their own weight, but definitely too weak to withstand the forces of the earthquake. The people of Haiti lost all faith in structures made of concrete. They did not trust cement based construction.
Bruce started up a WordPress blog, Cement Trust, which soon had hundreds reading and commenting on his many posts. Bruce’s purpose was to shine a light on the worldwide problem of poor quality concrete, especially in the poorest countries of the world. Outside of the developed economies, concrete is typically mixed with shovels on the ground with almost no consistency and usually more water and less cement that is needed to make a suitable structural material.
Within months, literally hundreds of charities had ‘invaded’ Haiti and were attempting to rebuild the nation. Though most were well meaning, they were doing little more than setting up the next disaster. Most are mixing concrete with shovels on the ground, using too much water and too little cement in the mix and are creating the same poor quality concrete that was at the heart of the 2010 disaster. Though many people are working on the issue individually, there is little recognition of the significance of the problem.
In places like India, Pakistan, and Bangladesh, building collapse is such a common event, it is treated like we treat fender-bender auto accidents. They don’t warrant mention in the press. India has literally dozens of building collapses involving fatalities each year. In poor areas of the world, human life is not as valued as in the developed nations and living with dangerous structures seems just natural, part of life (and death).
It is interesting that Concrete is the second most used commodity on earth, after water, and yet almost no one gives it a second thought. Some cities have raging debates about whether or not to flouridate water. Drinking water quality is a major concern in much of Africa and literally dozens of major non-profits are addressing the issue. However, do an internet search for non-profits working to rid the world of poor quality concrete and you will likely find none.
Bruce had talked with hundreds of concerned individuals and many concerned companies, and agencies over the past three years and determined that what was needed now was some action. Early this year he began the planning for the Cement Trust Symposium, a meeting of thought leaders on the subject who would plot a course of action determined to cure the world’s poorest concrete.
My bet is that you knew little about this problem. I hope to post the results of the symposium within a couple of weeks. It was a two day gathering of some of the brightest and most committed people you could ever meet and I think a plan is evolving from it that will make it possible to: “Improve the Quality of Cement-based Products in Developing Countries” (the Cement Trust Mission as developed at the Symposium).
Follow this blog for more on this.
The USA scores poorly on international math abilities tests. It seems to be in the news on almost a daily basis. The skeptic in me says that the Teachers Unions want us to read things like this to support the constant demands for more funds for schools. You would think they would be embarrassed by these findings but they see the failing scores as being the fault of taxpayers for not allocating more resources to them.
If you don’t think we are basically mathematically illiterate in the USA, you need only consider two facts:
We still stamp out, distribute and use pennies.
We mandate the use of ethanol in our auto fuel.
Latest Department of the Treasury information claims it costs 1.99 cents per penny to produce one. Just last year alone, stamping out pennies and nickels alone produced a$42 Million loss for the U.S. Government. It doesn’t take a math genius to know that stamping pennies is a waste of tax dollars. Most countries where math concepts are better understood have stopped stamping coins that cost more to make than their face value. Canada has stopped the use of the penny. Canada scores well above the USA in math scores for 8th and 12th graders. It makes sense.
Then, there is ethanol. In the US, it is made mostly from corn. The unintended consequences of substituting Corn Ethanol for gasoline add up to a staggering $67 Billion cost to the economy. The cost in Federal Subsidies alone add up to about $8 Billion. If private makers of ethanol use traditional fuels (electric, diesel, etc.) to power the equipment to make the ethanol, you know that the cost of the traditional fuels is lower. Once you see Ethanol plants powered by ethanol, you will know it is an efficient fuel. Until that day, we are, like with the penny, seeing our tax dollars wasted.
If you can give me any mathematically sound arguments to keep the penny or to increase the use of ethanol in our fuel to 20% (as has been done recently in Minnesota), I would like to hear them.
This was first posted for Memorial Day, 2011. I am posting it again because President Reagan said so well what we all know about this day and the people we honor on Memorial Day.
“[It is] altogether fitting that we have this moment to reflect on the price of freedom and those who have so willingly paid it. For however important the matters of state before us this next week, they must not disturb the solemnity of this occasion. Nor must they dilute our sense of reverence and the silent gratitude we hold for those who are buried here. The willingness of some to give their lives so that others might live never fails to evoke in us a sense of wonder and mystery. One gets that feeling here on this hallowed ground, and I have known that same poignant feeling as I looked out across the rows of white crosses and Stars of David in Europe, in the Philippines, and the military cemeteries here in our own land. Each one marks the resting place of an American hero and, in my lifetime, the heroes of World War I, the Doughboys, the GI’s of World War II or Korea or Vietnam. They span several generations of young Americans, all different and yet all alike, like the markers above their resting places, all alike in a truly meaningful way. Winston Churchill said of those he knew in World War II they seemed to be the only young men who could laugh and fight at the same time. A great general in that war called them our secret weapon, ‘just the best darn kids in the world.’ Each died for a cause he considered more important than his own life. Well, they didn’t volunteer to die; they volunteered to defend values for which men have always been willing to die if need be, the values which make up what we call civilization. And how they must have wished, in all the ugliness that war brings, that no other generation of young men to follow would have to undergo that same experience. As we honor their memory today, let us pledge that their lives, their sacrifices, their valor shall be justified and remembered for as long as God gives life to this nation. And let us also pledge to do our utmost to carry out what must have been their wish: that no other generation of young men will ever have to share their experiences and repeat their sacrifice. Earlier today, with the music that we have heard and that of our National Anthem — I can’t claim to know the words of all the national anthems in the world, but I don’t know of any other that ends with a question and a challenge as ours does: Does that flag still wave o’er the land of the free and the home of the brave? That is what we must all ask.” –President Ronald Reagan <http://reagan2020.us/> , May 31, 1982
Let’s all pause on Monday (and every day) to give thanks to those who have died to help preserve our nation and way of life.
I am told that today, April 26th is National Pretzel Day. And, National Richter Scale Day. And, yes, also National Hug an Australian Day. My guess is that these days are set aside to help the public to remember that Pretzels exist and that Australians need hugs, too. Why do we need a special day to remember and recognize Charles F. Richter and his scale of earthquake magnitude? I think, at least here on the West Coast, we get regular reminders in the form of earthquakes.
So, do we really need another National Remembrance day? Maybe so.
It seems so rare today to see people exercising common sense that we may need to have a holiday to help us remember that it was once a foundational characteristic of Americans.
Can you imagine a pioneer family on the Oregon Trail not protecting the borders of their wagon train? It was just common sense to send scouts on ahead and to have armed members of the wagon train stationed all around the train. How about the leaders of the wagon train suggesting that the entire convoy be disarmed and just rely on the Federal Government, in the form of an Army Cavalry unit, to protect them from horse rustlers, robbers and natives? It would make no sense at all – would be counter to all common sense. If you have watched our elected government officials in action, you know what I mean.
If we do set aside a National Common Sense Day, I recommend that it be the day before Congress starts its new session. That would have National Common Sense Day typically fall on January 2nd. Why that day? I think it would be the day Members of Congress would be least likely to pass any laws that defy all common sense.
Nike’s famous trade mark, the Swoosh, and its famous motto, “Just Do It” have gone a long way to change a small track shoe manufacturer into one of the largest sporting goods companies in the world. Today it is worth between $45 and 50 Billion Dollars. I would argue that Phil Knight, the founder and Chairman of Nike, has been so successful because he followed his motto.
I think Byron Reese would agree with me. The following video takes 15 minutes. It is a plug for his new book (available here), but it is worth the time. In fact it should probably be viewed by each of us on an annual basis. I plan to save a link to it on my calendar. I hope you enjoy it. Thanks to Corby for forwarding it to me.
Though I have been gone for a couple of weeks on vacation, I did take a break from vacation to watch the super bowl. I am a long-time 49ers fan. Though my Niners lost, it was a very good game and, as per usual, there were quite a few entertaining commercial spots.
By far my favorite commercial during the Super Bowl was the Dodge/Paul Harvey ad, “So God Made a Farmer.” Here it is:
Today I saw my first take-off of that commercial, “So God made a Liberal.” It is not near the class or quality of the original but was entertaining none-the-less. Thought you might like to see it.