It Finally Happened

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.” — Thomas Sowell

Before I begin this blog I want to share a video that was done by Steven Crowder of PJTV in December of 2009. In the video Crowder takes you on a tour of the motor city and shows what has and is happening to the once great manufacturing center of the world.

And there is another video from the Reason Foundation address the issues causing the demise of Detroit.

In my search of YouTube videos about Detroit I found several hundred that would have be suitable for this article, but you can do that on your own by simply typing “Detroit in Ruins” in the search field.

In December 2010 I posted an article about the “Vanishing Detroit” in which I wrote about the history and potential demise of the motor city. In the concluding paragraphs of the article I state:

“This is a condition not limited to Detroit. Cities such as Oakland, St. Louis, Cleveland, and many others are approaching the same precipice of economic bankruptcy. With the massive costs for welfare and social services, shrinking tax base, poor schools, unfunded liabilities for public service workers pensions, teachers unions with the protection of underperforming teachers and increasing demands for higher wages and guaranteed pensions and a political class that panders for votes we are approaching a time in our history when cities are beginning to fail.

Until now cities have been relying on funds from state and the federal government to bails them out of their financial woes. With states experiencing the same malaise and the rising deficits of the federal budgets money for these cities are no longer going to be available. Perhaps the time has come for these cities to realize the mess they are in and declare bankruptcy rewrite their public service and teacher union contracts and tighten their belts in all areas of spending so they can survive. No more promises, no more pandering to special interest groups and no more fountains and stadiums unless they are totally financed with private money.”

Most rational economists and rational thinking people have been predicting the demise and eventual bankruptcy of Detroit for years. Now it has become official and no amount of state or, God forbid, federal funds can solve the problem.

Last week Governor Rick Snyder filed for Chapter 9 bankruptcy for the city of Detroit. The once leader of American industry has now joined the junk heap as a third world city. Chapter 9, Title 11 of the United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities that assists them in the restructuring of debts..

Why did this happen and will it happen to other American cities?

Michigan Gov. Rick Snyder and the bankruptcy specialist he appointed to fix Detroit’s unprecedented financial problems put the blame Sunday squarely on the city and defended their decision to file for Chapter 9.

The Republican governor said Detroit created the problems and stood steadfast behind his decision to file Thursday for bankruptcy, with the city roughly $19 billion in debt.

“This is a tragic, difficult decision, but a right one,” he told CBS' "Face the Nation." “It’s not about just more money, it’s about accountable government.”

He said corruption and city leaders ignoring warning signs for 60 years contributed to the problems. Among his biggest concerns, Snyder said, is the decline of municipal services for Detroit’s remaining 700,000 residents, including police response times of nearly one hour.

Snyder said the state cannot help and asking for a federal bailout is “not the right answer,” though Washington has that option.

The Obama administration has extended no offer to help, after Congress and the White House agreed to bail out Chrysler and General Motors during the recent recession.

“Can we help Detroit? We don’t know,” Vice President Joe Biden said last week. His remarks followed White House Press Secretary Jay Carney appearing to rule out such assistance.

“That's something that local leaders and creditors are going to have to resolve,” he said. “But we will be partners in an effort to assist the city and the state as they move forward.”

Among the emerging concerns is that the federal government would have to help repeatedly, considering Chicago reportedly has an unfunded pension liability of at least $19 billion while Los Angeles’ is estimate to be as much as $30 billion.

The bankruptcy filing for Detroit marks a final step in the chrome-plated city’s decades-long decline — which started with the country’s overall manufacturing slowdown and continued with the departure of U.S. automakers and residents, leaving behind a sprawling city trying to survive on dwindling coffers.

Detroit was in the 1950s a worldwide hub of auto manufacturing, making it the fourth-largest U.S. city with one of the country’s highest per-capita incomes.

However, the so-called Motor City’s decline started soon after with residents — following their counterparts in other U.S. cities — starting to move to the suburbs and take with them businesses, jobs and tax dollars.

Historians argue the deadly 1967 riot in Detroit, one of the many so-called “race riots” across the country in the 1960s, accelerated the trend.

And as the population dwindled from roughly 1.8 million to 700,000, city officials struggled to keep up with municipal services in the 142-square-mile city, with a tax base just half of what it was in the 1950s.

Meanwhile, auto companies began opening plants in other cities as Japan-made cars dominated the international market. By 2009, the U.S. auto industry collapsed with the entire economy, eventually pulling down Detroit with it. When the UAW demanded high wages and more benefits the auto companies began moving to right to work states in the south so they could better compete with the Japanese car companies that were manufacturing cars and trucks there. As this happened the unions got what they wanted, but the jobs began to vanish and with that the tax base declined.

The city’s efforts to provide and maintain such basic services as law enforcement and trash removal were further complicated by the costs of paying union contracts and benefits, which have contributed to nearly $15 billion in unfunded liabilities for the city.

Once again these public service unions got the raises and pensions they demanded and the Democrats gave into their demands to get their financial support and their votes but the city did not have the money to fund these liabilities.

In addition, Detroit has a roughly 18 percent unemployment rate, one of the country’s highest violent-crime rates and about 80,000 blighted or abandon buildings.

“Chronic budget problems have taken a significant toll on everyday life for citizens,” Snyder said recently. “Detroiters deserve to feel safe when they walk down the street, to have their street lights on, to have the bus show up to take them to work.”

However, the city also has a history of corruption that has led to its financial problems, including Mayor Kwame Kilpatrick resigning in a 2008 sex-and-perjury scandal that cost the city almost $9 million from a lawsuit and legal fees.

Years of Democratic Party rule, corruption, escalating social welfare programs, failing public schools, high taxes, demands of the teachers and public service unions, racial tensions, gangs, and a rising crime rate have finally taken heir toll on Detroit.

The recent bankruptcy filing in Detroit is raising red flags about other major U.S. cities also dealing with billions in under-funded retiree benefits, prompting the question — who might be next?

Just last week, Chicago’s credit rating was downgraded as a result of its $19 billion in under-funded pension liabilities.

Moody's Investors Service called the liabilities “very large and growing" and warned that Chicago, the country’s third-largest city, faces a “tremendous strain’’ in trying to meet future funding requirements and public safety demands.

A similar scenario, though decades in the making, largely doomed Detroit, whose average police response time has grown to more than 50 minutes.

And like Michigan, which appears in no position to bail out Detroit, Illinois is dealing with its own $97 billion pension shortfall.

To be sure, other smaller cities have filed for bankruptcy, most notably California’s Stockton and San Bernardino in 2012. No other city of Detroit's size appears to be on the cusp of imminent financial collapse.

However, those bankruptcy filings together have resulted in speculation about whether more are on the horizon

Other cities now on the radar include Cincinnati, Minneapolis, Portland, Ore., and Santa Fe, N.M. — following Moody’s saying in April that they and 11 other municipalities were being reviewed for a possible credit downgrade, the result of a new analysis system that further considers pension liabilities.

Though much of the national concerns have focused on pension liabilities, heath care costs for retired municipal employees pose an equally if not larger problem.

Amid the $18.5 billion in long-term debt that led Detroit to file for bankruptcy is roughly $3.5 billion in under-funded pension liabilities. However, roughly $5.7 billion of that debt is health care costs and so-called “other post-employment benefits.”

The situation is highlighted a Pew Charitable Trusts Study of 61 major U.S. cities that found they collectively had enough money to cover 74 percent of pension liabilities but only 6 percent of health care liabilities.

The total difference between what the cities owed to retired employees and what was covered equaled $217.2 billion, according the report, “A Widening Gap in Cities.” It was released in January and based on 2009 numbers, the most complete data at the time.

The nonprofit group also released a report in March that found New York City has a combined $1.15 billion in under-funded pension and health-care costs, followed by such major cities as Philadelphia, at $8.6 billion. In comparison, that figure for Detroit was $12.9 billion.

The video clip shown here is from PJTV and the three commentators summarize the reasons Detroit and other cities will continue to fail.

As our nation continues down the road of higher taxes, more regulations, and runaway spending by politicians only interested in the next election more cities will fail. Just wait until 30 million illegal immigrants are added in the equation.

Today we have 47 million people on food stamps. That’s 15% of the population. Even college students are receiving food stamps today.

Rather than use the meager funds available to cities and states for big union contracts, luxury projects like light rail, and promoting more welfare programs they need to pay attention to the basic municipal functions of police and fire services, garbage collection, repairing crumbling sewer lines, streets, and bridges — the things people pay property taxes for.

Since the early days of the Republic, America’s cities have been centers of innovation, wealth, and power. As they grew larger and their governments more commanding, places like Boston, Chicago, Newark, New York, Philadelphia, and St. Louis also became battlegrounds where political machines contended for influence. The early ideal of the part-time citizen-legislator gave way to the professional pol. In his 1904 “The Shame of the Cities”, Lincoln Steffens observed that big-city governments across America had been undermined by a series of problems, including police corruption, politicians using the public till for their own gain, and rampant bribery in awarding public contracts, known at the time as “boodle.”

The Democratic Party is a party of special interest groups, or “factions” as James Madison called them. There are racial groups, LGBT groups, unions (both private and public sector), teachers unions, environmentalists, and pro-abortion advocates. All of these groups want something and the Democratic Party is who they turn to for it. They want plunder and the Democrats will give it to them as long as it brings them votes. They don’t care about the future. They only care about the next election and how to retain their power.

Decades of corruption built a mountain of liabilities, while scaring off the taxpayers needed to finance those promises. It’s like a movie trailer for the blockbuster disaster film to come, when America’s declining demographics catch up with the federal government’s vastly higher mountain of unfunded commitments. Detroit is the city our debt monster destroyed to get limbered up for the greater fiscal carnage to come.

Death spirals spin even faster when it’s possible for productive workers to escape. The population implosion in Detroit was swifter and more dramatic than our national workforce collapse, because it was relatively easy for citizens to escape the degenerate loop of declining municipal services and rising taxes but in the long run, the result will be the same. There are people capable of fleeing the United States entirely, when our moment of truth arrives. Their departure will be a good sign that the Great Crash is at hand. The loss of their capital and business acumen will hasten our collapse.

We should stop the death spiral before things get bad enough for the smart money to take a powder. Of course, there were people in Detroit who said the same thing, twenty or thirty years ago. They were drowned out by a perpetual-motion political machine, which promised the good times would keep rolling forever. Even now, frantic liberals are gibbering that Republican austerity measures somehow killed Detroit, even though Democrats held absolute power for fifty years. You’ll hear the same things right before the end at the national level too. In the very near future, you’ll be told your Social Security and Medicare benefits are being cut because evil rich people don’t want to pay enough taxes to fund them. It won’t matter that there literally isn’t enough money in the entire world to cover Uncle Sam’s long-term liabilities. Anger and resentment will be milked for power until the very end. Those who do the milking will soar away from the wreckage with millions of dollars in their pockets.

Pension and benefit liabilities are really just a concentrated form of the same toxin eating away at every level of government: deficit spending. They’re just another way to spend tomorrow’s money, which is easy, because tomorrow casts very few votes in today’s elections. The people who fret over “sustainable” development at environmentalist conferences are nowhere to be found when it’s time to discuss sustainable government. Forward-thinking “progressives” are perfectly happy to be ruled by the dead hand of past entitlement promises. Those who regard the U.S. Constitution as a dead scrap of old parchment think union benefit plans are chiseled on tablets of stone.

Here’s a trick question for you: What does the government buy with its billions in deficit money? The correct answer is: commitments. Very little of that crazy deficit spending is a one-time outlay, evaporating without trace in the next fiscal year. Governments use money they don’t have to rack up long-term spending commitments, which quickly acquire human faces. Cut a million in spending, and you’ll be putting this government employee out of work, or trimming back a program that person depends on for their livelihood. Lay a finger on the pension plans of Detroit, and you’ll outrage people who are counting on those payments to finance their lengthy retirements. Promises were made. Reform is betrayal. You’ll never see a more motivated group of voters than people who believe their well-earned benefits are at risk.

Maybe the people who made all those unsustainable promises should have thought about the grim day when it would become impossible to keep them. Perhaps the outraged beneficiaries should direct their ire at the people who bought their support by making commitments that can no longer be fulfilled. But it doesn’t work that way. The people who made the unsustainable commitments are long gone. Criticizing them is living in the past. All that’s left to discuss is how today’s young people will be indentured to pay off bills they never had a chance to vote against. Fate is written one borrowed dollar at a time, and the “progressives” tell us it cannot be unwritten. We surrender control of our fate whenever we allow the government to spend money it doesn’t have. We leave our children with a hope chest full of chains.

Liberals pretend that debt is only a concern when they want to talk about tax increases. And even then, it’s not that big of a concern. They’re not interested in balancing the budget, much less paying off the mountain of debt already incurred. Skeptics are told there’s no reason to worry, we’ll always be able to borrow more money. And then the day arrives that we can’t. It happens fast. The final promises of unlimited government credit are still ringing in our ears. Contrary to the promises of charlatans, government debt is not an abstract number floating on some spreadsheet. Money cannot be printed forever. There comes a moment that the cost of financing debt abruptly explodes, and suddenly the government’s financial commitments balloon by 30 percent, 50 percent, or more. Draconian tax increases are presented as the only possible solution. The geese that lay our golden eggs are duly strangled. And then what? It’s funny how quickly political rhetoric can shift from bright futures of unlimited possibility, to grim demands for the cash needed to fulfill ironclad entitlement commitments.

Private corporations and unions make unsustainable problems too, but at some point unsupportable demands will kill off the host organism. The company and its unions collapse together, leaving others to pick up the pieces and devise a more workable business plan. That’s what happened with the Twinkie — it’s back on store shelves following a cycle of creative destruction. But that’s not what happened with Big Auto or Detroit, is it? When the operation reaches a certain size, we’re told it can’t be allowed to undergo the cleansing cycle of death and rebirth which means suddenly it’s everyone’s problem.

As goes Detroit, so goes America. The steering wheel is lashed in place, a cement block has been dropped on the gas pedal, the emergency exits are welded shut, and nervous passengers are told to swallow their complaints. The commitments that were so very easy to make yesterday will become impossible to fulfill tomorrow. The range of options available to deal with fiscal crisis will be dramatically restricted, as every strategy to increase economic growth is pronounced unthinkable. How much flexibility does Detroit have to win investors, and attract productive labor back to the city? How much flexibility will Barack Obama’s successor have to restart the American economy? Promises become curses, then wither away into epitaphs.

For more photos of crumbling Detroit please click here.

As Stephen D. Eide, a senior fellow at the Manhattan Institute’s Center for State and Local Leadership, writes in the Daily Beast:

“However long it takes, bankruptcy will cut Detroit’s debt, but that’s a necessary, not sufficient condition of any revitalization. On its own, bankruptcy can’t reform city government, reduce unemployment, bring down the crime rate, or reverse depopulation. Eventually, Kevyn Orr will exit the stage, and leave those challenges for Detroit’s citizens and public officials to resolve. In the near-term, the task for Detroit city government is usefully simple: bring down the debt. If progress is made on other fronts along the way, private sector actors will most likely be responsible. Government was not the only cause of Detroit’s decline, and will play, at most, a supporting role in the city’s revival.”

Third City in California to go Broke

“A government big enough to give you everything you want, is big enough to take away everything you have.” — Thomas Jefferson

This is an update for my blog posted on June 28, 2012 – “The Tale of Two Cities.” In this post I compared Stockton, California with Sandy Springs, Georgia. Stockton, due to its lavish spending and bloated public employee costs filed for bankruptcy, while Sandy Springs, through sound fiscal management and outsourcing of most of its public services, is thriving.

Today Reuters announced that The City of San Bernardino, California has filed for Bankruptcy. This is the third city in California to take this action with the Town of Mammoth Lake being the second and announcing its decision to take the bankruptcy route on July 4^th. This also goes along with the city of Scranton, Pennsylvania declaring that it would reduce the pay of all municipal employees to minimum wage due to its total lack of money and rising debt.

Reuters announced:

“The city council of San Bernardino, California, voted on Tuesday to file for bankruptcy, marking the third time in recent weeks a city in the most populous U.S. state has opted to seek protection from its creditors.

The decision by the leaders of San Bernardino, a city of about 210,000 residents approximately 65 miles (104 km) east of Los Angeles, followed a report by city staff that said the city faced an imminent financial crisis.

The report said the city had exhausted its reserves and projected spending would exceed revenue by $45 million in the current fiscal year which started on July 1.

Chapter 9 bankruptcy would give San Bernardino an opportunity to restructure its battered finances, city staff said during a webcast of the city council meeting.

But the council's vote may backfire on San Bernardino in the municipal debt market, and raises concerns about local officials in California potentially looking to bankruptcy protection as an easier solution than making tough decisions about spending cuts and raising revenue, said Dick Larkin, director of credit analysis at muni bond broker-dealer HJ Sims.

"Am I troubled? You bet," said Larkin. "I couldn't believe how quickly this vote happened."

Larkin noted the concerns of San Bernardino's staff about the risk of the city not meeting its payroll in coming months may be eclipsed by concerns it could be frozen out of the muni debt market if it goes through with a bankruptcy filing.

It may take San Bernardino 30 days to complete the actual filing, according to its city attorney.

"I hope California isn't becoming the flashpoint for municipal bankruptcy because if that happens then everyone in the state will be paying for it," Larkin added. "If there are more coming, there will be big penalties to (municipal debt) issuers in California, all the way up the state level."

San Bernardino will join the California communities of Stockton and Mammoth Lakes in bankruptcy court.

Stockton failed after three months of talks with its creditors to obtain concessions to close its $26 million budget gap and the city of nearly 300,000 in the state's Central Valley last month became the most populous U.S. city to file for bankruptcy.

Mammoth Lakes, a ski resort town of about 8,000 residents, last week filed for bankruptcy due to a nearly $43 million legal judgment against it.

Like Stockton, San Bernardino has suffered from the housing crash and high unemployment. According to the report to its city council, the city "has reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations due in July 2012."

"The city has declared numerous fiscal emergencies based on fiscal circumstances and has negotiated and imposed concessions of $10 million per year and has reduced the workforce by 20 percent over the past four years," the report said.

"Yet, the city is still facing the possibility of insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth, and increases in pension and debt costs."

I can guarantee this is not the end of this story. The lavish spending, bloated public employee staffs, out of control public service union pension and benefit costs, welfare payments, and reduced tax revenues due to the depressed housing market are forcing more and more cities to go broke.

Governor Moonbeam Is At It Again

"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands?" — Thomas Jefferson

The Los Angeles Times reports the state budget shortfall in California has increased dramatically in the last six months, forcing state officials to assemble a series of new spending cuts that are likely to mean further reductions to schools, health care and other social programs already battered by nearly five years of budget retrenchment, state officials announced on Saturday:

“Gov. Jerry Brown, disclosing the development in a video posted on YouTube, said that California’s shortfall was now projected to be $16 billion, up from $9.2 billion in January. Mr. Brown said that he would propose a revised budget on Monday to deal with it.

“We are now facing a $16 billion hole, not the $9 billion we thought in January,” Mr. Brown said. “This means we will have to go much further and make cuts far greater than I asked for at the beginning of the year.”

The Times report continues:

“State officials said Mr. Brown’s proposal would include a package of immediate cuts, as well as others that would be triggered only if voters failed to approve his tax plan. The sales tax increase would expire after four years, while the income tax surcharge would last for seven years.

State officials said the shortfall was a result of disappointing revenue collections in April as California continued to struggle to pull out of the recession. “We are still recovering from the worst recession since the 1930s,” Mr. Brown said.

Still, the state controller reported that the state had exceeded spending by $2.1 billion as well, though Mr. Brown said court rulings and other actions that restricted California from making the cuts were at least partly to blame.

At the same time, the deficit projections — which have been increasing since Mr. Brown and the Democratic-controlled Legislature approved a budget last summer — suggest that the state may have been overly optimistic in estimating what kind of revenue it would take in. That has been a repeated problem in Sacramento as officials have struggled over the past five years with the state’s worst financial crisis since the Depression. Mr. Brown, in taking office last year, pledged to end what he said were the tricks lawmakers regularly used to paper over budget shortfalls.”

What Governor Moonbeam is not telling you in the video is that of the $8 billion in new taxes he is requesting 50% will be used to cover unfunded liabilities for government workers pensions and life-long health and welfare payments. These are payments promised by California’s ruling Democrat Party over the years to insure they get the votes from these special interest groups so they can remain in power. Also, California has approximately 12% of the nation’s population yet the state pays out 30% of the nation’s welfare payments.

On May 12, Brown posted his "money or your life" extortion video online. In his Address to the People of California, he stated that the state budget is facing a $16-billion shortfall. Amid lower-than-expected tax receipts and with the Democrat-controlled legislature refusing to make necessary spending cuts, Brown insists that he has no choice but to raise taxes. That's why he is proposing a "temporary" ("ha!") sales tax increase of one-fourth of one percent and a "temporary" 7-year income tax surcharge of an additional 3% for those earning over $250,000. Those increases would make California, from a tax viewpoint, the least attractive state in the country for high earners to reside in. With a top marginal rate of 13.3%, California would drive more and more affluent residents out of the state, thus lowering receipts further. And that would necessitate more tax increases down the road. If Brown’s proposal passes the voters a Californian making $250,000 a year would pay over 50% of his income in state and federal income taxes. This does not take into account the increase in sales tax that would affect everyone.

Most thoughtful persons recognize that driving high earners out of the state is not the solution. Brown seems not to be acquainted with the Laffer Curve, since he thinks there is no limit to what rich folks are willing to pay in taxes. Maybe he is just intent on grabbing a larger share of the Facebook bonanza soon to be distributed with that company's record-setting IPO. If so, he is not aware that one of Facebook's largest shareholders has already pulled up stakes, renounced his citizenship, and moved to Singapore. What makes Brown think that affluent Californians won't move to Nevada and Texas, which are both a lot closer?

Still, Brown is intent on doing what pirates do. On May 14, he is disclosing exactly what cuts he intends to make if voters fail to approve his plan on the November ballot. He has already made clear that the bulk of those cuts will come in education, public safety, and senior and low-income spending — which is a lot like the highwayman of yore shouting "Your money or your life." Taxpayers would be well-advised to ask why there is no other choice.

Wouldn't it be possible, for example, to trim the state's $1.307-billion spending on environmental protection rather than nudge seniors off the plank? How about the $9.548 billion devoted to "general government" expenses? Perhaps some of those billions could be applied to prevent shortening the school year by three weeks, as Brown is threatening. Then there's the treasure chest of $42.893 billion for health and human services. Cutting those "services" by a third would just about cover the deficit.

A comparison of California's per capita spending with that of other, more successfully governed states demonstrates that a great deal could be cut from the state's budget. For some reason, pirates like the ones hanging out in Sacramento never seem to think of that. They just keep on doing the pirate thing. "Your money or your life."

In California, actually, it's more like "your money and your life." Despite bloated spending on education, students in California scored near the bottom in a recent national ranking of standardized achievement test scores. For 2010, Education Week ranked California students at 46th in the nation in academic achievement. And that despite the fact that California spent $39.215 billion on K-12 education:

In the coming months the people of the Golden State will be deluged with TV ads promoting Governor Moonbeam’s request for “just a little increase in taxes on the wealthy.” The proponents of the tax increase will be claiming that without the increase our children will suffer and we will be without police and fire protection. Please remember that school funding is the responsibility of the local district as are police and fire the responsibility of the city or county and are paid from your property taxes.

Over the years the Democrat Party, the creation of Andrew Jackson, which was once the party for the little guy has become the party of special interests —the party of “Client Group Liberalism.” Today their base consists of labor, government employees, teachers, environmentalist, and welfare recipients. They are living of the backs of the “little guy” to feed the needs of their client group.

In reading the L.A. Times report I was drawn to the reader comments, comments that I believe hit the target:

"Honest, we promise that if we raise your taxes just ONE more time, we'll never do it again---and we absolutely, pinky-swear that we'll reduce expenditures. Somewhere. Eventually. Now, just sign here..."

I've lived in California which has high property taxes (though thankfully controlled through Prop 13), the highest income taxes, and the highest sales taxes in the country. I live in Illinois which has sky-high property taxes, high income taxes, and among the highest sales tax rates in the country. What do California and Illinois both have in common. They're both in dire straits fiscally with billions in budget shortfalls. They're also both tightly controlled by Democrats.”

…….

“Meanwhile, states like Florida and Texas, that have NO income taxes, Montana and Oregon, no sales tax, North Dakota, Utah, etc. all seem to be doing fine financially. They have better schools, better economies, and accomplish this WITHOUT taxing every activity they can think of.

Pretty interesting case study contrasting states run by Democrats and those that aren't.”

…….

“California is clearly composed of the most gullible human beings on God's earth. Have all of you learned NOTHING in that past 30 years? Vote NO. Force them to make substantive cuts, for once, and stand up to your coddled, irresponsible teaching and government sector employees.

Or, better still: don't. Take your income and your freedoms to AZ, or elsewhere, and let California shrivel up on its own. Illinois is little better: that's why we left after 50 years. You don't give more booze to an alcoholic, and you most assuredly should not give more cash to a politician. Save yourselves: RUN.”

…….

“This is beginning to sound like a broken record. Raise taxes, cut some spending, make overtly optimistic if not downright dishonest budge predictions. Repeat. California and its government seemed to have learned nothing from the last five years.”

……

“Interesting to see all the comments regarding more taxes to solve California's problems. It seems what brought down California is the fact that taxing an economy to death while providing free social services for illegals, and engaging in host of wasteful spending like huge salaries for government parasites and multimillion dollar pensions doesn't work. So, lets tax even more and provide more freebies. Yeah, right! If California would adopt a more business friendly attitude, lower taxes and stop putting raw food providers out of business or in prison, maybe revenue would increase beyond anyone's wildest dreams, but freedom in California is just a dream, like in the rest of America that was lost a while ago.”

I believe these comments are indicative of the feelings of the majority of California voters, especially those outside of the Los Angeles- San Francisco region. Governor Moonbeam and his captive Democrat legislature are totally out of touch with the people of the state. They may be able to pass tax increases and spending bills in the dead of night in Sacramento, but when they put it to the vote of the people through the initiative process they will be defeated. They need the initiative process to cover their behinds.

Already, Californians are moving to no-income-tax states in droves. In 2009-2010 alone, nearly 70,000 Californians moved to Texas. Maybe they like the fact that they won't have to hand over 13.3% of their income in return for underperforming schools and dismal public services. Or maybe they are just tired of the whole highwayman routine.

Update: In September of 2011 I posted a blog on the corruption in the Obama Administration related to the LightSquared — The Growing Corruption of the Obama Administration. According to Forbes Magazine it’s lights out for LightSquared:

“On Monday May 14, 2012, beleaguered LightSquared finally filed for its long anticipated bankruptcy protection. It’s quite amazing that a year ago investors actually thought this pipedream would ever be able to overcome technical difficulties of interfering with Global Positioning Systems not only in the United States but in other countries as well. For reasons that were never entirely clear, the Obama FCC granted frequency to LightSquared that had originally been designated for satellite use but only if they could overcome the technical issues of interference and if they could bring their network offering on line within a stipulated time frame. Neither transpired. Military, aerospace, airlines, and a whole host of companies that sell products dependent on effective reliance on GPS rose up in opposition. The list included companies as diverse as Garmin and John Deere and any company that sells products that utilize global positioning for airline or sea navigation, for planting seeds in a field, for locating lost climbers or hikers in the wilderness and so forth.”

Sandy Springs is Showing the Way

“Hell hath no fury like a bureaucrat scorned.” – Milton Friedman

For years I have been preaching the value of outsourcing most of the services provided by government to the private sector. As Ronald Reagan once said “government should not provide any service that they can buy in the Yellow Pages.” This applies to all levels of government: city, county, state and federal.

By creating staff in-house, a governmental agency is not only being inefficient it is creating debt for the taxpayers. For years governmental agencies have been building bloated staffs to do what is available just by looking in the yellow book.

The reason hey do this is because over the years the myth has been pushed on us that only government employees could provide services such as: public works engineering, trash collection, legal services, infrastructure maintenance, tree trimming, financial services, police, fire fighting, water delivery, air traffic control, airports, schools, and many other services the people of a community or the nation desire and are willing to pay for.

Over the years these bureaucratic public employees have garnered support from the politicians (mainly the Democrat party) and formed unions, like the AFGE, AFSCME and numerous teachers unions that now control most government workers and the agencies they work for.

Daniel Disalova states a good case against government unions and public sector employment in a 2010 article in National Affairs “Since the middle of the 20th century, organized labor in America has undergone two transformations with major implications for the nation's politics. The first is the dramatic decline in overall union membership. In 1955, organized labor represented one-third of the non-agricultural work force; today, it represents just 12.3%. The second transformation, however, is even more significant: the change in the composition of the unionized work force.”

“As private-sector unions have withered, public-sector unions have grown dramatically. The Bureau of Labor Statistics reports that, in 2009, for the first time ever, more public-sector employees (7.9 million) than private-sector employees (7.4 million) belonged to unions. Today, unionized workers are more likely to be teachers, librarians, trash collectors, policemen, or firefighters than they are to be carpenters, electricians, plumbers, auto workers, or coal miners.”

“The rise of government-worker unionism has also combined with the broader transformation of the American economy to produce a sharp divergence between public – and private-sector employment. In today's public sector, good pay, generous benefits, and job security make possible a stable middle-class existence for nearly everyone from janitors to jailors. In the private economy, meanwhile, cutthroat competition, increased income inequality, and layoffs squeeze the middle class. This discrepancy indicates how poorly the middle class has fared in recent decades in the private economy, which is home to 80% of American jobs. But it also highlights the increased benefits of government work, and shines a spotlight on the gains public-sector unions have secured for their members. Perhaps this success helps explain why, on average, 39% of state- and local-government employees belong to unions. (Differences in state and local laws of course mean that the percentage varies from state to state; New York tops the chart with roughly 70% of state employees in unions, while many Southern right-to-work states hover in the single digits.)”

Disalova continues; “Since public-sector unions began to develop in earnest, their importance in political campaigns has grown by leaps and bounds. Starting from almost nothing in the 1960s, government-workers' unions now far exceed private-sector unions in political contributions. According to the Center for Responsive Politics, from 1989 to 2004, the AFSCME was the biggest spender in America, giving nearly $40 million to candidates in federal elections (98.5% of it to Democrats). It is important to stress that this was spending on federal elections; the union represents mostly state and local workers. But given the magnitude of federal contributions to state budgets, the AFSCME is heavily involved in electioneering to shape Washington's spending in ways that protect public workers and the supply of government services. And so over that 15-year period, the AFSCME was willing and able to outspend any other organization in the country.”

“The political influence of public-sector unions is probably greatest, however, in low-turnout elections to school boards and state and local offices, and in votes to decide ballot initiatives and referenda. For example, two of the top five biggest spenders in Wisconsin's 2003 and 2004 state elections were the Wisconsin Education Association Council and the AFSCME-affiliated Wisconsin “PEOPLE Conference. Only the state Republican Party and two other political action committees — those belonging to the National Association of Realtors and SBC / Ameritech — spent more. The same is true in state after state, as unions work to exert control over the very governments that employs their members.”

“This political dimension of public-sector unionism also changes the substantive priorities and demands of the unions themselves. Although private-sector unions in the United States have engaged in leftist "social activism," they have mostly concentrated their efforts on securing the best wages, benefits, pensions, and working conditions for their members: "pure and simple unionism," as longtime American Federation of Labor president Samuel Gompers used to call it. Rarely do they demand more hiring, since — given the constant private-sector imperative to keep operating costs minimal — increasing the number of a company's employees can limit wage and benefit increases for the workers already on the company's payroll.”

“By contrast, as economist Richard Freeman has written, "public sector unions can be viewed as using their political power to raise demand for public services, as well as using their bargaining power to fight for higher wages." The millions spent by public-employee unions on ballot measures in states like California and Oregon, for instance, almost always support the options that would lead to higher taxes and more government spending. The California Teachers Association, for example, spent $57 million in 2005 to defeat referenda that would have reduced union power and checked government growth. And the political influence of such massive spending is of course only amplified by the get-out-the-vote efforts of the unions and their members. This power of government-workers' unions to increase (and then sustain) levels of employment through the political process helps explain why, for instance, the city of Buffalo, New York, had the same number of public workers in 2006 as it did in 1950 — despite having lost half of its population (and thus a significant amount of the demand for public services).”

For a case study in how public-sector unions manipulate both supply and demand, consider the example of the California Correctional Peace Officers Association. Throughout the 1980s and '90s, the CCPOA lobbied the state government to increase California's prison facilities — since more prisons would obviously mean more jobs for corrections officers. And between 1980 and 2000, the Golden State constructed 22 new prisons for adults (before 1980, California had only 12 such facilities). The CCPOA also pushed for the 1994 "three strikes" sentencing law, which imposed stiff penalties on repeat offenders. The prison population exploded — and, as intended, the new prisoners required more guards. The CCPOA has been no less successful in increasing members' compensation: In 2006, the average union member made $70,000 a year, and more than $100,000 with overtime. Corrections officers can also retire with 90% of their salaries as early as age 50. Today, an amazing 11% of the state budget — more than what is spent on higher education — goes to the penal system. Governor Arnold Schwarzenegger proposed privatizing portions of the prison system to escape the unions' grip — though his proposal has so far met with predictable (union supported) political opposition.

The skyrocketing costs of public employees' pensions now present a huge challenge to state and local governments. If allowed to persist, such massive obligations will inevitably force a fundamental re-ordering of government priorities. After all, if government must spend more on pensions, it cannot spend more on schools, roads, and relief for the poor — in other words, the basic functions people expect their governments to perform. But because many states' pension commitments are constitutionally guaranteed, there is no easy way out of this financial sink hole. Recent court decisions indicate that pension obligations will have to be fulfilled even if governments declare bankruptcy — because while federal law allows bankruptcy judges to change pension and health-care packages in the private sector, it forbids such changes in public employees' agreements.

I have written numerous times about this issue, mainly from the perspective of public works engineering and architecture services. No city, county or state need have an in-house capability for these services as they can be found in the private sector. Some will use the argument that the public sector employees are better educated, better trained, more efficient and more cost-effective. That claim is pure balderdash. I and my colleagues in the private sector were educated in the same schools, licensed by the same state bureaus and have done the same work as they. This is just an argument the public sector uses to bamboozle the taxpayers and the politicians who support them and expect their contributions and votes.

Municipalities are the ones hardest hit by this issue. They have a limited or declining tax base. Due the collapse of the housing bubble many houses have been devalued creating a lowering of property tax revenues while their payrolls and pension obligations have been increasing. No business could operate this way – bankruptcy would be on the horizon. This condition also affects the public school system. In essence the honeymoon for the public sector is over.

One city in Georgia has dealt with this problem in a business-like efficient and cost-effective manner. The city of Sandy Springs has privatized all aspects of city services with the exception of police and firefighting – services which also could benefit from some degree of privatization.

Outside of the police and fire departments Sandy Springs, a city of 87,000 has a mere four employees on the public payroll. No bloated salaries, no pension liabilities and a more efficient means of delivering the services their citizens desire.

To accomplish this they retained the services of CH2M-Hill, a Colorado based engineering and program management firm. I am familiar with CH2M-Hill as I have been a subcontractor to them on several infrastructure projects in California. They are a good firm with a good reputation. Cost containment is one of their major missions.

Sandy Springs is become a model for the outsourcing of municipal services at all levels. This is how it works:

• The municipality retains the services of a program management firm like CH2M-Hill, or others through a qualifications based selection.
• The program management firm then performs a needs analysis of municipality.
• Once the needs analysis is completed a report is given to the city manager and city council, who then approve it of recommend changes
• Once the report is approved a strategic plan is developed and submitted for approval to the city manager and council.
• After approval of the strategic plan the program manager, in this case CH2M-Hill, begins subcontracting to local firms for the services the municipality desires. This subcontracting is done in two ways. If it the services are cost based services such as street repair or trash collection they are retained by competitive bids from qualified, reputable firms. If the services are professional in nature, such as civil engineering or legal, they are retained in a three-step process. The first step is to garner qualifications from firms interested in providing the services. The second step is to create a short list of qualified firms and conduct interviews. The third step is to select the “most qualified firm” and negotiate a fee schedule. If they cannot conclude successful negotiations with the most qualified firm they will move to the next firm on the list. In all my days of providing professional engineering services I have never encountered a case where the most qualified firm has not negotiated a fair and equitable contract.
• This method of outsourcing brings several benefits to the taxpayers:
• The municipality is not obligating itself to long term public sector employment contracts.
• The municipality is not incurring long term pension and health care obligations. Those obligations re left to the program manager and the subcontractors. Things like health care may be mandated in the contracts and the only impact will be the increase in legitimate, allowable overhead costs to the contractor, which will be negotiated into the contract.
• People can be fired for poor performance or malfeasance without going through union representatives of public boards.
• Staffing levels can be adjusted to fit the needs of the community or economy very quickly.
• A better class of employees can be retained

Pay for performance can be delivered by the contractors in the form of performance bonuses.

Complaints by the public are given a greater degree of service as no contractor wants to aggravate their clients. They are driven by the profit motive – no client, no profit.

I have delivered professional engineering services to cities, county and state agencies for over twenty-five years and I know this system works. It is a completive field and the clients have a plethora of good, qualified firms to choose from. There aren’t and “no bid contracts”. All contracts are given by one of the two processes listed above.

While cities across the country are cutting services, raising taxes and contemplating bankruptcy, something extraordinary is happening in a suburban community just north of Atlanta, Georgia.

Since incorporating in 2005, Sandy Springs has improved its services, invested tens of millions of dollars in infrastructure and kept taxes flat. And get this: Sandy Springs has no long-term liabilities. It has outsourced everything except police and fire fighting.

Sandy Spring is doing it right. By never letting the public sector unions in the door the politicians will have no group to go to for funds. Therefore the taxpayers will be the better for it.

John Stossel exposes the dangers of public service unions

Sandy Springs has no long-term liabilities

You can click here for a page where there are numerous links to video reports on the success of Sandy Springs. Now let’s go for some privatization in the schools, police and fire departments.