Actually, it’s just simple arithmetic. Subtracting…or adding…a few numbers.
This morning, I read a social media update from Smithjonessolicitors.co.uk that the City of Northfield had cut the General Fund Budget by $1.5 million. Wow, last I heard, our General Fund Budget was $10.5 million. $1.5 million would be an almost 15% cut. Such a reduction in expenditures would be impressive.
So I decided I’d conduct a little research of the available facts…and do a little simple arithmetic.
I looked at a report from the City’s Finance Director to the City Council. Although it’s been a few months, I’m pretty sure I had downloaded it from the City’s website as part of a Council packet.
At any rate, I’m not sure when the period of the $1.5million cut is supposed to have occurred. Based on the information in the downloaded document, “Total Expenditures” for the General Fund in 2007 were $10,212,730. In 2008, they were $10,651,079; in 2009, they were $10,417,969. The Adopted Budget for 2010 was $10,519,815.
I’m going to work with the four-year period that is presented in the Council material. Doing simple arithmetic, it looks to me like General Fund Total Expenditures actually increased by about $300,000. I don’t see a decrease from the beginning of this period to the current fiscal year and certainly not a $1.5 million decrease in General Fund expenditures.
Now, I could ignore 2007 and just look at 2008 to 2010. Over that period, there’s actually a decrease. However, it’s a little over $100,000, nowhere near $1.5 million. If I go from 2009 to 2010, it’s an increase again, of almost exactly $100,000. I just can’t find the $1.5 million in cuts.
It’s interesting to see where the cuts were during the year of the greatest change, the approximately $200,000 decrease in General Fund Total Expenditures from 2008 to 2009. It appears that in the line-item of “Streets” we went from $1,203,780 to $1,079,160, a reduction of about $200,000, and in the line-item of “Facilities” we went from $766,900 to $363,035, a reduction of about $400,000.
I found the actual areas of cost cutting to be rather surprising, because I keep hearing from some of our leaders that we’ve been cutting costs by cutting staff. In fact, I’ve heard three of our leaders say on more than one occasion that we’ve cut 10% of our staff several years in a row. With approximately 100 employees, that would total 30 employees over three years. These would be dramatic cuts indeed.
According to the 2009 Audit, “seven full-time staff positions were eliminated. Two of these were vacant positions within Public Works. The other five positions were layoffs and were comprised of an accountant in Finance, a technician in Engineering and three custodial positions.”
Personally, I’m not willing to count vacant-positions-not-filled as true cuts. I heard that the three custodial positions were replaced by out-sourcing to the private sector, so the cuts were really in public sector wage and benefit packages. So, by my criteria, there were two substantive cuts, and were some of the lowest paid positions in each department. Even if you’re going to give full “value” to all the cuts, it is at most seven and not ten.
Then I’ve got a PowerPoint presentation from the Finance Director to the Council; again I think it was in a Council packet. In it, the 2009 cuts are now characterized as “Administrative Assistant, Accountant, Three custodial positions (outsourced), and a “Reduction in hours for previously full-time employees”. So, now, it is at most six and not ten.
The PowerPoint slide has Staff reductions for 2010 listed as the Public Services Director, Building Official, and Maintenance worker. Doing my simple arithmetic, I’d say it adds up to three, not ten.
There’s more to the story, however. The Public Services Director position was created for our previous City Administrator by the prior City Administrator because the prior City Administrator liked to work from home. The position existed for, I’m not sure, nine to eighteen months. It’s hard for me to consider this to be a substantive cut. Then the Building Official was apparently let go because there wasn’t a need given the slowdown in the economy. I guess you count ’em where you get ’em. At any rate, it’s another three instead of ten.
For the 2011 Budget there was the Walinski Reorganization Plan. We cut an Administrative Assistant and a Planner and elevated two Department Heads to newly created Division Head positions. We offered a generous buyout package to the Community Development Director to take early retirement and, at least right now, the plan is to not replace him. I’m not going to comment on the concept of creating another layer of management with the new Divisions, but I’m only counting three cuts, not ten.
There are some more details related to the 2011 budget balancing plan in a recent Northfield News article. According to the article, in addition to the reorganization, there will be “pay freezes, reductions in travel and maintenance expenses”.
I guess I would characterize pay freezes as “cost increases not implemented” not “decreases”. There have been reductions in travel cited the last three years and I’m just wondering how much traveling is being done by staff that it results in a substantive additional cut three years running. Finally, I’ve already noted that we cut maintenance to facilities $400,000 a couple of years ago and that didn’t seem to work out too well, at least not for our Safety Center.
Back to the $1.5 million, the News article notes that these cuts total approximately $357,000 and the initial budget for 2011 is $10.37 million. That would be how much different from 2010’s $10.51 million? Or how much different from 2007’s $10.21 million? Time for you to do the math.
I’ve analyzed the information and I’ve done the math. It’s not adding up to $1.5 million in cost cutting, not even close.
Ross- What is that old saying of Mark Twain? “There are lies, damn lies and statistics?” The whole presentation of any particular argument relies on marketing. This link to the 10/01/201 Dilbert cartoon sums it up best, IMO. Hope you enjoy it.
If the link doesn’t work, for some reason. look up the cartoon in the Dilbert archives under that date.
I love Dilbert, but then I’m a nerd.
Marketing does seem to include a bit of guessing; I’d like to believe that Finance requires some arithmetic.
Wow, Ross. I really hope the City responds to what you’ve put out here. And thanks for doing it. Something seems definitely way off from what’s being claimed.
why would they respond? then they would have to actually back up what they say.
ross, I wish you would name these people by name. that’s the only way to get the dishonesty out front and actually make them respond.
Anthony: the “people” Ross is talking about are the Councilors, the Financial and Administrative Staff. We all know their names. I think you can exclude the Interim Administrator; he just got here.
The facts are there to see in the budget documents… But, It is an extraordinary amount of work for any citizen to analyze those documents.
It is up to the citizenry to ask the questions; and there are Councilors who have been doing that…unfortunately not the majority.
Any councilor who reports/repeats the staff memos as if they are ‘gospel’, may be earnest, but not responsible to the facts.
I heard this from a experienced public servant the other day:
You need to understand public funding. By public employee standards the city has probably cut $1.5M….in their own minds.
The way that works, as exhibited by the schools year after year, is that they plan on say a 10% increase, which for example is $1M. Then if they get a 4% increase, which provides $400,000 of NEW money, they immediately release information to the advocacy media groups the “so and so cut school funding $600,000”.
All public budgets include “anticipated revenue needed” and they work from there. They do not work off of a zero budget base, or even last year’s budget. So if you anticipate needed a million dollars, but then you cut that ‘need’ in half, they confidently report that they cut half a million dollars from their budget.
I see the city is advertising for a IT tech at around 50k per year. Probably a total labor cost somewhere north of 60k. Someone to maintain computers and software for staff and councilors. This would seem to be an essential function.
I wonder if outsourcing these functions was considered. I may be wrong but the budget seems to indicate a more experienced and/or senior staff member still on board. Might not that person direct contracted help as necessary? This seems to be the common scenario in small to mid-sized enterprises.
Anthony and Norman –
As I drove to the the State Legislature’s Property Tax Working Group meeting (following one of our local leader’s request to try to solve Northfield’s commercial property tax issue at the State level) I realized that we could have cut $1.5 million in expenditures, while at the same time increasing expenditures by $1.3 million, resulting in a $200,000 net reduction.
Our thinking is at least somewhat shaped by our “schema” (the use of this term is an inside joke). As an MBA, my schema focuses much of my attention on the (here comes an annoyingly over-used term…) “bottom line”. The bottom line of the Total Expenditures for the General Fund indicates a $200,000 cut.
If our leaders are going to state that they have cut $1.5 million from expenditures, I think they should list the items cut and the associated dollar amounts. I also think they should list the items in the $1.3 million increase in expenditures.
With these two pieces of information, Northfield citizens could decide if the cuts and increases reflected their values and priorities.
Sorry for this thread drift…
What a DAY! Does it get any better than this? Colors that will make you swoon. That spicy, nostalgic scent of fallen leaves. Pure blue sky..75 degrees.
Ross- Yes, I would hope that the finances would “add up,” so to speak. Your scenario of cutting some expenditures $1.5 mil., but adding in $1.3 mil. somewhere else is what Kiffi is refering to. The information is a matter of public record. It is just a lot of work to ferret it out. I would tend to trust anyone like you, with some business experience, or William, who has some municipal experience and the time to dig these things out. These scenarios intrigue me, but, with still a full-time job, I just don’t have the time to devote to it. I really appreciate you bringing it up, giving some insights, and raising a few questions.
As you may know, I have spent a bit of time over the last five years trying to address the issue of the over 30% per year commercial property tax increase since 2000 and its destructive impact on our local economy.
I guess I’m not too interested in spending much time the details of the alleged $1.5 million decrease and $1.3 million increase; I’m focused on the net decrease or increase in Total Expenditures.
If we had actually decreased spending by $1.5 million, while increasing other spending by $1.3 million, I do think it would be interesting to see if the changes reflected the values and priorities of the citizens.
Maybe that’s a task for the League of Women Voters.
Ross, a 30% per year increase over 10 years is a factor of approximately 13.8. Have commercial property taxes really increased by that large a factor (e.g., from $10,000 to $138,000)?
I’m not sure what kind of math you’re doing but my simple arithmetic tells me that a 300% increase for your example would take the taxes from $10,000 to $30,000. In the real-life examples that is closest to your theoretical model, a building owner who was paying $12,000 ten years ago is now paying $42,000. That change is quite typical of the dozen or so building owners’ situations of which I am aware.
However, I think we are getting off the topic of my post. For the third time in the past twelve months, building and business owners, citing significant drops in private sector income, were asking that the public sector not balance its budget with tax increases but rather with reductions in expenditures.
Then there was the claim that the City had cut its expenditures by $1.5 million. By my quick mental calculation, that would take the (approximately for the past four years) $10.5 million dollar General Fund Budget down to $9 million. When I looked at the numbers, and did the simple arithmetic, it didn’t add up (or subtract down) that way.
Last year, whatever the cut in expenditures, City taxes on commercial properties went up 8.5% (and that doesn’t even include the various fee increases) in the middle of the Great Recession. I read that in the November 2009 City Commons publication, available on line.
According to the previously cited Northfield News article, the City is looking at a levy increase of 3.5% (along with a 3.4% decrease in expenditures). Last year’s 2.4% levy increase resulted in a 8.5% increase in commercial property taxes. Are we looking at a 12.4% increase in commercial property taxes from just the City?
Are the State and ISD pondering similar increases? If so, it’ll be another, by my math, 30+% annual increase in commercial property taxes.
In your setup at the beginning of this discussion you mention “one of our local leaders” having said that … Northfield had cut the General Fund Budget by $1.5 million.” Later you quote “three of our leaders” saying that “we’ve cut 10% of our staff several years in a row.”
I’m all (all!) in favor of analyzing numerical claims, as you’ve done quite helpfully. Good job.
But I do wonder how authoritative these (unnamed, perhaps appropriately) “leaders” were in making these claims. Do these claims appear in print (or e-print) on the City’s website on in official documents, for instance, or are they just off-the-cuff estimates? If the latter, is it clear that such claims are dishonest or self-interested as opposed to, say, just mathematically mistaken?
Either way, of course, numerical claims are fairly subject to numerical critique. I just want to know whether to be upset about a numbers glitch or about political exaggeration.
Ross, if something triples (from $10,000 to $30,000) over 10 years, it’s increasing at a rate of approximately 11.5% per year. If it goes up by a factor of 3.5 (from $12,000 to $42,000) over 10 years, that’s a rate of approximately 13.5% per year. Those are both hefty figures, but far less than 30% per year.
I don’t think this is off topic. If you’re going to “do the math,” you need to know what math to do, and then you need to do it correctly. You’re doing two things wrong here. First, you’re interpreting a tripling of taxes (from $10,000 to $30,000) as a 300% increase; in fact, that increase is only 200%. (The easiest way to understand this is to ask yourself what you think a 200% increase takes $10,000 to. If you say $20,000, then ask yourself what a 100% increase would take it to, or a 50% increase.) Second, you are apparently dividing 300% by 10 (years) to get 30% per year. These percent-per-year calculations are inherently compound in nature, not simple. The math is still at the middle-school level, but it’s a little more complicated than just division.
Paul, I think you’re addressing Ross, not Griff.
Oops, Barry’s right. That was for Ross, not Griff.
In my defense: (i) I’ve found a novel, perhaps original, way to mess up in a discussion about mathematics; (ii) there’s an awfully faint font at the top of this discussion, at least on my browser.
Thank you, Barry. Ross, you really shouldn’t title a piece “Do The Math” and then proceed to do so much of your own advocating using math wrongly. Don’t you see how that undercuts the credibility of your entire argument?
You’re making a case on the apparent inability of the City to properly account for some of its mathematical claims, and then you make claims based on some very glaring errors in quantitative reasoning. I’m not saying you’re necessarily wrong about the city’s accounting or lack thereof, but the other math you’re showing in these comments hardly reinforces your case.
These are compound calculations, not simple, and going from 1 to 3 is a 200% increase, not 300%.
Barry, Brendon, and (maybe) Paul –
Look, I was using what I thought was a fun phrase as a catchy title on a post. I even took a step away from the term “math” and switched to the more humble “arithmetic”.
You are intentionally or unintentionally distracting us from what I think is the really important topic in this thread. In a time where most commercial entities and many residential entities are struggling to pay the bills, there have been more than a few calls to balance the City’s budget without an additional increase in taxes.
In response for some of these calls for no additional tax increases, one of our leaders makes a statement that there have been $1.5 million in cuts. In my mind, that would reduce a $10.5 million budget to $9 million. In fact, the 2010 $10.5 million budget has only been decreased to $10.4 million for 2011. Regardless of terms, I don’t think the statement that expenditures have been cut by $1.5 million accurately captures my sense of the reality.
Many of the downtown building owners stated that their property taxes have gone up at least 30% a year. So, like a grocer marking up some local cheese 30%, that results in taxes of $13,000 in year two. At the end of ten years, they are at $30,000. You’re correct, the proper way to describe this change would be “my taxes have tripled”.
However, while you sit around and correct our use of terms, businesses are failing and buildings are being lost. The owner of one popular business that recently closed, and the building went back to the lender, had been complaining about rising taxes for five years. At first, he was drawing down savings to pay the taxes. Then, he had to borrow money to pay them. Oh, and then the economy tanked but the taxes kept increasing. With taxes rising, sales declining, eventually he gave up. Some of you were probably in attendance at the “wake” for his business.
You don’t have to believe me, but he’s the canary in the coal mine. You can continue to debate terms, you could comment on whether or not you think there has been a meaningful reduction in expenses based on the actual total expenditures for the City’s General Fund Budget, or you can make a choice on whether or not you think another 12% rise in local commercial property taxes, probably coupled with similar rises from the State and ISD, is equitable or sustainable.
I’m not interested in the first topic, I’m losing interest in the second topic, but I remained very interested in hearing your opinions on the third topic.
Ross – If the issue is the disproportionate burden on downtown businesses (and I’m not in any way denying that), isn’t the problem created by the way the state sets the tax rates for various types of property? If, hypithetically, 5 years ago the city’s budget was $10,000,000 and that figure didn’t change during the next 5 years, wouldn’t the busineses’ burden for paying for that same level of services have increased measurably because of the way the state has shifted the property tax away from homestead and onto commercial property?
Ross, you wrote: “You are intentionally or unintentionally distracting us from what I think is the really important topic in this thread.”
“However, while you sit around and correct our use of terms, businesses are failing and buildings are being lost.”
Please don’t ascribe malice or apathy to me. (I will let Barry make his own defense.)
I fully recognize and appreciate your efforts on behalf of downtown business. As a consumer and resident who spends probably 2-3 thousand dollars downtown every year, I take offense at your characterization of my comment. I want your representations of the tax burden to be accurate so they are more effective and not so easily disproved by detractors. That was my sole intent.
You do much good for the town, Ross. Thank you! I want no more businesses to close! Thank you for ALL the work you are doing to prevent that! Sincerely.
My point is that, if using math to fight the battle, use it correctly or people who truly don’t care about downtown Northfield WILL turn it against you and easily undercut the important, larger argument you are making.
For what it’s worth, I am likewise confused by the municipal budgetary accounting you highlight in your original post, and wonder at the numbers as presented.
Ross- I think I see the main point you are trying to make in all this. Though the city claims it has decreased the cost of government, it really hasn’t. And comparing this to the general downturn in business and personal income is, I think, a good analogy. As businesses have had to close and families have had to cut back, it only seems just that the government should do some belt tightening. The problem with following through on this is that the government has become the safety net for those people suffering through these scenarios in the private sector. I consider myself a bottom liner, also, and it seems that to maintain a certain level of living, it requires a certain level of money. Whether this flows through private business as wages and profits or whether it flows through government funded programs, it still entails about the same level of money. Jane makes a good point on this in her post as to how the city is funded. It seems we are seeing a shift in the general economy along similar lines. I’m afraid the result that is needed here is a reduction in the level of living. That is painful on all accounts, but I don’t see a good alternative way out.
Thanks for supporting our local businesses, Downtown or Uptown. I know that the owners greatly appreciate it.
Yes, the disproportionate burden, in my opinion, is on commercial properties, not just downtown properties. Yes, the State structured (and I’m almost afraid to use this term) the equation. However, in my opinion, our government entities, City, State, ISD, tend to point fingers at the other government entities instead of taking responsibility for their own decisions.
Thank you form making my point so clearly. Yes, my motivation for writing this piece was that the City (or one of its representatives) claims it has decreased the cost of government but the actual financial burden on taxpayers has been barely touched.
I strongly agree with you, certain budget cuts will hurt some groups more than other groups. In my previous post, “Let’s Wiki a Budget”, I tried to get people to state their priorities for City spending.
I thought that such a public and open discussion, as opposed to a hand-picked group behind closed doors, might be a way to get people’s values and ideas “on the table”, earlier in the process. My sense is that citizens don’t want to cut police, fire, snowplowing or the Spanish Interpreter; let’s find out what they would be willing to cut back.
So, let’s hear the priorities of our citizens in a time of tough decisions and let’s have accurate descriptions of the financial results of these decisions. I think this would lead to citizen-driven budgets and, I hope, citizen-supported results.
So Ross: How much do you want to reduce the budget, and what, exactly, would you cut in order to get there?
John: hooray for you! you got the main point: “Though the city claims it has decreased the cost of government, it really hasn’t.”
Amidst all the ‘math’, the main point has been sorely missed, IMO. A “local leader” , at the Wednesday AM Chamber candidates forum made a claim that cannot be backed up. As far as I’m concerned, the only ‘mistake’ Ross made that is significant to the voters is that he didn’t say who that local leader is/was who made that statement.
Having seen most of the budget documents that went to Council over the summer, I frankly think that number ($1.5 million) was not (even in those documents) so clearly stated… so if a councilor or staff member is stating that as a fact now, they should be able to back up the statement with the numbers to support the claim.
Many of the budget documents have been what I would term “specious” as they present a part of the accurate story, but mislead in various ways.
I think it is difficult for people to give their perspective on the most needed cuts to be made when 70% of the budget is salaries and benefits; i.e., to make truly significant cuts, jobs must be eliminated.
In the years when NF received significant LGA $$, the city staff grew to be quite large; Now when those LGA $$ are gone, doesn’t it make sense that the staff will have to be significantly reduced, or salaries cut to lower amounts?
Ross, you bring up a good point on the disproportionate funding of government by commercial property taxes.
Part of the problem with Local Government funding is that they have received monies from the state that were not funded by voters–either because it was disproportionate to the funding generated by the local properties or because it has fallen disproportionately on non-voting commercial property.
This is a basic flaw in the property tax system.
Over time, Northfield (and other Minnesota municipalities) received LGA funds based on what they spent–the more you spend the more LGA you could get–which encouraged cities to be less than wise in their choices. Now that LGA is going-going-gone, municipalities have a difficult time shifting those costs to the citizen-voters.
When a cost-item is proposed–say funding millions of dollars in infrastructure–the municipality can state that it will increase property taxes, say “$250 on a residential home and $1800 on a typical commericial property.” This sounds not too bad if you have a modest home but it is astronomically impossible for a building owner to fund when their renters are leaving because the rent is too high.
So, I suggest that the decision-making model is flawed since any increase in property taxes falls disproportionately on those that don’t vote–so you have to adjust the decision making model to ask if the cost increases are fair if the voters alone bore the burden of those costs–even though they won’t have to.
I also want to put in my two-cents on the “family budget around the kitchen table” approach that so many think is a good analogy for government budget making and cutting.
Government is not a family budget–government is an organization to provide for needed services to maintain society–including safety and welfare. Northfield cannot cut half the hospital staff or keep the sewage plant open half time. No matter how much it snows, citizens will expect the fire trucks to get to their burning homes–so the city must plow.
The biggest issue for Northfield has been the city’s inability to look at what costs can and should be cut. There are blinders on at city hall about what it means to cut staff–to staff, it means every department but my own–but from the outside, it seems that the city administratively top-heavy.
The city needs to cut the “go-go 90s” (when income tax rates were high and the economy florished) out of the “busted two thousands.”
Thanks for commenting! I was so pleased to see you at the Cow on Friday night. It was pleasantly crowded with so many people coming out to enjoy this freakishly warm weather.
I don’t REALLY want to reduce the budget at all.
In particular, I’d love to spend more money on the Library, Parks, and Recreation. Of course, I’d also like all the snow to be plowed and removed from the streets by 6 a.m., roads without a single pot hole, and, as a little token of appreciation for their heroic work during the recent flood, provide our fire fighters with massages by the New York Jets’ professionals.
In fact, what I really want is the Dow Jones to go back about 14,000, house prices in California and Florida to rise 25% each year, and everybody who lost their job since 2007 be employed again. Heck, I also want these re-employed people, as well as the still-employed people, to have the highest salaries and best benefits packages available to any sector, with plenty of money to pay taxes, make charitable donations, and eat out several times a week.
However, I don’t think the latter is going to happen, at least not for a few years, and so therefore I don’t think that the former is possible. So, in this era of diminished expectations, my “want has been reduced hoping that our leaders will address the loss of LGA funding not by raising City taxes but by reducing spending.
Gosh Patrick, your one-sentence question clearly push one of my hot buttons, ’cause this answer will be so long that few will actually read it.
Nevertheless, I will extend with some background on why the leader’s $1.5 million claim provoked such a strong reaction.
The economy went down the tubes in the 4th quarter of 2007. For three years our leaders have talked about it. But, when I’ve looked at the numbers (notice I’m avoiding “done the math”), it seems like it’s been just that, talking about it.
For three years, a leader or two or three claimed that we annually cut 10 jobs and $500,000 from the City budget. But I don’t see it and, more importantly, commercial property taxpayers don’t feel it.
Earlier this year, our Mayor stated that we had a “$600,000 to $900,000 gap, depending on what happened with LGA”. People in the room had read the front page of that morning’s Star Tribune and knew that we had a $900,000 problem. Next year was projected to be even worse, the figure cited was $1.1 million. Thus was born the often-repeated statement that we had to address a $2 million gap over two years.
Then, miraculously, our Finance Director announced that we had solved this year’s gap, or at least $800,000 of it, by drawing down a reserve. Our current gap was a mere $100,000.
Then a Councilor told me that we seemed to have solved a number of gaps in recent years by drawing down reserves. It’s great that we have reserves to help out in tough times, but are we just consuming our assets in the short-term to maintain a structure that is not sustainable in the long-term? Perhaps more on-topic, are we balancing the budget though cutting spending or spending reserves?
Ah, but then the $2 million gap returns. However, now our leaders announce that we are going to address it over four years. No doubt it would be less traumatic on that schedule, assuming that the projections about LGA prove accurate.
So, the substantial gaps appear and reappear, there’s much talk about substantive cuts, for which I can’t see any substantiation. And commercial property taxes keep rising. After three years of this, I don’t know, tragicomedy, I guess my frustration is becoming apparent.
But you asked me where I’d cut. Hey, we’ve already established that some people find me impolite, others call me a curmudgeon, and I guess I’ve proven that I’m a math terminology dummy, why not add “bad guy” to the list of epithets.
I will repeat my belief that we should combine the General Fund Levy, the Economic Development Levy, and the Housing Development into one comprehensive budget as there seems to be a permeable barrier for the sources and uses of these levies, at least as practiced by our leaders. Therefore I’m cutting from a $11 million total.
Let’s go with a goal of $1.5 million. Then we’d see what a cut of that size would really look like.
Some people have suggested an across-the-board salary cut of 20 percent, others have suggested a sliding scale depending on income level. That would probably do it. In fact, I think that many closely-held organizations in the private sector have taken this approach. I believe many citizens would applaud our leaders if they implemented this plan. However, I will return to the idea that we should start with the most essential functions of government and build our budget based on funding these functions.
I’ve already supported the statements of other citizens about not starting with police, fire, and roads. The Public Safety category is about $3.4 million and Public Works is about $1.1 million. I also think the Library has been cut enough and until there is a solid plan for handing over the Parks and Recreation Facilities to private entities, I’d keep them in the budget, for a total of about $1.8 million. Then there’s about $1.3 million for the three categories of Government Buildings & Facilities, Other Financing Uses, and Total Transfers Out; I’m hoping that the Mayor’s Ad Hoc Financial Advisory Group is looking closely at these expenditures.
That leaves the approximately $3.4 million in the General Government category. You’d have to cut spending in this category by almost a half to get your $1.5 million.
Over a dozen line-items make up this category. There’s Administration for $.4 million, Building Inspections for $.2 million, City Clerk for $.2 million, Community Development for $.1 million, Economic Development for $.3 million, Elections for $.05 million, Engineering for $.4 million, Finance for $.4 million, Housing Development for $.3 million, Human Resources for $.3 million, Information Technology for $.3 million, Mayor and Council for $.1 million, and Planning for $.2 million.
In this category, there are six departments which have been suggested to me could be out-sourced, are duplications of functions, are neither essential or mandated, or are more appropriately handled by the private sector, either by a for-profit or non-profit entity. They total approximately $1.7 million in cuts.
But I’m just one citizen/taxpayer. I’m thinking the way our system is supposed to work is that many citizens/taxpayers analyze where their money is going and publicly state their priorities. Our elected officials then publicly announce what they’ve heard, state their own priorities, and then direct the City Administrator to structure the organization, and expenditures, to reflect those priorities.
Back to my original point, we haven’t cut six departments, we haven’t cut salaries by 20%, and I can’t find cuts in line-items resulting in a decrease in Total Expenditures of much more than $100,000. Therefore, based on my (oh, I can’t resist) “rubric”, I don’t think we’ve cut $1.5 million from the budget.
Ross: Why aren’t YOU on the Financial Advisory Ad Hoc Work Group?
You don’t have to answer that; I think I know the answer anyway… but it would sure be nice to feel there was going to be some straight talk coming out of that group… and given the city-hall-centric selection process, I will be skeptical until (happily) proven wrong.
You (maybe) addressed me in #14; here come some answers. “Maybe”, by the way, derives from my incorrect salutation in #13. Mea culpa Now that we’ve cleared that up, any thoughts on the substance of #13?
Pointing out mathematical (OK, arithmetical) glitches in an argument about tax structure implies nothing either way about opposition or indifference to the argument itself. On the contrary, supporters of an argument have at least as much stake in its technical accuracy as do detractors.
Nor are such numbers-centered comments nitpicking or trivial, as kvetching about commas might be. Numbers are central, not peripheral, to any discussion of what we want, what we can afford, and how to pay for it, so the numbers should be as right as possible.
Your main point, about business taxes being Too High, makes a lot of sense to me, so I’m pretty sure I agree with it — qualitatively. To process quantitative questions (e.g., how much too high?) I need better numbers.
Thanks for your numeral-rich post (#19).
Specific numbers are a better basis for discussion than qualitative descriptions like “too much” or “not enough”. It’s particularly helpful that you include specific budgeted amounts in various categories, and specify several you would leave un-cut.
Good on you, too, for proposing (more or less; see below) specific cuts toward a specific goal. There is nothing impolite, curmudgeonly, or bad-guy-esque (your words, more or less) in such suggestions. And nobody can call you an “economic girlie-man”, as Governor Schwarzenegger once put it. Well done.
So much said, a couple of questions.
First, you mention 13 spending categories and recommend cuts from, or of, 6. Which 6 do you have in mind? There are 1716 ways to choose 6 from 13, and presumably some are better than others.
Second, you observe that among the unfavored 6 categories are some we might “outsource”. That may well be so, but to outsource a service doesn’t make it free. Somebody, even if not the city, ultimately pays. No?
One way to determine if spending, in any enterprise, is “too much” is with a market study that compares costs. If Northfield spends more on certain departmental budgets than other cities of similar size, then city leaders should reduce those budgets, or be willing to give a good explanation why they should not.
Administrative costs are “too high”. There has been some effort by the acting city administrator to reduce those costs. But have they been reduced by $347,000 (the amount by which they exceed administrative costs in Owatonna, a city with almost 10,000 more people)? Or reduced by $244,000, (the excess over the metro suburb of Anoka)? The answer is NO, they have not.
Citizens may have different ideas about what constitutes essential services and community core values. But few, if any, citizens believe that providing high paying jobs is an essential service or core value. We should have only as many fairly paid jobs that can be proven to be necessary to deliver the service. Anything more is a rip-off of the citizens.
At Tuesday evening’s city counci work session, a review of the Economic Development Authority and General Fund budgets is on the agenda, along with the Debt Service budget. Maybe there will be answers to some of the questions? A large packet accompanies the agenda on the city ‘s web site.
Paul, Ross has offered a clue to his thinking in saying that the six departments sum to $1.7 million. This eliminates some of your 1716 combinations. (It should be noted that 1.7 is not necessarily an exact sum of the breakdown numbers, since those thirteen numbers sum to $3.25 million, not $3.4 million. This is presumably due to accumulation of round-off error. Perhaps we should consider how many of the 1716 combinations sum to between 1.6 and 1.9.)
OK, enough of this mathematical silliness. Let me be serious, and let me address Ross.
Ross, it occurs to me we’re going about the whole discussion a bit bassackwards. You said to Patrick that you “don’t REALLY want to reduce the [city] budget at all.” (One can imagine various libertarian and other anti-big-govenment eyebrows arching upwards.) You’ve made it fairly clear that your primary concern here is with the beleaguered owners of commercial property, who have seen their property taxes more than triple in the last ten years. I take it, therefore, that your impetus for proposing cuts in the city budget is to provide tax relief to these taxpayers.
Consequently, a relevant question is How much tax relief do commercial property owners need? You gave an example of someone whose taxes went from $12,000 in 2000 to $42,000 in 2010. What would you say that owner’s 2010 taxes *should* be? As a reference point, let me observe that my own (residential) property taxes roughly doubled in the same time period. (To be accurate, some of that increase stems from an improvement my wife and I did a few years now. To be precise, it’s an improvement we had done for us by Ray Cox and his terrific crew at Northfield Construction Co., who did a fantastic job. In any event, it seems fair to say, based on your example and mine, that residential property taxes have not quite doubled over the last ten years whereas commercial property taxes have more than tripled.)
Once we’ve settle on a target for tax relief, we can address the question, How much does the city budget need to be cut in order to reach that target? One might be tempted to simply say Every little bit helps, but that’s not very helpful. If we slash city services yet businesses are still shutting down, what have we accomplished? (Again, one can hear the eyebrows arching upwards.)
There is an underlying question here: Is the problem of tax relief for commercial property owners solvable purely at the city-budget level — and if not, then how much relief can be expected from cutting the city budget? (For example, if you cut $1.5 million from the city budget, what would that do for the property owner whose 2010 commercial property was taxed at $42,000?)
To answer this, it would help to have some relevant numbers, none of which are at my fingertips, but hopefully they’re at yours. If I’ve read the city budget statement correctly, Northfield receives approximately $5 million in property taxes. However, it’s not clear how much of this comes from residential property taxes and how much from commerical. Nor is it clear how much of the property taxes we pay go to the city; as I understand things, some of these taxes go to the schools and some go for county services. (There is an ancillary question here. The state gives property tax refunds to qualifying residential owners. Is there a similar program for commerical propery? And if so, has that been incorporated into your $42,000 example?) It seems likely that tax relief for commercial property owners can only be realistically addressed with a three-prong attack: cutting the city’s budget, cutting the schools’ budget, and cutting the county’s budget. (And as you say, the ideal solution would be the return of a thriving, vibrant economy.)
In sum, in order to make a compelling case for doing something you say you don’t really want to do, namely cutting the city budget, it will be most helpful to establish what the actual goal is and work from there to the secondary goals. Doing so requires accurate, meaningful numbers — and yes, it depends very much on “doing the math.” Your catchy title is really entirely appropriate.
Whew, I dodged the “economic girlie-man” title.
As for the six line-items of the thirteen that I’d cut, I’ll turn to William, or at least return to his analysis. But first, note that I did end up with approximately $1.7 million in cuts, leaving about $200,000 for out-sourcing. 😉
You rock, at least in my opinion. Let me buy you a beer sometime at one of those fine and/or fun downtown establishments.
Kiffi, Patrick and I agree, your analysis is perhaps the finest work yet produced on this topic. I agree with you, if comparison to similar cities reveals unusual levels of expenditures, then if not triggering cuts, it should certainly raise questions.
Your accompanying commentary on, I think Betsey’s blog, further refines the focus. When there seem to be a number of line-items that seem to describe similar functions, I would say the appropriate response would be consideration of cuts, or at least some tough questions.
Yeah, there’s rounding. Maybe I’m wrong, but those six and seven figure numbers seem to turn off some readers. I thought if I rounded to the hundreds of thousands, it might both hold attention and make for easier comparisons. For details, see the .pdf in “Let’s Wiki a Budget”.
And okeh, I’ll admit, I’ve been know to drink coffee, eat lunch, or even quaff beer with folks with libertarian tendencies. I think it is important to regularly consider government services, and whether they are they essential, insufficient, inefficient or inappropriate.
I guess that after working closely with commercial property owners for the past seven years, I think that local government services have become unsustainable if they require near double-digit annual increases in taxes.
And, yeah, commercial property owners have been complaining for at least three years that their building’s operations are no longer economically feasible. Suggesting a “roll-back” in taxes to a point where they are more in line with actual rents makes good sense.
However, that’s not what building owners are requesting (perhaps it’s beyond their wildest dreams). All they are saying is “please address the cuts in LGA with cuts in spending…and not with additional tax increases”.
I’m not sure whether it was in the Northfield News article or on a KYMN video, but our leaders’ stated goal is apparently to address the loss of LGA with “one-third spending cuts, one-third tax increases, and one-third new sources of income”. I’m thinking that for the government, if the “income” is taxes, it’s fees.
The alleged cuts totaled, in the Northfield News article, I think $357,000. Let’s call it a third of a million dollars and then it would seem that their “gap” is a $1,000,000.
I’ve suggested that I can get their previous “cuts” to add up to (or subtract down to) what they’ve suggested. I am concerned that the reality will be that they’ll need $1 million in new taxes and fees to fill the gap. That is exactly the scenario that commercial property are asking, pleading, be avoided by our leaders.
Jane has suggested that we may get some more information, and maybe even specifics, tomorrow night. Let’s see if our discussion seems to have any influence on their discussion.
Thanks, you guys!
There will be little discussion of the EDA’s budget Tuesday night, as they have not yet dealt with their budget, or their ,work plan, as they voted to put off their retreat (originally scheduled for later this week, so after this Council meeting anyway, ) because of some poor back-to-back scheduling around its time , and also because of all the extra meetings required for the flood relief loans.
What I imagine the Council will discuss is what the COUNCIL thinks re: the EDA budget, and how they feel about the EDA in general. This should be an interesting discussion to watch since, as many of you know, a minority group on the EDA has been concerned about the lack,of compliance with state statute, and there are two Councilors on the EDA, that are NOT in that minority.
So how will they justify any criticism of procedure? A mind-boggling question…
At any rate, one of the questions that has been asked at the EDA is if they even vote on approving their own levy… but … you are not likely to hear any of the EDA board’s input to the discussion of their budget, because they haven’t had the discussion yet, and they haven’t been invited to the Council meeting, which is NOT a joint session.
So… what’s the purpose of this topic at the Council Work Session?
One can only wonder…
William- Thanks for some concrete (infrastructure?) figures. If this leads to cutting the number of staff, then the next question is, what part of the private sector is able to pick up the tab for these $347,000 or $244,000 in wages? Someone has to provide a living for these people. With the general business climate as it is right now, would we be stuck with $347,000 worth of civil administrative people on unemployment? And, where do the unemployment benefits come from? As I said in my post above, it takes a certain amount of money to keep people alive, fed and housed. Whether this money comes as a burden to a set of municiple taxpayers (hence- Northfielders) or the taxpayers of the whole state of Minnesota (via unemployment) or a few business people (as wages), the money is still needed. Perhaps they could all move to North Dakota. That state seems to be the only one in the nation with a surplus of funds. What I am suggesting is that the whole nation is going to have to cut back significantly for the budget to balance. It seems a little like trying to compress water. It cannot be done. You can compress air above water, but the volume of water does not change. Of course, if China decides it has to call in our debt, it really won’t matter much either way. My Chinese is lousy right now, unfortunately.
The highest paid downtown retail store manager receives $111,907.20 per year in wages and benefits, his assistant $66,106.64. They are city employees. Most retail store owner/managers downtown pay themselves probably less than half the assistant’s. They are in the private sector doing their best to earn a living.
Before he ‘retired’ the former Community Development Director received $147,000, every weekend and public holiday off, reliably home in daylight most days; on ‘retiring’, he receives $1,000 a week for 9 months part-time work.
In the light of such remuneration packages, there seems little point in attempting to engage in earnest, urgent, sincere discussion as to budgets, cuts, taxes, library hours, snow-removal. To the oft put question “what services do you want us to cut?” from people like me there is simply a thousand yard stare or a scratching of the head.
In 19.1.2 above Barry states that he thinks Ross’s primary concern is with the business taxes; I think that is a simplistic misconception.
I think Ross’s concern with the business taxes runs along a parallel track with the budget cutting concerns.
I think if one reads the budget documents presented to the Council this summer, you will find that there are virtually no significant salary or operational cuts. There are jobs empty, but not replaced; that over several years, however. The statement is repeatedly made, by both Council and Staff, that “now we will have to start making service cuts…” and then they discuss things like community wide surveys to ascertain how residents feel about what services they want cut.
I would say that proportionately, the largest cuts made to date have been to the Library, a city department. Since the library has no operational legislative purpose (admin, infrastructure, utilities etc.) you would, I think, agree that it is totally a SERVICE to the community. Only its director and one other employee are salaried employees; the rest are paid hourly wages.
Therefore when the library hours are cut (no Sundays, an hour off the evening) those employees’ wages are being cut, and the service to the community is being cut.
I think if you look at the percentages quoted in the budget docs, you will then see that employees who provide service to the community have had their wages cut, as well as that service being curtailed.
However, that is NEVER stated as a service cut that the community has already ‘suffered’.
I might also add the sociological factor of who has lost by those library cuts on Sunday and evening hours; the young, or any working families, and the minority communities that used the library computers heavily, especially in the evening hours.
The fact that there seems to be no inclination to cut positions or salaries that burgeoned during the LGA fat years… except predominantly in the library.. says something about ‘institutionalizing’ a city hall staff of a certain magnitude.
Sorry, I wandered off my original comment re: Barry’s comment, but it is the parallel tracks of budget cuts vs revenue sources (primarily taxes) that is the crux of the matter.
It is true that the legislature is ultimately responsible for the inequitable tax structure; but raising property taxes, which affect an already insecure downtown more than homeowners, while refusing to make Major Cuts in City Hall salaries … and all the while proclaiming ‘due diligence done’ is a refrain too oft repeated, and it not often enough challenged.
OK, I know it’s taken me a really long time, but then to get back to the statement made by a city official, (councilor? ) at the Chamber forum… i.e. what Ross started with on this post… that person’s words must be challenged, or if a councilor up for re-election, that vote needs to be considered in an informed manner.
And that’s why I believe, Ross should have named the person, as well as quoting them.
The statement made needs to be explained, if it is possible to do so.
Wow. Those figures truly are disturbing. On the other hand, they do suggest places that seem overdue for cuts, given the economy. Do you know if these figures are some sort of weird idiosyncracy, or just one example of excessive public salaries?
Kathie: the fair question would be, why are the municipal liquor store salaries so out of line with other retail salaries? Is there some reason why these municipal ‘retail’ jobs should pay higher than retail norms,or is this again what I would call ‘institutionalizing’ of city department salaries?
I would also ask how these salaries would compare with professional and non-professional salaries at the Library?
A complete list of city employees’ 2010 compensation, including Norman’s numbers, can be found at Betsey Buckheit’s blog,
(I hope that url comes through OK.) As for the comparison Kiffi suggests, the total salary and benefits for the Director of the Library is $122,885.88 (i.e., about 12% of the library’s budget).
One thing that’s unclear (to me) is where in these numbers, if at all, the employer’s portion of Social Security is included. On wages of around $80,000, that’s around $5000. I would assume it’s in the “benefits” portion, but it would be nice to know for sure.
Thanks. A clarification–the figures Norm gives are both salary AND benefits–they still seem very, very high to me, but not quite as high as I first thought when he talked about what comparable downtown employees are “paid” (which to me implies just salary).
Interesting salary and compensation figures at Betsey’s blog! At first glance they seem generous, though we’re certainly no Bell, California.
Judging whether they’re “out of line” depends on an acknowledged standard of comparison, and some confidence that apples are being compared to apples. For instance, William S mentioned helpfully that Owatonna and Anoka, both larger cities, appear to have considerably smaller “administrative” budgets than ours. That’s striking and useful information, but it doesn’t quite clinch the case for getting out the long knives. I’d want to know, for instance, whether Owatonna and Anoka mean by “administration” what Northfield does — conceivably, they mean less (or more!). Comparing *total* city budgets, as opposed to categories or line items, could also be enlightening.
Perhaps this comparative information is hard to get, but if data on Betsey’s blog are public information here, as I suspect, then they’re probably public elsewhere, too.
Barry…I think that city employees are in the PARA system and I assume that the city part of that contribution is in the benefits.
Kathy…the wages AND the benefits are high in comparison to the private sector. In fact, it looks like about a third will qualify as ‘wealthy’ under Dayton’s increased income tax proposal. And not just those at the top, several assistants of one strip or another are doing real well too. Not to mention some of the not so wealthy: Library ‘clerks’ making 18 to 22 bucks an hour with benefit packages adding another 35 to 49%! I won’t belabor it. Suffice it to say that there are plenty of examples of very generous compensation on the list.
I’m not against a fair wage that is in line with the private sector. But that wage should take into consideration that 85% of those of us working outside the big rock candy mountain have no defined benefit pension plan, no real job security, and stress levels that just might be a bit higher than those found in the public sector. It’s time for public jobs to become only as desirable as similar private sector jobs.
You’re quite right, there is always the danger of making an apples and oranges comparison when talking about what people are paid. Most of us are well aware of what our wages are — we make note of it every April 15 — but many of us are oblivious to the total dollar amount our employers set aside on our behalf, including medical benefits, retirement account contributions, their share of Social Security, and undoubtedly other items that Norman or Ray Cox could probably list off the top of their heads.
There is another category of fruit that can be significant when comparing what an employee (either public or private) makes to what a business owner pays himself: The employee doesn’t own the business for which he works. One certainly hopes that Norman will reap a handsome profit if and when he sells the Contented Cow — he deserves it!
You may well be right that wages and benefits are relatively high here. But I’m not sure I get this:
Dayton’s “wealthy” families seem to those with *taxable* income of $150K, and I don’t see any employees on the spreadsheet likely to exceed this amount, unless, perhaps, you’re imputing income from a spouse.
Am I missing something?
If one of the purposes of having a local government is to provide jobs, wouldn’t we be better off having three Spanish Interpreters for the price of one Community Development Director?
Better yet, if we’re trying to create jobs, maybe one Spanish Interpreter, one Chinese Interpreter, and one Hindi Interpreter.
Ross- If you are saying that the purpose of the local government is NOT to provide jobs, then I agree. It does seem strange, though, that the government, and president specifically, seems to be the target of the nations’ angst in the rising unemployment rate. Just how much effect can 535 people have on the welfare of the total population? Quite a bit, it seems we are finding out. In this day of instant communications and effects of decisions, the government processes associated with them can seem pretty sluggish.
Norm- You gave a very good example of subsidized business income. Does anyone really believe the city sells enough libations at this location to support the $168,000+ salaries you mention, plus the medical coverage, plus the “other” part of the SS $’s? And, I have no idea whether the city contributes to a retirement account. I know my employer had to completely cut his contributions to my account a few years ago. All my life, I never really wanted to own a business, just because of all the headaches, costs and highly volatile income levels. If I could have gotten into something like this deal, I might have changed my mind. But, as I said, this represents a subsidized business, not one that relies on buying customers coming in the door. In this present economy, it demonstrates my point that the private sector cannot, on the same level, absorb people cut from the public payroles. IMO (which isn’t worth much, but I express it anyway), it reminds me of a comment I heard from Francis Schaeffer 40 years ago. The greatest problem facing the world is the compassionate distribution of accumulated wealth.
As a matter of fact, John, you will find that this municipal liquor store sells enough “libations” to not only pay larger-than-normal-for-retail salaries, but contributes between 100 and 130K of excess profit to the City’s General Fund each year.
This is not a subsidized business , but a profit center for the City.
I’m not sure what the last part of your question means, but the answer to the first part is “yes”.
Revenues and expenses of the Northfield liquor store are matters of public record, and readily available at the city’s website. In 2009, according to the city, the store sold about $2.8 million worth of booze, and made about $152,000 profit after operating expenses, which I assume include salaries, benefits, etc.
I have no idea whether this makes the liquor store a good or bad investment for the city, compared to other possibilities. And perhaps there’s a discussion to be had about pros and cons of any city, anywhere, running stores at all, for booze or for anything else.
Meanwhile, Northfield’s liquor store seems to be paying its own way.
Kiffi/Paul…Yes…Agreed. I got that wrong by figuring Dayton would up the taxes for individuals making half of the much publicized joint income level of 150,000. Not so. It kicks in at 130k for individuals. I don’t get the rationale there but nonetheless that’s Dayton’s proposal and I should have looked it up before making that comment.
Paul…The ‘administrative’ costs referenced are for the services found in Northfield’s budget categories of City Administrator, Human Resources, City Clerk, and Finance, as well as those in the ‘legal services’ category from the other cities since the majority of Northfield’s legal bills are paid out of the city administrator’s budget. To be fair, administrative costs do see additional cuts in the most recent budget proposal. Not to an extent necessary to get them in line with other cities, but a step in the right direction.
City jobs have become the most desirable jobs available for the kind of work involved. Wages and benefits are comparable, if not better, than the most sought after private sector jobs, while the work environment is less competitive and less stressful.
In today’s Star Tribune, on the Opinion Exchange page, there is a piece by New York Times columnist David Brooks title “Sorry, that money is unavailable”. I couldn’t find it on either website, otherwise I would have provided a link.
The dramatic quote is “Nationally, state and local worker earn, on average, $14 more per hour in wages and benefits than do those in the private sector”. I have not done research to either support or refute that statement, however, there are a number of equally powerful statements in the piece that relate to some of the discussion on this thread.
Here’s the link:
Brooks’s main point is that governments have become so burdened with pension and other personnel-related obligations that money can’t be found for other important purposes, like infrastructure (a tunnel from Jersey to NY is the proximate problem) and schools.
William, do you happen to recall, from your research, whether the income/expense for the liquor store which Paul cites in 25.2.2 above reflect the retail salaries?
It wouldn’t surprise me if those salaries were in some other part of the City budget, rather than being included in the liquor store “department”. ‘Twould be good to know either way.
10.12 Council snippet: The revised proposed budget now stands a $9,853,803. This is a reduction of just under 160K, which is presumably the approximate amount of the two jobs eliminated as of October 1, i.e. the city planner and an administrative assistant. So this new amount reflects the changes associated with the reorganization plan.
It is interesting to explore the ramifications of the $$ shifts from fund to fund; some examples: 125K from the Park fund, 84K from the City Facilities fund , and 100 K from the transportation fund, all those going to the General Fund.
This means Park projects are limited to the balance of their reserves, and remodeling of city facilities and transportation studies will have to be funded from the General Fund budget, find “alternate financing” or not happen.
But if residents value infrastructure and service, then cutting the Park funds diminishes both of those areas.
Are parks part of the city’s infrastructure that can stand still for a while? Probably… but it is a service cut.
The costs of the proposed remodeling of City Hall to accommodate the reorganization plan has now crept up from its initial estimate of 90 K to 150K and financing will be from the Cable TV fund, which has been running an excess.
Also funded from the Cable TV fund will be the IT upgrades to City Hall, providing better internal and external communications.
*** I’m not exactly sure how to think about shifting $$ from specific funds to the General Fund, and the ramifications of ‘beefing up’ the GF in that manner; help me out here, William …***
Kiffi & Paul- Thanks for the figures on the liquor store. I didn’t think about them being available, so I take time to look them up. Since there is a profit from this business, Is there anything else the city provides that returns revenue into the coffers? I admit that my view of governments in general, be they local, state or federal, is that their only source of revenue is taxes. Two questions come to mind on this- is there that much mark-up on liquor? and do we have an unrecognized drinking problem in town?
I have only looked at the expense side of the General Fund numbers. Expenses for the liquor do not seem to be in those numbers.
A quick look at the financial report for 2009 show the liquor store category with revenues of 2,787,000 and expenses of 2,635,000. The salaries must be in that expense number. The expense number should also include charges from the city for support services like HR, payroll, compliance, insurance, etc., but I did not look closely enough to see if that was the case. Rent should also be in there. Property tax?
If all expenses are fairly allocated then net cash flow in 2009 was a little over 5%. Do munis pay state and federal income tax? In any case, I guess there could be a conversation about if a 5% return is considered adequate for the asset.
William: I still need help from you on my question in #29; are you outside luxuriating in these beautiful colors?
I noticed something I found a bit odd in the budget docs from the 10.12 Council meeting; its on page 36 of Section II of the provided packet budget info (This is the budget info for the Library, starting on p.34) and that is: “Employees absorbed increase health insurance costs”…
I must admit to being astounded by this; maybe I missed it, but I don’t recall seeing this anywhere else, in other departments.
***Is this a city wide policy for all employees, and if not, why did this happen at the library?
Is it just that I am reinforced in my opinion of the general ‘saintliness’ of the Library Director and her Staff?
Was it a self-determination to fight off further cuts to the (IMO) most efficiently run department of the city?
Here’s the summary of the “RECENT YEARS’ BUDGET CHANGES;
. Cut back and then terminated regular bookmobile service
. Cut 8 hours from the library’s schedule of open hours
. Pay freezes for all staff, and furloughs for full-time employees; cuts in number of part time employees
and substitutes, and decreased hours for other part-time employees
. Employees absorbed increase health insurance costs
. Greatly reduced budget for materials (2007 = $113,000; 2011 = $80,000) Library Gift funds have been
tapped to supplement city budget dollars.
. Replacement schedule of computers was extended, and other technology upgrades postponed.
I think it is clear from the above changes outlined , that the Library, and its employees, have taken extraordinary steps to further a reduced city budget… and remember these are all SERVICE cuts to the community, and that community is LARGE: 20,633 registered card holders, last year checking out 403,578 pieces of library material.
That’s why I get so irritated 🙁 when City staff and councilors say “we are going to have to initiate service cuts”… The above summary of recent budget cuts at the library make it clear that there have already been large cuts in service to the community, as well as to those employees’ wages and benefits.
So, I have to ask again : Has it been a policy in ALL City departments that “employees absorbed increase health insurance costs” ???
I fail to see why these various city owned and run organizations such as the liquor store, the hospital, the library, the separate schools, city hall itself, do not have accounts that are readily accessible (online), regularly compiled (monthly, quarterly, yearly) standard format (Income, Expenditure) and condensed to one page for each organization and condensed again to one page for the City as a whole. Why the complication? Why the need for extensive research and even long-winded ‘requests for release of public information’? Wherefore the mystery?
We have a Charter Commission and and an EDA etc. Why not a Finance Committee which can do this work, compile this data, monitor and even contribute significantly to the management the performance and productivity of these city-owned, for-profit and not-for-profit businesses and organizations? Can we not hold these organizations in the private sector to the same standards of performance and accountability as the private sector?
Kiffi: I haven’t looked at the fund switching aspect of the budget. What else to do with the cable fund excess than move it to other projects? If it is running such a big excess maybe those dollars should be returned to cable subscribers.
William: I think the cable fund is a bit of a different ‘animal’, but moving money out of parks, city facilities and transportation funds seems a bit too much juggling, unless it’s just to temporarily beef up the General Fund which would have to get revenues from property taxes, and therefor draw a higher levy increase…
Update from last night’s LWV candidate forum: I believe one of the reasons this whole thread got started was because one of the candidates at the Chamber’s forum said the city had made 1.3million$$ of budget cuts…
Councilor Pownell repeated that number in last night’s forum.
I wanted to ask since what date, jobs by attrition or elimination, etc., etc.,etc.
Although I am a staunch supporter of the LWV,of which I am a long time general member, a previous multi-year board member, and an active LWV observer of the City Council… I do not think the structure of the LWV forums is the most conducive to good solid information. Without a follow-up question process, or challenges by other candidates being allowed, a ‘fact’ (1.3mil of budget cuts) like that just thrown out there is allowed to stand without explanation.
When budgets are such a major portion of the concern, and attitudes taken about the presentation of fact may be so influential, it is important that the information presented can be explained, put in context, or verified.
William, in #27 your note:
“City jobs have become the most desirable jobs available for the kind of work involved. Wages and benefits are comparable, if not better, than the most sought after private sector jobs, while the work environment is less competitive and less stressful.”
Actually, the reports I’ve been seeing from just about every state show that state and local government jobs have now far outstripped the private sector in compensation. In Northfield Councilor Buckheit posted the wage scale sheets for all city employees. It is mind boggling to look at what is being paid compared to equal private sctor work. At some point things are going to boil over and hopefully a correction will be made. We are on an unsustainable course right now.
What’s lacking here is any actual comparison. Ray, what reports have you been seeing? If they are available online, please provide a link. In the meantime, I suggest taking a look at
I saw that study a couple of weeks ago. It reminded me of this. 🙂
Tracy, in addition to the classic “How to Lie with Statistics” there are some more recent, excellent books on the subject by Joel Best, including “Stat-spotting : a field guide to identifying dubious data,” which is available at the Carleton College Library. But do you have any reason to believe that the author of the report I linked to is lying? Just because you *can* lie with statistics doesn’t mean that everyone *does* lie when they use statistics. That why Darrell Huff wrote his little classic as a “how to” book.
Barry….I know people can make statics say most anything most of the time. What I focus on is total cost….not only hourly wages, not only health insurance, not only pensions, but the total complete compensation package. That typically includes values for all vacation days, personal days, and everything else that is a cost.
There are some reports such as:
And this one that has some good graphs
There seem to be more reports coming out every day that support the growing increases in public employee compensation compared to private jobs.
I think the Northfield News should print the compensation figures from Ms. Buckheit’s blog.
It certainly wouldn’t be unprecedented. Federal government salaries are freely available online, and I remember both the Tucson and Albuquerque papers doing annual reports of the top earners at the city and county levels (usually those making over 100K).
I second the idea of having the NNews shine a little light on these salaries….
I may be wrong, but I believe there is a MN statute which requires the publishing of city salaries once a year… just don’t have time to wade through the statutes right now…
But if that is correct, then one should be able to find this info on the city’s website.
Could this be it?
Minnesota Statutes 471.701. Salary Data
A city of county with a population of more than 15,000 must annually notify its residents of the positions and base salaries of its three highest-paid employees. This notice may be provided on the home page of the primary Web site maintained by the political subdivision for a period of not less than 90 consecutive days, in a publication of the political subdivision that is distributed to all residents in the political subdivision, or as part of the annual notice of proposed property taxes prepared under section 275.965
Yes..I think that’s it, Phil. Thanks.
Now the question is: Has Northfield complied with this statute?
The city should comply, and perhaps it has. But beyond just the three highest paying jobs, the total compensation (not just base salary) of all positions, and the number of those positions, should be available to citizens. Ms Buckheit has done a service by putting such a list on her blog, the NEWS could provide the same service to a wider audience by publishing it in the paper and putting it on their website.
Maybe my brain isn’t firing on all six this morning, but what would we hope to achieve by publishing ever city salary? Would that actually serve the taxpayer in some particular way, or is it just food for gossip? By the way, I say that as someone who knows where to find the info on what he made last year online!
Phil: Maybe the citizens of Northfield are aware of compensation, maybe not. I don’t know who the people are, nor do I care. I’m interested in the cost of compensation for the positions and how many people are in the departments. I think the cost of government is, or should be, of interest to citizens.
I think, for example, that people would be interested to know that library clerks make $63,000 dollars a year or that the HR director (with a total of 1.5 employees supervised) made $123,000. Or even that clerks at the liquor store make between $16 and $20 an hour. Maybe folks will think they are overpaid, maybe underpaid…who knows. Maybe the compensation is commensurate with private employers in town. Perhaps the News story could look into that as well.
In any case I think it is of interest to citizens.
Ah, let me make sure I hear you right. What you are interested in is knowing that a generic Northfield police patrolman, for example, makes an annual salary of x, and an average in annual overtime of y, and other compensation and benefits in the amount of z. You’re not necesarily interested in knowing how much Joe Bag O’Donuts makes a year…is that about right? That doesn’t sound unreasonable to me.
You must have a lot more faith in the local paper doing a thorough job at looking at public employee compensation than I do. Nothing against the paper, but if the WSJ, USAToday, and other major papers have done nothing but regurgitate data provided by people like Cato and Heritage without looking into the validity of their data, why should I expect any better from folks with a much smaller budget?
to both Phil and WM: I think the point of knowing the salary information is that in the discussion of budget cuts that the city MUST undertake, the City Council did not ever broach the subject of cuts to the most highly salaried staff,or indeed any staff salaries as comps to other cities, and therefor it becomes a WHY?
Over the summer, in the necessity of being at the Council meetings as a League of Women Voters’ observer, I often wanted to ask that question. But it is difficult to be in the position of a unbiased observer, and then asking a question which some will label as having a bias.
Since the biggest percentage of the General Fund budget (About 70%) is personnel costs, salaries are obviously a primo issue.
One of the biggest questions raised by observing the Council, is the role of the relationship between the Council and the City Staff ; it simply does NOT parallel the role of any other employer-employee relationship.
Should it? and if so, Why?
Kiffi, I agree that knowing why the council didn’t discuss cuts to salaries is important, particularly in light of what percentage of the general fund is taken up by personnel costs. What I don’t understand is how publishing salary information is going to force the council to explain themselves. Then again, I’m not exactly a font of knowledge when it comes to how local government functions.
Ah, Phil… even “a font of knowledge ” would not necessarily explain how the City Council functions…
Most of them good people, just maybe with authoritarian ideas that go in the wrong direction, IMO.
I suppose the idea of the LGU having to publish the salaries is to keep everyone informed, so that the people… citizens … paying those salaries through their tax payments, can question the council or gov’t unit about the amount/value of those salaries.
There are times when the Council acts as if they have more allegiance to their hired staff than they do to their taxpayers. Councilors have been reminded by the Mayor, in meetings, that if they wish to question staff, it should not be in the public meeting.
And at a recent work session, Councilor Denison who had been watching at home, walked in to the meeting with his hand raised to enter the conversation, and immediately turned to the mayor and asked her to do a better job of running the meeting; he objected to one councilor who he said had interrupted another.
As I said: they’re just people… people with the heavy burden of responsibility to function for the common good of their taxpayers, and their taxpayers’ city… AND Do the Math …AND try to balance the budget.
David Brooks’ previously mentioned NYT column “The Paralysis of the State” has a link to Daniel DiSalvo’s piece in the recent issue of “National Affairs”, in which he claims that “state and local workers earn on average $14 more per hour in wages and benefits than their private sector counterparts”: http://www.nationalaffairs.com/publications/detail/the-trouble-with-public-sector-unions
Both Brooks and DiSalvo seem to argue that the rapid rise of compensation packages of state and local government workers is attributable to the fact that government workers have a monopoly on their services and therefore are protected from price competition.
And here are some reports that take a different view regarding state and local employee compensation:
The Center for State and Local Government Excellence is funded by the International City/County Management Association. Is it surprising that they don’t think City Middle Managers are over paid?
You question analysis done by the Cato Institute, I’m skeptical of analysis done by the City Management Association. Perhaps we should “shop local” for our analysis.
Last time I checked (at least according to information provided by the MHFA), the median household income for Rice County was about $69,000. That’s based on the assumption of more than one income…so you can do the math on how City of Northfield middle management salaries compare with the median incomes for Rice County.
The Northfield News used to do an annual analysis of local salaries titled “What People Earn: Local Edition”. It was typically done in April, and ran in ’07, ’08, and ’09. Next time I see you in person, I can tell you what I heard about the decision not to run it in ’10.
I don’t have the information from ’07. However, I do have the information from ’08 and ’09 and, thanks to Councilor Buckheit, we have the information from ’10. This would be the period increasingly known as “The Great Recession”.
I will share the year-to-year changes in base salaries (benefits not included) during these three years for a half dozen of the managers in the “General Government” category. It should be noted that we started this period with Al Roder and ended with Joel Walinski.
The City Administrator went from $111,932 to $105,683 to $108,085.
The Comm. Dev. Dir. went from $99,394 to $102,378 to $102,378.
The Finance Dir. went from $95,420 to $98,282 to $100,329.
The H. R. Dir. went from $91,773 to $94,528 to $94,528.
The I. T. Dir. went from $88,102 to $92,635 to $92,635.
The E. D. Dir. went from $70,688 to $78,878 to $83,183.
As you suggest, we will let folks decide for themselves whether they think we are overpaying or underpaying City Staff. After the coming City Council election, perhaps our leaders will decide whether or not they believe this level of compensation is sustainable.
I started this thread, or wrote the post, in hopes that citizens would evaluate the Council’s budget-balancing efforts by comparing the dramatic public statements with the more modest actions actually taken.
Reflecting the modest actions, the General Fund Expenditures have changed modestly from year to year as follows:
2007 $10.2 million
2008 $10.7 million
2009 $10.4 million
2010 $10.5 million (budget)
Personally, I have found a few hundred thousands of dollars in changes, not $1.5 million. This is because instead of the public claims of cutting 10% of staff (or 10 positions) each year, it seems more like 2 to 3 percent or positions, some of which were outsourced, empty, or only temporary positions.
Walinski’s much-heralded Reorganization Plan was essentially to offer the Community Development Director $160,000 to retire early and then reduce the General Fund Expenditures by his annual compensation. After three years of The Great Recession, and declining LGA payments, apparently that’s the best he could do.
Oh, he also proposed raising three department heads to division heads, creating a new layer of management in the local government’s structure. He did note that you wouldn’t have to give them raises commensurate with their new responsibilities.
Our leaders seemed satisfied with this level of action. With a plan that was described as one-third cuts, one-third tax increases, and one-third new sources of income, General Fund Expenditures for 2011 were projected to be $10.4 million.
Then Walinski took a pay cut and headed for greener pastures in Leavenworth. Interim City Administrator Madigan, after about a month on the job, cut deeper in his plan, eliminating the City Planner, the Administrator’s Administrative Assistant, and replacing the departing I. T. Director (who was also taking a pay cut for greener pastures) with a technical support person for a much lower salary, reducing projected General Fund Expenditures for 2001 to $10.2 million.
It’s pretty early to judge the performance of the Interim City Administrator. However, based on the General Fund Expenditures, I think you could say that he has done about as much in one month as has been done over the past four years. Expenditures are projected to be back down to where they were in 2007.
Each citizen can decide whether they think taxes should be increased, decreased or maintained at current levels. Each citizen can decide whether they think staff salaries are too high, too low, or just right. Each citizen can decide whether a service is essential, unnecessary, or merely desirable. The point of my piece is that once they make their own decisions, they should then judge our leaders not by their statements, but by their actions.
Yeah… I know why you wrote this post: I think that’s obvious from the first two paragraphs in my comment # 32…
But you see, Ross, it is quite obvious that the general NF public either doesn’t agree, or does agree, but doesn’t think it’s nice, or safe, or ??? to speak out… or just doesn’t know enough to care… or maybe just doesn’t care.
It is quite obvious to me at this point that some council factions are playing personality/who’s got the voting bloc/who wins politics at this point, rather than having the actual budget concerns front and center… for all the points you have so succinctly made.
And then there’s the issue of this survey; how can it be effective when so many people don’t have land lines, screen all their calls if they do, and won’t spend the time answering a survey of that length.
Maybe a better way would be to ID the random selection households, mail them surveys ( I page added to the water bill mailing) with a larger sample number to compensate for the ratio of non-return. Much smaller cost, presumably; better result for giving people time to think about their priorities rather than asking them ‘off the top of their head’ in a mostly un-appreciated lengthy phone call.
Thanks; I’m always glad to see numbers. But sometimes they whet one’s appetite for more … numbers.
What I’d like to see here are numbers that could suggest, either way, whether these Northfield salaries are higher, lower, or comparable to those in comparable towns.
True, no two towns are completely alike … yada yada. And “comparable” doesn’t necessarily mean “correct”, let alone “affordable.” But some context would be better than none.
Paul, I think the more important question is ‘how do these salaries compare to the actual job?’ In other words, if you have a liquor store manager for a city like Northfield that makes $100,000 compensation package, and you have a private liquor stoe manager in the same city that makes a total compensation package of $75,000….is one too high or one too low?
Many of our city jobs are directly comparable to the private world. Compensation should not be greatly behind or greatly ahead simply because you are working for a city, county or state government. Unfortunately, things have become very out of whack lately between public and private compensation for a number of reasons.
If you can get your hands on the latest Twin Cities Business magazine read the article on Minnesota’s pension ‘bomb’. Now that is a scary article. It highlights the terrible shape pension plans are in, brings notice to the illegal activities that were going on, and highlights some ways to fix the problems.
Sure, let’s compare to private sector equivalents when such equivalents exist. Are such numbers available? In particular, are the $100K and $75K you mention real numbers, or hypothetical?
I haven’t seen the Twin Cities Business magazine, but have seen scary articles elsewhere about actuarially unsound pension funds. And I suspect we’re all against illegal activities. Has that been a big problem here?
Paul: Getting those comparisons might not be difficult for a news organization to accomplish. They could talk to the owners of Firehouse Liquor for example. Or to a local corporation with about 80 employees and ask about HR costs. Or a local construction company for the compensation of equipment operators. Maybe they don’t give exact numbers, but a yes or no on the question of comparability. Could they find out what entry level library clerks make at St. Olaf? That doesn’t seem like it would be much of a challenge to an investigative reporter.
Once again, I don’t know (for sure) if city compensation is competitive with private enterprise or not. But none of us will know if the paper continues to avoid the story.
Of course this would be a fairly easy story for the MNFNews to do, but I don’t think they will… and for this reason…
If the News were to do a story on the comparative salaries , it would trash their endorsed candidate for council, the incumbent, who is always very supportive of the staff POV.
One only has to read the News’s reasons for the endorsement of Councilor Pownell to understand the lack of actual analysis by the News; i.e. Ms Pownell has consistently pushed, both at the EDA and the Council level, for the onward march to development of the Greenvale Business Park. Even at the last Master Plan steering committee meeting ,she was for no hesitation in the marketing of that undeveloped acreage, willing to start spending city dollars for that purpose. ( How do you market undeveloped acreage with no infrastructure?) But the News cites her hesitation on spending $$ on the BizPk as a reason for their endorsement.
So Wiliam, although you are correct that the News could easily do the job/salary comparisons, I think you are also correct that they will continue to avoid this story.
Paul, you can get the city salaries on Betsey Buckheit’s website…or at least the chart was there. They list all city compensations for union and non-union positions.
Getting information from the private sector is always a bit harder, but if someone like the Northfield News were to do an indepth story on comparisons then I think it could accurately be obtained. I’m sure there are other sources were you can get reasonably accurate information, but it can be harder.
As far as illegal actions being taken by pensions boards, the ones I referred to are technically only illegal now that they have been caught and clarified by the courts. What they were doing is figuring an 8.5% average return on money in the fund. Then during the ‘go-go’ years of the 1990’s when funds were earning 15-20% they decided—-on their own—-to take the excess earnings and distribute it to the retirees in the form of what they called “a 13th check”. They essentially subverted the entire concept of ‘average’ rate of return and decided to confiscate any money above 8.5% for current retiree use only. Now, when we have dismal earnings this has come home to roost in a big way. Mayor RT Rybak brought this issue up to the pension board many times, gave them ample time to address it and restore the misappropriated funds—but he was ignored. It went to court and the courts sided with Minneapolis and have ordered the pension board to implement a plan to repay the funds. The big question now is how are they going to do that? They can send a bill to each retiree that has benefited improperly. Or I suppose they can reduce all future benefits in some manner that the court approves to restore the funds. Or they may try to get the legislature to give the fund a lump sum to use to restore the missing funds. But regardless, this was a terrible thing that took place using public funds. I say terrible because it shows the callous way the taxpayers are thought of in this instance.
Yes, I saw the Northfield city numbers; see 25.1.4, where I said that at least some of these numbers seem pretty generous — at first glance. To get beyond that first glance, however, it’s essential that some other numbers be obtained, one way or another, for comparison.
If (i) the Northfield News wants to do such research; and (ii) could do it thoroughly and well, that would be great. Can we expect these things?
You are absolutely right to note the egregious mismanagement of public sector pension funds, but to conclude that this shows “callous” disregard for taxpayers is a stretch. Better examples of callous disregard for taxpayers is the way the private sector has systematically transferred risk and debt to the public through federal disaster insurance, federal insurance for the nuclear power industry, and, to your point about pensions, federal insurance for failed private sector pension funds. Over the past 30+ years, the Pension Benefit Guarantee Corporation has absorbed the un-funded or under-funded pension obligations of thousands of companies, at an annual cost of billions of dollars. In theory, these failed pension fund obligations are to be covered by insurance premiums paid by companies whose pension programs are insured by PBGC. In reality, most of the failed pension plans are transferred to PBGC in bankruptcies, LBOs or other changes in corporate ownership in which the new owners are able to take the failed companies’ assets, while leaving pension liabilities to the public. The PBGC is actuarially run like the Social Security system, meaning that at the moment it still cash-flows, but the future obligations are far greater than the underlying assets.
In each of these cases, the “free” market has priced the risks so expensively that people wouldn’t be able to continue to build in flood plains, companies wouldn’t build nuclear power plants, and retirees’ pensions would disappear without a government willing to accept and subsidize the risks. Meanwhile, the profits from these ventures continue to accrue to the private sector.
So, before you continue bashing the public sector, please at least acknowledge that a big part of the hole we’re in is due to the wholesale transfer of public funds to cover the risks incurred by the private sector.
I cannot speak with empirical proof on the poor management of pension funds, either public or private… but Randy brings up a great basic theme of lack of responsibility from the private sector, and the government not taking steps to hold the private sector to its obligations.
When corporations are granted virtual ‘personhood’ , as opposed to business that must be accountable to all levels of the law, the door has been opened for all kinds of mischief; ‘mischief’ that will always fall disproportionately on the smallest segment of that picture, the individuals of the public who are impacted in one way or another by the actions of the corporation.
Thank you, Randy, for identifying a very troubling theme in the relationship between the public and private sectors… and ‘boo’ to the Supreme Court on this one!
The PBGC deserves some bashing also. Ray’s analysis holds true whether it is public or private funds. The government can’t afford to fund the promises made by others.
Most of private industry has moved away from pension funds because of these huge unfunded obligations that are being created. It is going to take much more political courage to rein in the public pension funds.
David : You said: “The government can’t afford to fund the promises made by others”… depends what you mean by others, doesn’t it?
Do you mean the PBGC can’t afford to fund its own programs, put into place by previous gov’ts? or do you mean the PBGC can’t afford to fund, as a part of its current programming, the failed corporate pension funds which are transferred to it?
The PBGC cannot ‘afford’ to NOT fulfill its own programs, and the if the ‘gov’t’ is going to award ‘personhood’ to corporations, then they are going to have to hold those ‘persons’ accountable.
I generally agreed with Ray’s initial observation, and even with your point. There isn’t enough money in the system to provide for the overhang of benefits owed to public sector retirees, social security recipients, Medicare recipients, military retirees, etc. That a whole lot of people who have earned the benefits promised, even if our political leaders have failed to make the fiduciary decisions necessary to ensure permanent solvency of the various funds.
If there’s any dispute, it’s that covering promises made to public sector employees is very different than covering promises made by “others.” At least the former have served our collective interests. We can argue about whether public sector pensions and post-retirement benefits are too generous, but there should be no disputing that they were earned in public service.
The much more problematic issue is why the public should relieve the private sector of its obligations (for pensions or any other of the guarantees I listed). If we only worry about cleaning up the public sector’s mess with public funds, and leave the private sector to clean up after itself, we’ve cut our problems by a substantial amount. Do you or Ray have anything to say about that?
Randy, David, Kiffi, et al.,
This seems true on its face, and in the aggregate. But it may be useful to distinguish among these various actuarial obligations. Some appear to pose much more serious problems than others.
Social Security (SS), for instance, is often described as on the verge of bankruptcy; this is false. In fact, “incoming” SS money (from the payroll tax) now exceeds “outgoing” SS money (paid out to retirees), and this is projected to happen until around 2025. At present the accumulated “surplus” from SS payments is something like $2.5 trillion.
After 2025, largely for demographic reasons, the net SS flow will be negative from the nation’s perspective, and the accumulated “surplus” will be drawn down to zero sometime around between 2042 and 2052 (both numbers can be found in official government estimates). Even then, of course, some SS money will continue to flow in from payroll taxes — but not enough to fund SS benefits at current rates.
This whole scenario depends on long-term projections, of course, of which accuracy tends to diminish with length. Maybe some technological innovation or discovery in 2023 will make us all much richer. Or maybe our croplands will be destroyed by droughts or floods, and we’ll all be poorer.
Still, achieving plausible actuarial sustainability for SS seems feasible, though probably with some modest cuts in benefits or increases in contributions. TAANSTAAFL, as the Rand-ers (Ayn, not Paul) used to say.
Medicare looks set to be a bigger actuarial problem than SS. The degree to which “Obamacare” will help in this respect remains to be seen — quite naturally, given that Obamacare is just beginning to kick in. CBO projections I’ve seen are cautious, but it appears that we can expect more spending per capita on people *not* formerly covered by insurance and less spending per capita on people *already* covered than we’d have in the absence of Obamacare.
Not very surprising qualitatively, I’d say. The devil is always in the quantitative details. What seems clear is that, while neither party seems eager to make hard choices, the Republicans’ across-the-board tax aversion, if it prevails, will exacerbate actuarial problems. To me that seems as sure as death and, uh, taxes.
At the very least the people who got the ’13th month’ payment should pay it back. They received more than they were due.
I’m not clear on your opposition to PBGC. It takes no funds from general tax revenues, but is funded by insurance premiums paid by private pension plans. It is, as you say, cash flowing. The maximum yearly benefit is just over $50,000. For many management employees, pilots, doctors, etc. this is a small percentage of what they expected from their plans. For many steelworkers, truck drivers and factory laborers it pays the bills that keeps them off the street. I don’t think these workers are second class citizens. I don’t think they are less valuable than those in the public sector. And they are not responsible for the failure of their pension plans.
Whether or not PBGC was set up correctly with regard to the pension liabilities of descendent entities should perhaps be addressed. But it seems premature to let the private sector “clean up after itself” by eliminating a program that has helped tens of thousands of workers, and never cost the taxpayer a dime. This is different than flood insurance and insurance for nuclear plants which are subsidized, and subsidized for good reasons…but that’s another story.
Paul, Randy, et. al.,
I wouldn’t want nor expect the government to cover the unfunded (or poorly funded) pensions of private industry. Some of these pensions, negotiated in the private sector, were obviously unsustainable. Some management of the insurance monies is going to be necessary to ensure that companies don’t take advantage of each other or the government.
The public pensions are a different animal and much harder to tame because there are no internal controls, like insurance coverage, to say when enough is enough, or too much. To control costs, and to shift the risks, private industry has moved away from promises of future income to a system where the individual manages his or her own “pension” streams.
Now would be a good time to make that shift in the public sector. Pumping more and more revenue, especially through increased taxes, only delays the problem and makes the problem worse.
William, I really enjoyed this post. Obviously, I agree.
Randy, I agree with David L in that I do not think the government should be taking over poorly managed or poorly funded pension plans. But, I do believe the government should be responsible for seeing that private pension plans are at least being funded at the level that good actuarial work says they should be funded. When a corporation files its taxes that information is all there. It should be reviewed annually and clamps put on the corporation quickly if something is out of kilter. I also believe every single pension plan should be required to have performance bonds backing them….or insurance as some folks suggest. And as I noted earlier, I do not believe any corporation should be allowed to set a requirement that any employee pension funds be invested back in the corporation. These are all fairly simple things to do.
As far as things like flood insurance, much of that is completely unnecessary. During the 1920’s when auto traffic really cranked up there were many costal areas that could not be developed because private insurers would not price or offer insurance at reasonable rates. The government stepped in to promote development. Unfortunately, it worked and we see today many, many developments along our coasts that would not be there if private industry worked on its own. I say unfortunately because first, the development is often harmful to our coasts, and second, the development is smashed by weather events every few years, paid for by the government to rebuild, and then go through it over and over again.
Right now our country has two types of pension plans. Private industry mainly has defined contribution plans. The public sector still has defined benefit plans. Unfunded or poorly funded defined benefit plans are what is causing all the problems in our public pensions. Changes must be made….period.
Paul’s analysis of SS and Medicare are very accurate with one noteable exception. The ‘money’ SS has in its accountis in the form of IOU’s from the government. To spend the IOU’s the government will have to come up with the money. They can do that several ways. They can print more money as Obama has been doing with his spending plans. Or they can figure out a way to raise taxes and use those funds to make good on the IOU’s. Or, they can implement policies that generate a lot of business activity and jobs and use increased revenue. Or they can implement policies that implement massive inflation and meet obligations by inflated monetary levels. It is hard to know which method will be used.
I am not opposed to workers receiving the benefits they have earned in any circumstance. Exactly the opposite. I was simply challenging Ray’s focus on public sector pensions by pointing out that the PBGC exists to clean up the messes the private sector creates.
Many of the plans the PBGC takes over have been unfunded or underfunded at the corporate level. (Ray’s point in post 40 below that there need to be sufficient checks and balances on corporate funding of pension plans to ensure businesses honor their promises is a utopian dream I’d support.)
I first became aware of the PBGC many years ago when a company I held a few shares of stock went bankrupt. (This is actually the recurring storyline of my life as an investor, but that’s a different thread.) An opportunistic competitor was able to purchase only the assets of the failed firm, without the accompanying libabilities, for pennies on the dollar. Shareholders were wiped out (which is as it should be when you take the risk), lenders were nearly wiped out, and the pension obligations were transferred to the PBGC. The purchaser got a great deal, only because they were able to cherry pick the assets they acquired.
It was all completely legal, I am sure. But my point is that it should not have been. The corporate entity made promises — to workers in labor negotiations, to lenders in borrowing money, and to shareholders to manage the company responsibly. Instead the senior management was able to join the acquiring firm and continue their careers with bonuses, while all other parties took haircuts, and the tax-paying public became liable for the pensions.
You are correct that the PBGC has so far not drawn on general tax revenues, but the implied backing of the federal government is still there.
Randy, Ray, all,
I think we all agree that the government should not simply “take over” poorly managed private pension funds. Is any such thing contemplated? I doubt it.
The idea (if anyone holds it … not entirely clear from this discussion) that government backstopping of entities like the PBGC or the Federal Deposit Insurance Corporation or, for that matter, the Federal Reserve Bank, must be a Bad Thing strikes me as far-fetched. (Yes, the “Austrian” school of economics would probably oppose all these things.) What non-governmental alternative is there, practically speaking, to something like the PBGC?
If your point, Randy, is simply that the PBGC should be lawfully managed and risks accurately assessed, then I bet we all agree again. Maybe some adjustments need to be made; I have no idea. But let’s acknowledge the good news that so far no dipping into the public till has been needed.
Ray, thanks for your general approval of my SS and Medicare analysis. The “notable exception” you allude to is the SS trust fund. You’re certainly not alone in your skepticism about the value of government IOU’s; some people mention a Ponzi scheme. It’s certainly not Ponzi by any standard definition, but it’s still reasonable to wonder in general about solvency.
IMO concerns about the reality of this “fund” are overblown. For one thing, what alternative to government debt obligations would skeptics propose for the incoming “surplus”? A big money bin, a la Scrooge McDuck? If so, how would interest accrue? And what about the Beagle Boys?
I see no reason to panic about government debt obligations to the SS trust fund. It’s eminently possible, IMO, to meet SS obligations for the foreseeable future through some combination of not impossibly onerous changes on the tax, benefit, and eligibility sides. Doing what needs to be done will take some political courage and will, but we can (and will have to) do it.
We don’t need to panic, but there should be a sense of urgency regarding pension, Social Security, and Medicare obligations. The government is using the excess funds from these programs to fund general obligations.
Today is the day for political courage. But, I don’t see that happening.
For example, I am a member of the Minnesota Public Employees Retirement Association. During the flush years, it increased the benefits. Now that times are tough, and the retirment account is underfunded, it is asking that the government make a greater contribution to help it become fully funded.
The better solution would be for the Association to develop an actuarial model that makes the Association fully funded with the money that it has, and to develop a model that eventually doesn’t rely on any government funding.
Paul, David sums up my concern with IOU’s. When a government is using IOU’s to fund general operating costs, is it prepared to scale back all those things that were implemented with the IOU money when it comes time to pay the IOU? David is correct that it will take political courage to deal with these issues, and I agree that I don’t see it happening. All we seem to get from most political candidates is “we are short money and need more”. That can only work so long.
Yes indeed, the government has been profligate in using SS income to fund other activities.
Here’s a case where, as someone once said, let him that is without sin cast the first stone. IMO the Republicans deserve an extra pebble of opprobrium for braying against taxes and for tax cuts, especially for the wealthiest — even as actuarial deficits mount.
But indeed there’s blame to go around. I remember, for instance, the dispiriting rhetorical spectacle of Al Gore and George Bush competing in 2000 on how each would outdo the other in putting chains, locks, and hungry leopards around some fictional “Social Security lockbox”. It was absurd from the start, and not even the fiction survived September 11, 2001.
As you say, political candidates aren’t exactly stepping up to this plate. But the message that we are short of money and will need more just happens to be true.
I’m going to disagree.
The funds should be self-supporting. Moreover, pensions, Social Security, and Medicare need to be de-linked from general operating revenue and obligations.
For example, PERA takes in money from public employees for use in funding those same employees retirement accounts. If PERA makes inaccurate or overly optimistic projections and pays its retirees too much to remain fully funded, then the rest of the PERA people should make up the difference. Otherwise, the mismanagement gets rewarded.
What exactly are you disagreeing about?
I disagree that we are short of money and need more of it, at least for funds like public pensions.
I’m surprised that in this discussion of pension funds, no one has referenced this recent, and much publicized, report:
Here’s the “Executive Summary”:
Here’s the quote:
States have promised at least $2.73 trillion in pension, health care and other retirement benefits for public employees over the next three decades, according to a report released today by The Pew Charitable Trusts’ Center on the States. Promises with a Price, the first 50-state analysis of its kind, finds that states have saved enough to cover about 85 percent of their long-term pension costs, but only 3 percent of the funds needed for promised retiree health care and other non-pension benefits. All told, states already have set aside about $2 trillion to meet their long-term obligations. But they still need to come up with about $731 billion—a conservative figure that does not include all costs for teachers and local government employees.
I agree with David. When a pension fund is being managed for a group of people, the group should be totally responsible for actions and results. We can’t have situations where if there is mismanagement of a fund, the people involved in the fund simply turn to other people to ‘solve’ the problem. As David points out, ‘solving’ the problem always involves taking resources away from people and sending it to someone else….even if when the fund beneficiaries have already benefited more than they were entitled to.
I do give the state legisature some credit for trying to address some of our pension problems. They have put together plans to make problem plans solvent….at least for some years into the future. But, most of those plans do as noted above….require increased contributions from state taxpayers. Is that really fair to do?
These issues will go away if public pension plans are changed to defined contribution plans. That is a fair and balanced way to fund pension plans, and it generally creates accounts that are personal, portable and actuarially sound since there is no ‘promised check’ other than what your account supports.
David, Ray, et al.,
David says in 44.1.2:
Hard to know whether we really agree or disagree on a proposition so hedged with qualifiers(“at least”, “like”, …). If all David means is that some government pension obligations have been unwise, then we’re all on board.
More interesting to me is the big picture question: Is Minnesota government short of the money necessary to do the minimal package of things that you (or Ray, or I, or …) agree needs to be done?
If so, where should we get more money? If not, what program cuts do you recommend that could realistically make up the deficit?
I’m for extending sales taxes (a la Horner) and income taxes (a la Dayton) and probably some temporary surcharges, too. I’d also consider *lowering* business taxes (which in practice are often regressively “incident”, populist rhetoric notwithstanding).
What do you think, David? Ray? Others?
Looks like Dayton might have to agree to some kind of consumption tax given the makeup of the house and senate. Maybe in return he could get a modest income tax surcharge.
Paul, I have not taken a hard look at Minnesota’s budget since I was in the legislature….detailed budgets are boring and difficult to read. But you need to have people do it. I am confident that even in our current budget situation there is money that can be reduced. How much money? I don’t know without pouring over the budgets.
But I will say that in income surtax is the only real way to raise necessary funds in an economic downturn. If you put in other taxing/revenue measures they stay there and government gets bloated. A surtax as we’ve talked in other postings is totally progressive in that the rich pay more and the truly poor pay essentially nothing.
That is the larger question.
Prudence suggests that we should balance the budget with the money that we know that we have.
On a local level, that means no significant capital projects. Fix up the police station, build a servicable fire station, and forget about the library; focus on the immediate concerns without incurring additional future liabilities. On a state level, I don’t have enough information. On a national level, I would start with defense spending.
Only after we can balance the budget with what we have should we look to capture more revenue, and then it should focus on whether what we lost is worth restoring. To do that, I would tax all economic levels more, probably with a consumption-type tax. Tax the wealthy sounds nice but it doesn’t promote good public policy. If the middle class have to pay for the services they are demanding, the results will be better.
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