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Thursday, June 28, 2012

The Tale of Two Cities

"Most bad government has grown out of too much government.” — Thomas Jefferson

A Tale of Two Cities is a novel by Charles Dickens, published in 1859, set in London and Paris before and during the French Revolution. With well over 200 million copies sold, it ranks among the most famous works in the history of fictional literature.

The novel depicts the plight of the French peasantry demoralized by the French aristocracy in the years leading up to the revolution, the corresponding brutality demonstrated by the revolutionaries toward the former aristocrats in the early years of the revolution, and many unflattering social parallels with life in London during the same time period. It follows the lives of several protagonists through these events. The most notable are Charles Darnay and Sydney Carton. Darnay is a French once-aristocrat who falls victim to the indiscriminate wrath of the revolution despite his virtuous nature, and Carton is a dissipated British barrister who endeavors to redeem his ill-spent life out of his unrequited love for Darnay's wife. The 45-chapter novel was published in 31 weekly installments in Dickens' new literary periodical titled All the Year Round. From April 1859 to November 1859, Dickens also republished the chapters as eight monthly sections in green covers. Dickens' previous novels had appeared only as monthly installments. The first weekly installment of A Tale of Two Cities ran in the first issue of All the Year Round on 30 April 1859. The last ran thirty weeks later, on 26 November.

My tale of two cities is not about the French Revolution, Robespierre or goutiness. It is, however, about aristocrats and peasants. Think of the aristocrats as the statist, utopians, and masterminds and the peasants as the taxpayers. As in Dickens’ novel the aristocrats are forcing tyranny upon the citizens and the citizens’ only recourse is at the ballot box. This is not working very well.

The cities I refer to are not London and Paris, but Stockton, California and Sandy Springs, Georgia, cities almost 2,000 miles apart. I will begin with Stockton. Once a thriving community located at the north end of California’s Central Valley and a virtual suburb of Sacramento Stockton, as city of 290,000 people is declaring bankruptcy. It is out of money and can longer meet its debts or obligations. Fox News reports:

“Officials in Stockton said Tuesday that mediation with creditors has failed, meaning the city is set to become the largest American city ever to declare bankruptcy.

City Manager Bob Deis said officials were unable to reach a deal to restructure hundreds of millions of dollars of debt under a new state law designed to help municipalities avoid bankruptcy.

Monday marked the three-month deadline for negotiations.

"Unfortunately we have no comprehensive set of agreements with our creditors that would eliminate the deficit and avoid insolvency," Deis said at a City Council meeting. He said, however, that the city was still negotiating with some creditors and could reach deals with as many as one-third of them.

"We think Chapter 9 protection is the only choice left. If we get any agreements, those will be honored in Chapter 9," Deis said.

The Council was expected to vote later on a special bankruptcy budget to plug next year's anticipated $26 million deficit.

The budget is expected to suspend debt payments, reduce payments for retiree medical benefits and increase revenue through code enforcement and parking citations, among other steps.

City lawyers could file for Chapter 9 protection in court as soon as Wednesday.

The river port city of 290,000 in Central California has seen its property taxes and other revenues decline, while expensive investments and generous retiree benefits drained city coffers.

In the past three years, officials in the city that was slammed by the collapse of the housing market dealt with $90 million in deficits through a series of drastic cuts.

They eliminated one-fourth of the city's police officers, one-third of the fire staff, and 40 percent of all other employees. They also cut wages and medical benefits.

To plug next year's anticipated $26 million budget shortfall, a proposed budget to be considered Tuesday night would suspend payments for debts and legal claims, reduce payments for retiree medical benefits, further cut some pay and benefits, and increase revenue through code enforcement and parking citations.

The proposed budget includes no major service reductions, Deis said earlier.

"The whole purpose of filing Chapter 9 is to avoid an uncontrolled chaotic situation," he said. "Bankruptcy provides the equivalent of a pause button. It retains services and provides structure so you don't have a bunch of lawsuits."

City officials say the city has run out of options. In recent years, thousands of new homes mushroomed in Stockton, part of a suburban housing boom that attracted buyers from the San Francisco Bay area and beyond.

When the economy crashed and the construction bubble burst, Stockton was battered by foreclosures and lost income from property taxes and other fees.

Multi-year labor contracts for city workers carrying escalating costs and generous retirement plans added to the burden.

In addition, expensive city investments -- a promenade, sports arena and hotel -- failed to produce an economic boon.

The city also has high crime and unemployment rates. It has twice topped Forbes magazine's list of "America's most miserable cities."

Under a bankruptcy filing, officials would retain power over day-to-day city operations and staffing, but a judge would take over all decisions concerning the city's debts, said Robert Benedetti, professor of political science at the University of the Pacific in Stockton.

The judge would decide which creditors should be paid, how much and in what order. He would make allowances for expenditures needed by the city to function, and it would be up to city officials to decide how to spend that money.

"One of the reasons a city might want to go the bankruptcy route is that they don't want a situation where they have to pay out debts and have to close the police or fire department," Benedetti said. "Filing for Chapter 9 means you're asking the court to protect you against lawsuits from people who hold your debt."

Stockton's bankruptcy would make it the largest city by population to file for Chapter 9 protection, according to Jim Spiotto, a Chicago bankruptcy lawyer who tracks such cases. He said Bridgeport, Conn., was the largest city to file for bankruptcy, which it did in 1991, followed by Vallejo, Calif., which filed in 2008.”

For years Stockton, like many cities in California and the nation, has been run by utopians and masterminds who have spent like drunken sailors and passed out entitlements like Chinese fortune cookies, with the biggest entitlement of all being the defined benefit and pension programs given their public union employees. All went well while the spending spree was going on, but when the recession hit in 2008 the city went into a tailspin.

As mortgages defaulted the tax base shrunk and the entitlements continued to escalate, especially for the unemployed and welfare class. As the State of California is also broke Stockton could and not expect any help for the state, nor should they. They made their bed with the public service and teachers unions and now they can lay in it.

2,000 miles away lays the town of Sandy Springs, Georgia located just to the north of Atlanta. The left-leaning Huffington Post reports:

"In 2005, decades after Sandy Springs first attempted annexation to Atlanta, the Republican-dominated Georgia state legislature allowed the city, located adjacent to Atlanta, to break off and become a largely autonomous, self-governing entity.

Scrambling to ready themselves for the division, Sandy Springs effectively privatized the large majority of the municipal services by entering into a public-private partnership with CH2M HILL, a full-service operations company that now controls nearly all of the once-public sector, from road maintenance to cleaning up trash in the park.

"Nobody likes change," Sandy Springs Mayor and former economist Eva Galambos told Reason, a libertarian magazine. "But, if your city is fiscally bankrupt, there may have to be some change."

The city, sixth-largest in the state with a 2010 population of 93,853, wanted to separate itself from what it saw as wasteful government spending in surrounding communities. The city benefits greatly, though, from the number of Fortune 500 companies headquartered there, boasting an extremely high per capita income, with the median family household income, according to a 2008 census estimate, approximated at $129,810, and the average family income $169,815.

Comparatively, the surrounding Fulton County has a median family income of only $58,573. The median national income is $49,777.

Adding to that, only 3.1 percent of families — 7.9 percent of the entire population — live below the poverty line in Sandy Springs. The percentage of Fulton County families living in poverty, in comparison, is nearly four times higher at 11.5 percent. Without needing to provide to as many poverty-stricken families, who typically use more public services, Sandy Springs can more easily keep taxes at a lower, sustainable level.

Not all of Sandy Spring's public services have been privatized, however. Public safety continues to be handled by government police officers and firefighters, and the Fulton County School System still operates public schools within the city, something not noted in the below video by Reason magazine. Mayor Galambos also notes the city "made a clear decision" to not hand out "defined benefits" of any sort to police officers and firefighters, in order to keep taxes low and avoid future obligations.

In light of municipal budget crises wreaking havoc across the country, the fiscally-conservative Sandy Springs government is proud of their radical decision, which they say has left them with no long-term liabilities. The $25 million they paid to CH2M HILL for one year's work, Reason argues, is less than half what they would pay in a typical, government-run scenario.

Since 2005, four surrounding Georgia cities have adopted the model.”

I have written about Sandy Springs in the past so I will not give much time to how this Georgia city is fighting against the public sector unions by just not having any public sector employees of the city’s payroll, they outsource most all of the city’s services with the exception of police and fire. You can read that blog by clicking here.

For years government including federal, state, county, and municipal outsourced most of its needed public service needs to private contractors. This included public works, legal, accounting, maintenance, and construction. It usually excluded fire and law enforcement except for municipalities having volunteer fire departments. Even law enforcement was outsourced by some smaller towns and cities to county sheriffs’ or to an adjacent city’s police department.

I recall a close friend of mine who was the mayor of a small city in Orange County, California. The town did not have its own police department and was not in a financial position to form one. She was approached by the Orange County Sheriffs’ Department with an offer to contract for the town’s law enforcement. She was not happy with the OCSD’s offer so she put the contract out to bid to several adjacent cities. She selected one of the adjacent cities as their offer posed the best for cost and service and subsequently gave the contract to them. The OCSD was not too pleased with her action, but she obtained the best deal for the city. This is the way it used to work and still does in many parts of the country.

With the growth of the public service unions, in power and numbers, across the county since the early 1980’s cities, counties, and states have been sliding down a deep abyss into higher costs for public service and the real millstone of the liabilities for their unfunded defined benefit programs of pensions and lifetime health care.

Lately states such as Wisconsin and Indiana have begun to reverse this trend much to the hew and cry of union leaders and progressives who garner much of their political support from these unions.

On the same day the people of Wisconsin voted to support Governor Scott Walker in his battle against the public service unions the people of San Diego and San Jose voted by an overwhelming majority to curtail the influence and cost these unions are imposing on the cities. Too bad Stockton did not take this action years ago, but they were just too close to Sacramento – the home of public service unions and Jerry Brown.

Many cities and towns outsource most of their public service needs. When I was in business running a consulting engineering and land surveying firm we worked for some of these cities by providing civil engineering and land surveying. It was their belief that if you could buy something through the Yellow Pages, especially from a local business, there was no need to provide those services by in-house, permanent staff – a staff they would have to support until the day they died.

In years past government outsourced almost everything to qualified contractors from Jefferson giving Lewis and Clark a contract to explore and map the lands he purchased from Napoleon in the Louisiana Purchase to the surveying the lands for incorporation into the United States Rectangular Survey System, building of the Transcontinental Railroad, Hoover Dam, the Interstate Highway System, and thousands of other public works including your local post office. Government provided the funds for these projects, but not the public service employees. The planning, design, engineering, and construction was carried out by the private sector.

Consider the interstate highway system as a classic example of how this system worked and should work. In 1956 Congress passed the Interstate Highway Act and it was signed into law by President Eisenhower. The law imposed a federal tax on fuel and trucks. This tax would be collected by the federal government and placed in a Highway Trust Fund. This money was then apportioned out to the states to construct modern, four lane divided highways. The apportioning was done on the need for the highway and the and the state’s ability to pay for the highway. In this case some states were considered donor states, while others were deemed recipient states. As example the larger, more populous states like California, New York, and Illinois were donor states and states with small population such as Montana, Wyoming and Nevada were considered recipient states. This was considered fair and necessary as you could not have a true interstate highway system if the roads were not connected through the lesser populated states and if you did not purchase fuel you did not contribute to the Fund.

The monies from the Fund were usually apportioned back to the states on a 90-10 basis – 90% federal and 10% state or local. The states then provided all of the design, engineering, and construction services to build the roads. Fiducial and design standards oversight were provided by the federal government through the Bureau of Public Roads (now the Federal Highway Administration). The BPR and various state highway officials through the American Association of State Highway and Transportation Officials (AASHTO) set the design and construction specifications and standards for building the system. Items such as; lane and shoulder widths, percentage of grades, sight distances, curve radiuses, design speeds, bridge clearance heights, pavement types and structural sections, signage, and minimum median widths. These specifications and standards were incorporated into the design of any highway qualifying for federal funding under the Interstate Highway Act.

As the design, engineering and construction management were left to the states he door was opened to the public employees to move in. Some states, mainly in the south, outsourced most of this work to the private sector. Other states such as California, New York, and New Jersey brought this work in-house and began to build massive bureaucracies. As an example when I worked for the California Division of Highways (now Caltrans) from 1962 to 1972 the agency had about 9,000 employees and all design, engineering, and maintenance work was done in-house. Today Caltrans has 22,000 employees and a budget of $12.8 billion dollars and the Interstate System was completed years ago. Today they outsource about 10% of their design and engineering services, and that took a court decision and referendum (Proposition 35) to accomplish that.

Throughout the ensuing years The Professional Engineers in California Government (PECG), a public service union representing 13,000 state-employed engineers and related professionals responsible for designing and inspecting California’s highways and bridges, has held Caltrans hostage by constantly fighting against and outsourcing of these services to the private sector. They claim that state employees are better qualified and will do the work for less cost is fallacious and ridiculous. The average Caltrans employee earns $100,000 including benefits, benefits that will be paid for life. Also, Caltrans has no way to reduce their in-house staff due to civil service rules, even if there is no current work for them.

While Sandy Springs is not the only municipality to outsource most of its public services it is certainly one of the best. Other towns, cities, counties, and states are beginning to see the light and eliminate their public service staff, thus reducing their costs and unfunded liabilities.

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