Federal Deficits and Debt – What, Me Worry?

It’s been about 12 years since I started writing about this topic. Originally, I was kind of in a panic. I thought we were on the verge of something ugly happening any minute. Since then the problem has only grown worse – much more so. However, my mind has morphed into Clark Gable’s attitude toward Vivien Leigh. Frankly, my dear, Elvis is dead, and I don’t feel so good myself. Okay, my apologies, I stole part of that thought from Lewis Grizzard of the Atlanta Constitution (may he rest in peace), but I just love it!

When I first started following the US Debt and Deficit levels seriously, I was worried about me. Us. Then as time went on, and I knew my generation wouldn’t be able to ever pay it off, I started worrying about my grandchildren. They would have to pay for it. I no longer have that worry. The reason is that their generation and all future generations will never be able to pay off the US debt. And they shouldn’t.

Let me provide an update on my initial worry. The US Debt as of March 21, 2019 was $22,028,692,383,333.10 (https://www.treasurydirect.gov/NP/debt/current). It has ramped up quickly. The table below provides a glimpse of the speed and magnitude, the two critical metrics that typically predict when a Ponzi scheme is about to explode.

It took years for the US Debt to go from $5 to $6 trillion. Then we pass through the $7 to $9 trillion thresholds averaging 645 days each.  Then it got easy. We zoomed from $9 to $16 trillion in about 239 days each, the lowest being 167 days. From there we got from $16 to $20 trillion in 459 days each.

Sounds like we were “improving,” right? Not so fast, Citizen Oblivious. We leapt to $21 trillion in just 188 days, like a breeze blowing your hair in a convertible. And then for the most recent ceiling, we cross over $22 trillion in 333 days. Not even a year.

DebtDaysThreshold

How much is $22 trillion? There are so many ways to measure. Give me a few tries here. If that number were $1,000 bills, the stack would reach 1,495.7 miles into space. Still hard to see? How about we divide by the number of households as shown in the chart below. $22 trillion equals about $182,201.42 per US household. Staggering, huh? Would you like to write that check today or wait until payday?

Oh, I adjusted the historical dollars per household to today’s dollars just to show it’s well over a 5x jump since a 37-year-old was born. But I’ve got some better perspectives to show you, although your indigestion might get worse.

USDebt

How is the US Government paying interest on all that debt? Here’s where it gets real interesting. The annual interest costs alone (never mind the principal) has grown from $214.15 billion to $523.01 billion since just 1988. That’s bad, but you haven’t seen the worst part. The average interest rate in 1988 was 8.23%. It is now just over 2.40%.

Can you guess now why the Federal Government has been slowly moving debt from longer-term to shorter-term? Can you now see why the Federal Reserve has been artificially lowering short-term debt rates toward zero? Does it make sense now the panic from those in the know if inflation rises and interest rates do the same thing in lockstep? Did you really think all along that CPI numbers were true numbers when the methodology has changed many times over the last couple of decades, always resulting in a lower number?  (https://www.investopedia.com/articles/07/consumerpriceindex.asp)

USInterest

Here’s the best perspective yet. the US Debt is mostly the result of overspending. The chart below resembles a portion of Texas, but it is really the cumulative effect of the actual annual deficits when revenues exceed expenditures. Simple math. Devastating results. Since 1980, when deficits really starting climbing, the US Government has spent $13.808 trillion more than it has taken in. It doesn’t take long to dig a deep hole, does it?

Related, February 2019, the most recent monthly deficit, was $233,978,000. That is by far the largest single month EVER.

Deficits

Okay, here comes the Grand Finale on this topic. This is why the deficit is never going to go away, and why the debt levels will only grow toward Mars. Right now, if the US Government were forced to balance the budget, it would require a 28.07% revenue increase or expenditure cut to stop the bleeding.

Mind you, we would still have $22 million sitting there staring at us like the end of the malfunction scene in RoboCop when the errant machine was finished and sitting there smoking and the guys are yelling “don’t touch him,” speaking of the victim (Citizen Oblivious?). (https://www.youtube.com/watch?v=ZFvqDaFpXeM)

NeedToBalance

Conclusion

Holy Cow! How did we get here? Every president and every member of the Legislature has led us to this moment. And they are just responding to the Citizen Oblivious. Give it all to me, give it to me right now, and don’t make me pay for it. Hey, I’m in the second class of the Boomer’s.  I’m from the generation of What Me Worry? (https://en.wikipedia.org/wiki/Alfred_E._Neuman)

I was worried 12 years ago. Dangest thing I’d every seen. I doubt I’ll be here in 12 more years. Party on, Grandkids. We caused it. We knew it. We elected not to do a thing about it and voted in people to do out will, except to make it worse. LFM

 

 

A Huge Local Government Expense Not Being Disclosed

Hold off on shooting me with the GASB Gun for a minute. Let’s go back to Accounting 101. There is a principle that says you should not record the Net of items that should be separately disclosed. For instance, if you buy a big piece of equipment for $250,000 and get $25,000 for the trade-in or sale of the old piece of equipment, you shouldn’t record the piece of equipment at $225,000. There were two transactions or events. You record the piece of equipment for $250,000 and the sales or trade-in of the old piece of equipment at $25,000.

Two different pieces of information.

Another example where the separation is distinguished is with property tax collections. You record your property tax revenues as a revenue and the cost of tax collections as an expense: sound accounting with a focus on the expense side of things. If you netted the expense into the revenue, you might never see the cost of the contract.

You get a grant for police overtime and record the revenue separately from the overtime expense.

This is pure accounting logic.

Then We Fly Off The Cliff

The State Comptroller collects the sales taxes for every local government in the state. There are 1,658 Cities, Counties, Transit Districts and Special Districts. The Comptroller charges a “fee” of 2% for this service. In the fiscal year ending September 30, 2018, the fees collected totaled $183,421,882.77. One year!

So, please show me where any of the 1,658 entities are showing $183,421,882.77 in their budgets or audited financial statements. They are out of the spotlight. And so the years roll by with the expense amounts rolling up. The last 10 years alone, this expense has been $1,471,718,694.39.

Or to take a page out of the Legislative Playbook, accentuated with the obligatory gasp and deer-in-the-headlights look, Local Governments have paid a “fee” that has increased 53.9% in just 10 years. Where is the outrage?

Is This Really a Fee?

A service fee is supposed to bear some resemblance to the the cost of the service. A tax does not. So how much is the cost of service for collecting and distributing sales taxes to local governments? Well, that’s not easy to tell. You can take a look here in an attempt to find out. In all fairness, the cost of service (the numerator) should include all of the direct costs of collecting sales taxes plus administrative overhead and facility costs. Heck, it could even include some kind of return, a few percentage points.

But the denominator should be the 8.25% with 6.25% being borne by the state and 2.00% being paid by the Local Governments. If this is a fee.

The next logical test is that if Local Governments are being charged $183,421,882.77, then are there $756,615,266.43 ($183,421,882.77 / 2% x 8.25%) in sales tax collection costs involved here? I don’t see it in the link above. Not by a long shot.

So, Isn’t It Really a Tax?

Sure looks like it to me. And a huge one! Wow! Talking about ironies. This tax has increased 53.9% in the past ten years. It’s staggering and flies in the face of all the ultra-conservative rants about egregious spending.

What Should We Do?

From everything I can tell, State Comptroller Glenn Hegar is the fairest and most professional state elected official in Texas. In fact, I understand he is assembling local government officials to provide him with feedback on the sales tax processes October 10th in Austin. There should be a plea for him to put the service fee on a true fee basis. Ask him to conduct a cost of service study to show the full costs of collecting and distributing sales tax checks, including the audits.

Then allocation to Local Governments a 2.00% / 8.25% share.

The difference should be refunded to Local Governments.

Or there could be an alternative. Local Governments are spending $millions to hire consultants to find missing or mis-allocated sales taxes. In today’s GIS technology, there is no reason the Comptroller couldn’t provide detailed maps that show that every payer within the boundaries of a local government is being credited to the correct Local Government. It is insane to be paying $183,421,882.77 to the Comptroller and not be able to reduce the extra outside consultant expense of paying for zero-sum overall work. A consultant finds my money being paid to adjacent city, and then finds my city getting money from an adjacent city. That’s nuts.

There is so much more that the Comptroller could do. If a Local Government wants to see their confidential data, and have not requested the data in the past, they can only get the current calendar year plus the previous calendar year. They can’t even pay for the older data, although they could have more than ten years’ worth if they had requested all along. There simply is no excuse for not having access to that data given Local Governments paid the Comptroller $1,471,818,694.39 for services over the past ten years.

I also recommend that Local Governments record the money paid to the State Comptroller as an expense, along with a ten-year history in the Statistical Section of the CAFR. Okay, holster your GASB Gun, and just think through this sizable expense that nobody sees. It’s just not right. LFM

 

TOP 100 SERVICE FEE PAYERS
ENTITY FY 2018 LAST 10 FY
HOUSTON MTA $15,361,118.74 $128,778,118.43
HOUSTON $13,834,219.14 $119,675,201.80
DART $12,102,684.18 $96,457,914.20
SAN ANTONIO $7,123,770.08 $55,973,579.44
DALLAS $6,174,655.08 $50,817,283.63
AUSTIN MTA $4,912,997.85 $37,947,647.15
AUSTIN $4,501,162.52 $35,435,387.02
FORT WORTH $3,170,699.72 $25,015,008.73
SAN ANTONIO MTA $3,076,589.76 $24,641,435.31
ARLINGTON $2,219,554.11 $19,104,724.93
EL PASO $1,822,050.20 $15,694,629.71
PLANO $1,825,602.08 $14,654,342.83
CORPUS CHRISTI $1,601,425.38 $14,375,510.67
AMARILLO $1,556,903.62 $13,866,968.91
ROUND ROCK $1,652,458.97 $13,633,749.50
FRISCO $1,760,066.77 $12,449,367.34
FORT WORTH MTA $1,581,857.22 $12,234,380.67
LUBBOCK $1,423,145.53 $12,083,596.67
MCALLEN $1,256,629.69 $11,975,359.06
FORT WORTH CRIME CTRL DIST $1,498,063.00 $11,509,551.40
IRVING $1,368,553.42 $11,343,913.50
SAN ANTONIO ATD $1,393,679.69 $11,247,208.26
MIDLAND $1,343,112.17 $10,880,266.43
SUGAR LAND $1,064,268.06 $9,296,012.76
GRAND PRAIRIE $1,158,254.94 $9,060,253.59
EL PASO COUNTY $984,366.81 $8,419,147.39
MCKINNEY $1,090,433.95 $8,286,018.26
ABILENE $929,552.21 $8,076,564.57
ODESSA $1,333,220.96 $7,956,553.78
MESQUITE $895,256.60 $7,843,212.97
EL PASO CTD $897,755.60 $7,784,597.54
BEAUMONT $893,369.08 $7,708,526.39
TYLER $872,384.49 $7,702,418.21
GRAPEVINE $858,074.78 $7,617,770.02
LAREDO $847,208.61 $7,588,217.27
CONROE $983,471.07 $7,551,793.18
ECTOR CO HOSP DIST $1,055,593.34 $7,234,169.75
BROWNSVILLE $776,629.29 $6,992,229.32
MIDLAND COUNTY $1,135,900.69 $6,964,687.15
WACO $797,908.34 $6,638,438.31
ALLEN $807,651.79 $6,490,283.11
LONGVIEW $653,952.04 $6,189,432.57
CORPUS CHRISTI MTA $684,638.60 $6,058,247.70
LEWISVILLE $786,461.53 $6,025,063.44
WICHITA FALLS $639,148.79 $5,892,314.81
RICHARDSON $752,399.61 $5,885,538.19
PASADENA $693,306.84 $5,797,550.16
CARROLLTON $800,454.13 $5,711,078.50
COPPELL $781,511.52 $5,546,727.18
DENTON $748,902.86 $5,394,389.41
JEFFERSON COUNTY $614,518.93 $5,128,554.10
PEARLAND $671,736.32 $5,104,639.21
NEW BRAUNFELS $636,155.25 $4,972,018.84
SAN MARCOS $696,280.24 $4,884,031.36
SAN ANGELO $569,693.76 $4,861,878.87
VICTORIA $509,933.03 $4,846,560.21
GARLAND $581,891.15 $4,809,790.45
BRAZORIA COUNTY $683,020.36 $4,693,231.84
COLLEGE STATION $558,512.89 $4,591,624.75
THE WOODLANDS TOWNSHIP $566,894.72 $4,451,978.93
HARLINGEN $515,516.14 $4,319,363.18
DENTON CTA $568,921.08 $4,295,995.78
LOVING COUNTY $501,889.91 $4,167,991.23
KILLEEN $473,129.85 $4,142,585.33
SOUTHLAKE $585,815.19 $4,025,304.40
TEXAS CITY $461,344.06 $3,999,540.80
CEDAR PARK $583,660.03 $3,936,826.55
GEORGETOWN $523,324.40 $3,785,135.05
TEMPLE $443,364.36 $3,785,106.83
GALVESTON $427,354.93 $3,746,206.02
EDINBURG $450,221.71 $3,670,199.59
ROCKWALL $474,143.35 $3,637,845.13
MANSFIELD $467,429.37 $3,604,736.31
THE WOODLANDS TOWNSHIP EDZ $469,257.78 $3,601,842.03
SHERMAN $438,472.36 $3,546,488.54
SMITH COUNTY $373,708.72 $3,296,506.95
BELL COUNTY $391,111.34 $3,289,384.68
LEAGUE CITY $474,237.27 $3,283,983.43
BRYAN $406,889.80 $3,251,463.72
BAYTOWN $441,180.82 $3,196,052.66
WEBB COUNTY $345,070.07 $3,152,808.70
STAFFORD $339,895.96 $3,145,208.76
WEBSTER $359,497.34 $3,074,961.16
HURST $326,454.61 $3,063,773.43
GREGG COUNTY $316,354.01 $3,037,652.00
BURLESON $367,294.36 $3,032,756.95
MCLENNAN COUNTY $367,618.37 $2,981,097.38
TEXARKANA $332,270.03 $2,980,873.77
EULESS $367,093.16 $2,957,350.90
ROSENBERG $405,017.66 $2,935,111.20
THE COLONY $573,739.85 $2,917,157.71
MISSION $308,031.87 $2,916,947.54
PORT ARTHUR $314,769.35 $2,915,125.13
PHARR $372,817.34 $2,871,553.92
BRAZOS COUNTY $364,087.63 $2,834,916.46
HAYS COUNTY $417,860.60 $2,817,597.20
FLOWER MOUND $373,709.84 $2,768,979.25
NORTH RICHLAND HILLS $309,456.92 $2,739,693.78
FARMERS BRANCH $291,967.84 $2,709,455.24
CEDAR HILL $303,371.39 $2,668,111.18

 

Job Needed: Information Ombudsperson

Recently, I was telling a group of City Managers about a job description I wrote several years ago. An attendee asked to receive a copy, which I could not find, so here is my recollection. I hope to someday get all of my articles and essays moved to this blog site. Perhaps I can enlist a granddaughter to help in the future.

The job title, updated to reflect the times, came from me wanting to play off the Input/Output (I/O) computing term. However, the position is much more than IT even though I’d give a full 50% of the necessary skill set to computing sector.

Where do I suggest this position be placed? The Budget Office would be my first choice. This is where data should be directly married to management intellect. I believe the I/O could also be within the City Manager’s Office (CMO), probably reporting to an Assistant City Manager (ACM). Many ACMs reach the CMO via the Budget Office these days. And most City Managers, if honest, would say the ACM position is the best job in the House.

The I/O must be able to speak the language of management and to think like a manager. They must be politically savvy yet not be political. They should also be able to think like a crook.

The I/O must be able to transform operating data into management data. I’ve witnessed software systems being purchased over the last four decades on the basis, hope and promise of management data, analyses and reports. In fact, many if not most software systems produce operating data that in turn generate slightly higher level operating data. But not managerial data.

Operating data include registers, ledgers and details ad infinitum. Management data includes summaries, exceptions, graphical representations and the ability to slice and dice that information in multiple ways. Implied in the transformation of operating data into management data is the need to gobble tons of data in a way that makes sense such that the data can form the basis to support a decision.

Free to Stay in the Research & Development mode

If there is tragedy in data analysis, it is due to a lack of freedom to get into and stay in the R&D mode. If you try to use process people with a full plate to advance into data analytics, then forget it. Process people are budget analysts or accountants or just about anybody dedicated (or trapped) by operating cycles that allow no breathing room to think, explore and develop a skill-set. Even Project people with a full annual schedule of duties are unlikely to be able to take on and advance/excel in data analysis. And there is nothing worse than stop-start situations where one cannot remember where they left off once they pick up an old analysis effort.

The Tools

Obviously the first tool to reach full potential as a data analyst is Excel. To go way beyond basics, the I/O must master some of the more powerful features of Excel that can lead to super models and analyses. The first thing that might come to mind are the use of Excel micros. However, there are many more tools that need to precede macros, and I could make an argument that you can make quantum leaps in number crunching without macros.

The single most powerful tool in Excel is the ability to build pivot tables. This blog is not capable of focusing on the details of Excel features, but the easiest and most powerful tool is the ability to build a pivot table so that a large amount of data can be analyzed with built-in drill-down features to go from high summaries to the lowest detail with ease.

Excel can also import data from a number of sources, such as SQL Server. SQL is how most databases are constructed and stored for everything from your accounting and utility billing systems to building permitting.

However, it isn’t long before the capacity of Excel is challenged even though you can have 1 million rows and 15,000 columns of data in Excel. SQL Server has virtually no capacity limits. Along with database management, there are power SQL query and analytical tools. Yes, now you are stepping into computer program language territory, but one should not fear in light of the results one can get from SQL. However, you cannot dabble in that the skill-set comes with practice, practice, practice. I understand that some business schools and accounting programs now require multiple courses in SQL. There is a reason that is so. One leaps into a broad and powerful world of data analysis with SQL.

The Data Warehouse

Watch the face of your IT Manager when they learn you want to tap into “their” SQL databases. They have a right to be concerned, but they should not be if they are proactive. A tell-tale sign of assistance and cooperation is when you want a data analyst to have access to accounting and other data systems and get a roadblock as opposed to a suggestion to use a data warehouse. In essence, you want to be able to play with the data yet not touch the live systems. For instance, if you wanted to take a deep dive into your A/P system or your Utility Billing system, a data warehouse would include a download of the live system to a separate location as of the night before. Or it could be refreshed upon demand throughout the day. What’s the problem if I am not touching the live data?

Examples

I want to look at the details of our p-card spending by person by vendor for the past five years. I want an aging of our water meters, including the number of meters with over 1 million gallons of water in our system. How many batteries have been replaced in our fleet by vehicle over the past three years? How much overtime is being used in the past 10 years as employees approach retirement and might be spiking their pay? How much salary lag have we accumulated in the system so far this year? Are our water loss and unaccounted for numbers getting better or worse?

I can think of hundreds more, and you could, too.

The Danger Ahead

Several things have been happening over the past decade or so. More elected officials work for organizations where management data is derived from operating data and being made available to them in their operating and executive capacities. They often are appalled at the questions they want answers to that are met with, “we don’t know” or “we don’t have access to that information.” WHAT??? We have $millions invested in information systems and can’t get these logical questions answered?

If you haven’t noticed, the news media have been adding in-house talent or have been contracting with third-parties to analyze massive amounts of public data. So, they ask for a download of your utility bills or your check registers (already online) and then produce an exception report that is placed back into your hands as a story you should already know.

And the local complainers and watchdogs, many retired with analytical skills, can have a field day doing as I have explained.

Conclusion

In this day of forensic audits, you cannot be caught with someone outside your organization telling you something about your business you should already know. But this is not simply a plea for a defensive posture I am talking about here. It’s a plea for professional management.

I often open up a presentation with a statement like “while you are listening to me for the next few minutes, somebody is stealing from you this very minute.”

What I do know is that when something blows up, nobody gets thanked for the lean and mean staffing that also may equate to a lack of oversight where it should be.

But here’s the good news. Take one good analyst and give him or her three things. The right tool set; the authorization to explore any and all systems other than the confidential police data; and the time to be left alone to explore and build queries that can be run to look for exceptions.

I predict the payoff will be big. It will be in the form of trends you otherwise didn’t see happening or heads up to explore yellow flags. It wouldn’t be long before the organization fully realized that everything from operating statistics to revenue performance to spending is under healthy scrutiny. LFM

 

What Does This Troll Have to do with Managerial Problem Solving?

 

Troll

This Troll is located under a bridge in Seattle, Washington several miles from Bill & Melinda Gates’ $68 million home. I saw it on a bus tour on Saturday. It is visited night and day by kids, families and sightseers. How could you resist the invitation to go look for the troll hiding under a bridge? You can see the pedestrian bridges coming down both sides. That’s a full-size VW in his left hand. The hubcap resides in his left eye. There is a road in front of the troll to see it by driving under the bridge.

But this is end the of a story. Let’s work our way back to the beginning. The troll is the product of a neighborhood contest. A group was formed to come up with an artsy idea, and this was the result. A grant was provided to construct this attraction. Great idea, right?

Yet the motivation wasn’t to support the arts. The purpose of this troll was to solve a problem. A very ugly problem. This was the site for nightly drug use at the height of heroin addictions in Seattle. Police detectives were being called to this location almost nightly to deal with overdose problems. If detectives were called, then you know this was a death-related call – the kind that sends a team of people seeking the cause of death and another team seeking the drug dealer or murderer, either the direct or indirect cause of death.

Let’s Enumerate the Team

At the risk of stating the obvious, let’s count off the people who might be involved in just one case like this. I’m sure I’m leaving some group out, but this is from memory.

  1. Police call takers and dispatchers.
  2. Police patrol squad.
  3. Police Detective Investigators.
  4. EMS.
  5. Public Hospital Staff.
  6. City Morgue.
  7. Pauper Burials.
  8. Crime Scene and Crime Lab Personnel.
  9. Jail Facilities and Personnel.
  10. County Criminal Court Facilities & Staffing.
  11. District Criminal Court Judge and Administrative Clerks.
  12. Two Criminal Bailiffs for Court.
  13. Two Criminal Bailiffs for Criminal Transport.
  14. A Court Reporter.
  15. Two Criminal District Attorneys & Investigative Staffs.
  16. Two Court Appointed Defense Attorneys.
  17. The Jury Fees & Lost Time for Jurors.
  18. Expert Testimonies.
  19. Prison Facilities & Personnel for Decades, perhaps.
  20. Probation Officers & Support Staff.

Back when I was the Dallas County Budget Officer in my early career, I priced out the cost of just one trial. It was staggering back then, so I can only image the sticker shock today.

May I remind you that I mentioned the calls for overdoses and murders were routine. And it was just for this one location.

So, what if this wasn’t such an easy place to do drugs? Oh, and did I mention this problem in turn was creating a blighted area well beyond the spot in question as do all neglected areas where crime is left to move in?

That’s what the City in general and this neighborhood in particular wanted to address.

There is always the conventional alternative, and that is to keep adding costs triggered by one murder multiplying into 20 different areas of specialty – all at premium costs. Can you imagine the General Fund budgets for the City and County governments bloating up? Much worse, the money would grow as the problem grew, but not a thing would necessarily be done to solve the problem.

How do you stop that one murder from happening?

Lights, people and traffic motivated to come see an attraction was their answer. An investment instead of an expense. Hey, the protective shelter for Mr. Troll was already there! And imagine this – an art project investment turns into an economic development stimulator as the immediate area was reclaimed without corporate welfare!

Comments & Conclusion

If your first response is that all this did is to move the drug users and dealers to another location, then you have just revealed something about yourself. You are worthless as a problem solver.

Here is what I do know. The tax caps and cuts that are coming are real and will likely be severe, especially as they become cumulative over a period of a few years and then compounded by an economic downturn where real losses cannot be restored politically.

It’s. Going. To. Happen!

Here is a companion comment and a few questions. How many people working for you right now would be hired/re-hired today knowing what you know about them and their productivity right now? For each one of them, what are you doing to train/re-train, mentor, motivate, discipline or terminate? How many of them have 1 year’s of experience 20 times vs 20 years of continued growth in responsibility and contribution?

How many are good people, but they have just become way too expensive as the numerator has climbed with raises and generous benefits while the denominator has diminished with extra holidays, vacation days and sick leave days?

More than once in my career I have had city managers and department heads yelp like they had their legs chopped out from under them from a cutback – only to tell me privately that it was one of the best things that could have happened to make them step up to earn that part of their paycheck that includes making hard decisions they had been hesitating to make.

On The Other Hand

If your first response from the Troll story is that the demand side of your workload has got to be addressed, especially for services that require 24x7x365 coverage, then I apologize for scolding and only wish to provide encouragement.

I don’t like the way things are going with citizens and elected officials caring less about who gets hurt, that there is only one priority – cut taxes. I am working hard to provide analyses to show the fiscal impact for every city, county and school district in Texas. You should have already seen my report.

But you know what? They don’t care about facts. And I hear that nothing sets them off like being threatened with the consequences to public safety. I’ve even heard that one State Senator responds to that threat with “sometimes a few people may have to die.”

Here’s the deal. There are only a dozen or so ways to balance a budget. Improving Productivity is the first and Raising Property Taxes is last. LFM

Budget Balance Options

(I’m writing a more complete blog on these alternatives as soon as I can)

  1. Improve Productivity. $Impact: High.
  2. Defer Needed Spending (kick the can down the road, compounding costs) $Impact: High.
  3. Trim Expenditures. $Impact: Low.
  4. Reduce Program Service Levels. $Impact: Medium.
  5. Eliminate Programs Altogether. $Impact: Usually High.
  6. Don’t Start New Programs Requested by Citizens. $Impact: High.
  7. Refuse Unfunded Mandates. $Impact: Medium to High.
  8. Use One-Time Solutions (i.e. Reduce Reserves). $Impact: Medium.
  9. Shift the Burden (ie. To employees or another government). $Impact: Medium.
  10. Charge New Fees for Service. $Impact: Low to Medium.
  11. Increase Existing Fees for Services. $Impact: Low to Medium.
  12. Raise Property Taxes. $Impact: Medium to High.

 

 

 

 

 

 

 

The McKinney Elephant NOT in the Room

Let’s keep this simple:

  • Commercial and Industrial taxpayers cost less to serve than Residential.
  • The tax rates in cities that have a high Residential to Non-residential ratios are generally higher.
  • McKinney has a relatively high R:NR Ratio. And it has grown significantly higher in the last two decades as we have added many, many residential rooftops.
  • Just about everybody running for McKinney City Council in recent years have had a big plank in their platform acknowledging everything I’ve said up to this point AND pledging that they are going to do something about it to lower taxes.
  • Now comes the issue of raising the tax exemption for homeowners over 65 from a gigantic $60,000 to an even larger $65,000. Who can resist the opportunity to lower property taxes for the voting class, especially those over 65? Exactly nobody.
  • But here’s the catch. Every exemption for one taxpayer is a tax increase for another taxpayer. In most cases, the burden is added to the Non-Residential class + Apartments + Renters.

Watch the video from the Council meeting of June 19. Mayor Fuller tried to make the points outlined above. I don’t think he used the word “irony” in his comments, but that was the centrality of his message. The plea was to no avail. In the drama of a patriot explaining why he or she would die for their country, it was clear that most council members were going to vote to raise the exemption. So, Mayor Fuller makes the motion to approve the exemption increase himself. Good for him.

Where’s The Frigging Elephant in the Room?

There was not a single member of the business community there to explain the irony and the issue of making it attractive for businesses to come to McKinney. Wait, before you shoot me with the gospel gun, I know that there are many reasons for a business wanting to locate to any particular city. I can list them all. Fair treatment to the business community is just one of the signals that we want everybody to be part of the family here.

We spend a lot of money giving economic incentives to attract new businesses. Where was the McKinney Economic Development Corporation Board to at least make the points the Mayor was trying to make?

Thanks a lot big talkers who go to Chamber luncheons to make each other feel like you’re important and to talk about prosperity in McKinney. Thanks a lot MEDC for letting the Mayor twist in the wind while he was trying to keep a good balance between Residential and Business tax burden.

Oh, I forgot. You want somebody else to put their name and reputation on the line while you raise a glass to McKinney today and look only for opportunities to help YOU. If being on the MEDC Board is a stepping stone for being elected to the Council someday, why would you want to speak up for the McKinney headed for more imbalance in the decades ahead? The two-year vision you have while serving on the Board is quite revealing.

We stand behind you, Mayor! Waaaaayyyyy behind you. I expect there might have been a few from the Chamber or MEDC who called the Mayor after the meeting to pat him on the back for trying. You are of the most cowardly and selfish people walking the streets of McKinney.

Business Community, MEDC: you got what you deserved. And there will be more shifted to you in the future. The new guys will get incentives for coming. You will get shafted for staying quiet. LFM

Should McKinney Refund $29,770,931 to Taxpayers from Excessive Taxation? You Make the Call!

McKinneyFB

Municipal budgets are a compilation of tons of numbers. The focus is usually on Revenues & Expenditures. However, not to be overlooked are the resulting Fund Balances, both the incremental addition or drawdown for any particular year as well as  the cumulative Balances.

Fund Balances should be clearly highlighted in a budget. They should also be viewed in light of the overall expenditures in each fund. There are several “funds” such as the General Fund, The McKinney Economic Development Fund, The McKinney Community Development Fund and the Water & Sewer Fund. The largest is the General Fund where most of the property taxes, sales taxes, franchise taxes and building permit revenues can be found. Also, the Police, Fire, Parks & Recreation Departments and most all typical city tax-supported services can be found in the General Fund.

The McKinney General Fund budget indicates a financial policy desired minimum Fund Balance of 90-days of Expenditures or about 25%. That’s pretty healthy. I also wouldn’t consider a 120-day balance or about 33% to be excessive but rather very healthy.

While the Budget documents are of value, I consider them secondary to the Comprehensive Annual Financial Report (CAFR), which are the audited financial statements for a government entity. You will note from my table above that I have recapped some key number from the last 10 years of CAFRs for McKinney. These CAFRs are available at this link. The pages from the CAFRs I am using to compile my table can be found here.

To summarize my table and the CAFR schedules behind it, the City of McKinney has continually under-budgeted Revenues and over-budgeted Expenditures. Sure, there will be a variation out of a 10-year view, but the story is unmistakable.

The supporting schedules also show the changes between the Original Budget, the Revised Budget and the Actual Results. The Revised Budget figures are often shown late in the year about the time the Budget is presented to the City Council. That would be right about now as the City Council Budget Workshop is scheduled for tomorrow August 4th, when there are less then 60 days remaining in the Fiscal Year (October through September).

I would like to think that such a sophisticated staff as McKinney has, with all kinds of software and computing power to slice and dice the financial data, tailor queries and such, could stand flat-footed in August and get a very close estimate of the year-end actual numbers a few weeks away.

As you can see, the Actual results show the General Fund Balances to be well in excess of 120 days or 33% year after year for a decade. As of the end of September 30, 2016, the Fund Balance in the audited financial statements totals $65,606,029. When compared to Expenditures of $108,998,422, the metrics are 220 days or 60.19%.

If you compared to 120-days, the excess would be $29,770,931!

So, what could be done or should be done with that excessive amount? First, you would have to convince the City Manager that it is excessive, because he argues just the opposite. Actually, all you have to do is convince the City Council, the policy makers who adopted at the staff’s recommendation for a General Fund Balance level of 25% at a minimum.

Ah, nobody said anything about a maximum!

Would the City be in dire straits if the Property Tax Revenues had been $29 million less in recent years? Hardly. But you make the call. I want to see somebody stand up and tell me that $25-35 million at 120-days is too skinny.

Could the $29 million have been spent to buy 2-3 downtown garages out of cash and the City still be in sound financial condition? Yes. Or the same spent on a new city hall or on any kind of infrastructure needs? Yes.

Could or should the $29 million be returned to the Taxpayer since the rates could have much much lower in recent years and the City still be fiscal responsible? I think so, but you make the call. The $29 million excess got there because of unneeded taxation, pure and simple.

Has a refund like this ever been done before in the region? Yes, Farmers Branch did so many years back. They called it a dividend to the taxpayers.

Does the City have excessive reserves in other Funds? Yes, download the most recent CAFR and take a look. You will be blown away.

Did the City Council sitting in early 2017 when the FY 2016 CAFR was presented to them and accepted by the Council understand the General Fund had a $65 million balance? Dunno. Ask the three still on board or call up the four still active in the community. What about the current Council members? Dunno either. Ask them.

What is the staff projecting for the contribution to the General Fund Balance (or drawdown) going to be as of the end of the fiscal year in 60 days? I’m told a decrease of $381,105. And for FY 2018? I’m told it will be zero, that Revenues and Expenditures will be exactly the same.

We shall see.

Will Fund Balances even be discussed at tomorrow’s Budget Workshop?

Tune in.

LFM

 

 

A Few Governance Wishes on July 4th

It was only a couple of months ago that I had high hopes of there being a big turn in political leadership in McKinney. Then it happened in grand style. A corner was turned and now the road ahead looks promising. I’m not expecting 7-0 votes on every issue by any means. But I see possibilities for new unities that serve the good of McKinney. That wish of mine is happening – yet to fully unfold, but the formation is visible and tangible. And it is beautiful!

I only wish that the Citizens of McKinney would wake up and get active to assure a more balanced, reasonable and business-like approach to politics and governance for the long-term. For political extremists like the Tea-Party to control or unduly influence city politics is flat wrong. Unlike County, State and Federal government, most of the municipal services are here because the Citizens asked for them. We want safe neighborhoods, recreation, parks, libraries and senior programs. We are here for a Quality of Life to meet our needs in the Maslow sense.

A reasonable person knows those things we want and asked for do not come free. We have a right to ask for these services, and the municipal government has a duty to provide them as efficiently as possible – and to require a reasonable payment for those services. That’s why we became a Home-Rule City about 155,000 citizens ago.

It is easy to count off the obvious services that are mostly paid for by property and sales taxes: Fire, Police, EMS, Parks, Recreation, Libraries, Streets & Lighting, Median Maintenance and Property Code Enforcement. There are many, many more services that you would notice only if they stopped being provided.

Based on an average house value in McKinney of $319,000, before exemptions, and current tax rate of $0.573, the tax bill would be $1,827.87. That equates to $5.01 per day per household. Yes, I know all about how to make things look small by dividing by the greatest denominator or look really huge by multiply the tax bill by 10 or 20 years.

But look, this is reasonable arithmetic. We are getting all of these services and paying property taxes equal to a venti Frappachino at Starbucks! Dear Citizen, you have been sucked into the vortex of Tea-Party hate-mongering by unthinking reaction to taxes. They are the cost of providing largely 24×7 protection of life and property in McKinney.

Do I think the taxes are too high? While reasonable, I am 100% positive they could be lowered and should be for the next fiscal year beginning October 2017 and ending September 2018. However, the full answer is too elaborate for this blog. I will be blogging more on this after July 25 when the property values are certified by the appraisal district followed by the obligatory publishing of the Truth-In-Taxation rates two weeks later.

I can talk about lowering taxes and even raising taxes when necessary without my blood pressure going up or down. So long as we are able to keep a perspective!

Since this is My Wish List blog, my point here is that I simply wish elected officials and citizens would do a little homework and keep things in perspective rather than being blindly persuaded to buy into the Tea-Party rhetoric. You are being deceived in the worst way.

For those of you elected largely because you had to subscribe to the Tea-Party propaganda to get elected, I wish you would simply think for yourselves. It is obvious when you are being sent text messages on the questions to ask. Or when your vote doesn’t match the expression on your face.

Collin County

I believe the same hysteria applies to Collin County politics. You can be conservative and still be responsible. County government is a little different. They deal mostly with the ugly services. That is the phrase I have used since the 1970s when I worked for county government for a couple of years. I actually love county government. They deal with the criminal justice system, mental health and other services that fulfill the State’s obligation. They are the chief administrative arm of the State. Who steps up to bury or cremate the dead pauper nobody will claim? That would be Collin County.

With the average Collin County home value being $339,000 and a tax rate of $0.208395, the annual tax bill (before exemptions) would be $706.46 or $1.94 per household per day. So, it is appalling to me when Collin County won’t pay their bills instead of protecting the Tea-Party Darling, AG Ken Paxton. C’mon, County Judge Keith Obvious and Commissioner Chris Oblivious. Get real. Actually, Get out! A robot can be programmed to say NO!

I wish for a Commissioners’ Court that would simply be realistic and honest rather than being puppets for the Tea-Party. I wish for a Court that would be more of a regional participant. I wish for low taxes but not at the expense of deferral in needed spending or to siphon off of Dallas County for indigent health care while recklessly blaming them for stepping up to the responsibilities Collin County shuns.

I wish for Commissioner Court leadership that engenders a more collaborative relationship with Collin County cities. Collin County is not an island within the region and the Commissioners’ Court is not an island within the county itself.

Our future is too important for Tea-Party control to annihilate basic good business decisions that affect everyone over the next several decades. I believe the Tea-Party to be the essence of evil motives without regard to reality.

Please, Dear Citizens. Get educated. Get involved. Help Collin County find a balance that is fair and reasonable. Put the people in front of and above politics. We have a chance to make this great county become even greater. Elect collaborators and communicators who can think for themselves and make informed decisions on their own. LFM