Wednesday, February 16, 2011

Governor Scott’s Real Budget Problem - Budgets and Bureaucrats

Florida’s projected 2012 budget deficit is about $100 million more than forecast in December, according to Amy Baker the State Legislature’s chief economist. That would put the deficit at about 3.6 billion dollars. The deficit is being driven by Medicaid costs, education costs and pension funds. County and local governments also face steep budget deficits in 2012. Governor Scott, Senate President Haridopolos and House Speaker Cannon seem to be converging on a series of solutions to cut costs. Governor Scott wants to lower property taxes, reduce or eliminate the corporate income tax and get employee participation in pension plans. The question is how do you do all of that.

As I set at the Inaugural Prayer Breakfast on inauguration day I looked around the room at probably 2000 attendees a many of whom were state, county and municipal employees. Those bureaucrats you hear so much about. It dawned on me that the real budget problems of state, county and local government probably reside right here with this group. Leaders like Governor Scott, Senate President Haridopolos, Speaker Cannon, County Administrators and Mayors all face the same issue. A bureaucracy has a real strong tendency to protect itself. Here are three examples that point out the problem.

The first is pothole budgeting. In this scenario, to reduce the budget, the bureaucrats lay off the guy or guys that actually fix the pot hole. The lowest paid people on the totem pole and also, by the way, usually the position where the government in question gets the smallest dollar benefit for the actual staff reduction. They don’t, in most cases, lay off the supervisor or the manager, or the assistant director, or the director. When people complain about the pot holes, the supervisor does not go fix the pot hole, nor do any of the managers or directors, they just keep collecting their salaries and blame budget cuts for deteriorating streets. Nobody in that chain wants to get rid of the person below him because THEY would actually have to do some real work. Governor Scott has a whole state bureaucracy full of this problem as does every county and municipal government of any substantial size.

In the private sector they solve this problem by expanding the span of control. Keep the workers and reduce the number of supervisors, and managers along with their aids, assistants and secretaries. With today’s technology, supervisors can manage a lot more people than they could even five years ago. There is a real good chance productivity will go up along with morale.

This same idea works in education. Take a look at the number of administrators, directors, program planners and other non-teaching jobs in the state and local education system. Spend some serious time reducing all of that overhead and less time fighting with the teacher’s union. It is time to stop letting middle management drive the train and paint the teachers and the teacher’s union as the problem while keeping all of these really cushy management jobs in place.

The second scenario is ballistic budget cuts. In this situation, under pressure to reduce cost, the middle level bureaucracy picks a program to cut that they know has a serious, dedicated constituency or even better a fanatical public following and recommend the whole program as a budget cut. Examples: Catastrophic cuts or elimination of social programs, entitlements, libraries, pools, public safety functions, arts or sports programs. These cuts are specifically designed to be headline makers, create fear and raise the ire of the public so the Governor, County Administrator or Mayor becomes an instant target. Never mind the fact that the program is probably loaded with excess baggage in terms of mangers, administrators, program directors or whatever and could be streamlined and probably maintained. The objective of the ballistic budget cut is to create a public furor that redirects the budget effort in an entirely different direction; and the ultimate goal is to position this particular area so it is completely off the budget cut radar. It happens every budget cycle and midlevel bureaucrats have become experts at orchestrating this type of budget scenario. Beware of the ballistic budget cut.

Then there is the whole issue of actual verses ceremonial budget cutting. Or the cut and shuffle. In an actual budget cut, the position is eliminated and person is removed from the payroll - gone. In government we have ceremonial budget cutting. We cut the position, usually with great fanfare, but miraculously the person is quietly shuffled to a new job often times with less responsibility but oddly enough at the same salary. Granted nobody likes to terminate people. Besides, if we really start that you might be next. The cut and shuffle process has got to stop if state, county and local budgets are going to get balanced.

Don’t buy all of those nodding heads and smiling faces in the budget meetings as you talk on and on about cutting the budget, programmed budgeting, doing more with less and those other budget cut clichés. The smiling, nodding bureaucrats are likely working up their cut list of pothole patchers or the next ballistic budget cut so they can teach you who really runs the show.

Tuesday, February 8, 2011

Is Big Oil Sabotaging the US Economic Recovery?

Just as it looks like the US is crawling out of the worst recession in years, oil prices, and as expected, gasoline prices have begun to rise dramatically. The question is why and there are a lot of answers from a lot of people. Thomas Friedman’s “law of Petropolitics” suggests that there is a negative correlation between the “price of oil and pace of freedom,” which “always move in opposite directions in oil-rich petrolist states.” In other words there is direct link in the evolution of freedom and the price of oil. There are a lot of opinions about Friedman’s theory, but if you correlate oil prices and the growth of democratic progress in the oil rich states there is an inverse correlation. As oil prices go up the opportunities for the development of democratic institutions in countries benefitting from increased oil revenues seem to decrease.
So the question is how that might relate to current conditions in the US. It is certainly true that the economic conditions of the last few years have garnered the attention of both political parties. Much of their efforts to resolve domestic economic issues continue to be akin to a mating dance of two large birds as they try to develop polices that will work and support their political objectives. All of this activity tends to pull the politicians away from the international scene and cause them to focus on domestic issues. You know, it’s the economy stupid.
Big oil, as we like to refer to it, is really nothing more than a distribution system for a product, crude oil, produced in the Mideast by many of the countries that dislike us the most. Big oil is a surrogate for these governments who produce crude oil and then use the enormous transfer of wealth caused by America’s demand for oil into revenue streams that, using Friedman’s theory of Petropolitics, restrict the development of freedom. With the US totally distracted by its own economic woes, these same countries have been able to continue to create crisis after crisis in the Mideast and elsewhere stretching US military resources to the breaking point and raising the fear level here at home while we are trying to resurrect a struggling economy.
With some pinging and testing, OPEC has discovered that they can quickly affect the rate of economic recovery in the US by merely adjusting crude oil prices. More accurately by increasing or restricting production. Their other big asset, the US commodities market, gives a big assist by manipulating crude oil futures prices in an often near panic as the oil rich puff and posture about oil production. The Mideast oil Barons have the US economy in the palm of their hands. In other words, using Big Oil, the Mideast crude oil producers can speed up or slow down the US economy almost at will.
Once again as the US economy begins to look positive, oil prices suddenly begin to rise. Market pundits and followers blame the Fed’s monetary policy saying oil is a commodity and merely adjusts its price to make up for diluted weaker dollar. Maybe, but what about this theory? If the US economy really did pick up steam and the public became less frightened and more positive, would the Obama administration be likely to turn more of their attention to international concerns and start putting more pressure on the Mideast regimes that are thwarting the freedom of their own people (Petropolitics) and threatening our security? It seems logical that a really strong US economy may not be in Big Oil’s best interest. Demand for gasoline and petroleum based products is remaining very strong in the US and so raising the price may slightly reduce unit sales but total revenues rise. Remember marginal returns from Econ 101?

Tuesday, January 25, 2011

Governor Scott’s Real Budget Problem - Budgets and Bureaucrats

By: Dr. E. Eugene Webb

Florida’s projected 2012 budget deficit is about $100 million more than forecast in December, according to Amy Baker the State Legislature’s chief economist. That would put the deficit at about 3.6 billion dollars. The deficit is being driven by Medicaid costs, education costs and pension funds. County and local governments also face steep budget deficits in 2012. Governor Scott, Senate President Haridopolos and House Speaker Cannon seem to be converging on a series of solutions to cut costs. Governor Scott wants to lower property taxes, reduce or eliminate the corporate income tax and get employee participation in pension plans. The question is how do you do all of that.

As I set at the Inaugural Prayer Breakfast on inauguration day I looked around the room at probably 2000 attendees a many of whom were state, county and municipal employees. Those bureaucrats you hear so much about. It dawned on me that the real budget problems of state, county and local government probably reside right here with this group. Leaders like Governor Scott, Senate President Haridopolos, Speaker Cannon, County Administrators and Mayors all face the same issue. A bureaucracy has a real strong tendency to protect itself. Here are three examples that point out the problem.

The first is pothole budgeting. In this scenario, to reduce the budget, the bureaucrats lay off the guy or guys that actually fix the pot hole. The lowest paid people on the totem pole and also, by the way, usually the position where the government in question gets the smallest dollar benefit for the actual staff reduction. They don’t, in most cases, lay off the supervisor or the manager, or the assistant director, or the director. When people complain about the pot holes, the supervisor does not go fix the pot hole, nor do any of the managers or directors, they just keep collecting their salaries and blame budget cuts for deteriorating streets. Nobody in that chain wants to get rid of the person below him because THEY would actually have to do some real work. Governor Scott has a whole state bureaucracy full of this problem as does every county and municipal government of any substantial size.

In the private sector they solve this problem by expanding the span of control. Keep the workers and reduce the number of supervisors, and managers along with their aids, assistants and secretaries. With today’s technology, supervisors can manage a lot more people than they could even five years ago. There is a real good chance productivity will go up along with morale.

This same idea works in education. Take a look at the number of administrators, directors, program planners and other non-teaching jobs in the state and local education system. Spend some serious time reducing all of that overhead and less time fighting with the teacher’s union. It is time to stop letting middle management drive the train and paint the teachers and the teacher’s union as the problem while keeping all of these really cushy management jobs in place.

The second scenario is ballistic budget cuts. In this situation, under pressure to reduce cost, the middle level bureaucracy picks a program to cut that they know has a serious, dedicated constituency or even better a fanatical public following and recommend the whole program as a budget cut. Examples: Catastrophic cuts or elimination of social programs, entitlements, libraries, pools, public safety functions, arts or sports programs. These cuts are specifically designed to be headline makers, create fear and raise the ire of the public so the Governor, County Administrator or Mayor becomes an instant target. Never mind the fact that the program is probably loaded with excess baggage in terms of mangers, administrators, program directors or whatever and could be streamlined and probably maintained. The objective of the ballistic budget cut is to create a public furor that redirects the budget effort in an entirely different direction; and the ultimate goal is to position this particular area so it is completely off the budget cut radar. It happens every budget cycle and midlevel bureaucrats have become experts at orchestrating this type of budget scenario. Beware of the ballistic budget cut.

Then there is the whole issue of actual verses ceremonial budget cutting. Or the cut and shuffle. In an actual budget cut, the position is eliminated and person is removed from the payroll - gone. In government we have ceremonial budget cutting. We cut the position, usually with great fanfare, but miraculously the person is quietly shuffled to a new job often times with less responsibility but oddly enough at the same salary. Granted nobody likes to terminate people. Besides, if we really start that you might be next. The cut and shuffle process has got to stop if state, county and local budgets are going to get balanced.

A suggestion to Governor Scott, President Haridopolos and Speaker Cannon, as you are working the budget issue get out of the office and the Chamber and walk around a little. Maybe even travel around the state to some of those out of the way state facilities that are crawling with midlevel bureaucrats. Look in all of those offices at all of those people sitting there and begin to ask some questions like what do these actually people do? Get some organizational charts with job descriptions. It should be a real eye opening experience. Same holds true for County Administrators and Mayors.

Don’t buy all of those nodding heads and smiling faces in the budget meetings as you talk on and on about cutting the budget, programmed budgeting, doing more with less and those other budget cut clichés. The smiling, nodding bureaucrats are likely working up their cut list of pothole patchers or the next ballistic budget cut so they can teach you who really runs the show.

Doc