Category Archives: Government workers and pensions

How Not to Run a City

Will somebody please help this city?

Will somebody please help this city?

The bad news just keeps getting worse for the City of Richmond: An audit released yesterday of 98,000 transactions valued at $2 billion found significant delays to vendors, insufficient and inconsistent documentation and unrecorded wire transfers, the Richmond Times-Dispatch reports. That report was presented alongside a second report, an assessment of Richmond’s fiscal sustainability that found that the city collects and spends 1 1/2 times the revenue per capita of benchmark localities.

“I look at it and say, ‘My gosh, we have a lot of inefficiencies here,’” said Ramon Brinkman, a member of the audit committee. “What could you save by reducing some of the expenses and give a little money back to the taxpayer?”

Richmond is an awesome city. It has wonderful people, great neighborhoods, historical architecture, vibrant businesses, a rich history, a multitude of museums, theaters, art galleries and cultural institutions, and one of the most beautiful rivers in the country. But it has a wasteful and inefficient city government that taxes too much and delivers too little in the way of municipal services.

Part of the city’s financial woes can be attributed to a flawed implementation of an $18  million RAPIDS financial system in 2013, which, according to the city’s deputy chief administrative officer, still suffers from “severe system limitations.” Another problem is the extensive staff turnover, insufficient training and heavy reliance upon inexperienced temps in the accounts receivable office. Those maladies, it would seem, are a reflection of poor management. Of course, there has been high turnover in senior staff positions as well, prompted no doubt by the frustrations encountered with the dismal organizational culture. Thus, the serpent swallows its tail in a never-ending loop of dysfunction.

Richmond has so much potential, but it will never live up to that potential until the city administration gets its act together. What will it take to make that happen? A mayor who makes organizational reform the unremitting focus of his or her attention over all other priorities.

— JAB

FY 2016 Budget Outlook: Surprisingly Fragile

VRS_portfolio

Distribution of Virginia Retirement System portfolio, March 2015. Image credit: VRS.

The stock market correction has frightened the bejeebers out of investors large and small — and it ought to frighten the bejeebers out of state and local governments, too. As John Rubino, publisher of DollarCollapse.com, noted yesterday, falling stock prices will reduce the capital gains that have been fueling rising income tax revenues for state and federal governments. Writes Rubino:

A bear market-related sell-off in capital gains would cause a double crisis, cutting pension fund investment returns (and thus raising the level of underfunding) and cutting tax revenues, diminishing states’ ability to even keep up with their current pension funding schedule.

Progressive income tax rates are fun when asset prices are rising, as the Federal Reserve Board has engineered them to do with its near-zero rate interest policies: States reap an income tax bonanza in capital gains taxes. But they are a disaster when assets prices tumble and capital gains take a dive.

Virginia isn’t as vulnerable as some states, which rely more heavily upon income tax receipts. But the individual income tax is the largest single source of revenue for the General Fund. The commonwealth closed fiscal year 2015 in June with a $553 million surplus, which Governor Terry McAuliffe attributed mainly to a surge in individual income tax revenue, which increased 8.1%, ahead of the 4.7% forecast. Most of that increase came from people cashing in capital gains from the stock and bond markets, not from rising wages and salaries. With the stock selloff, a repeat of that performance is highly unlikely. Fortunately, the budget assumes only a modest increase in individual income taxes this year, so the exposure is modest.

Less visible is the Virginia Retirement System’s exposure to falling equity prices. As of March 31, 2015, 21.4% of the VRS investment portfolio consisted of domestic equities. Another 16.5% consisted of non-U.S. equities — it would be interesting to know how much of that was invested in China, whose stock market meltdown has been cataclysmic. Another 3.6% was in emerging market debt, which is looking shakier and shakier as developing-nation economies take a beating from falling commodity prices, while another 4.8% was held in unspecified “emerging markets” assets.

In 2014, the VRS generated a 15.7% return on its investment portfolio, driven mainly by strong performance in its equity investments — and far above the 7% annualized return the VRS is aiming for. Given the state of U.S. and global financing markets today, it will take a minor miracle to meet that 7% goal this year. Of course, that’s only one year. Stock prices go up, stock prices go down, then they go back up again.

But Virginia faces another round of sequestration-driven cuts to the federal government, and the state economy will struggle to grow. Given the fact that we’re in the sixth straight year of a national economic expansion, our economic and budgetary outlook is surprisingly fragile.

— JAB

The Ironies of Virginia’s Growing Diversity

Midlothian’s New Grand Mart taps state’s growing diversity

 By Peter Galuszka

Suddenly immigration is popping up as a major issue in Virginia and the nation.

Virginia Beach has been dubbed a “sanctuary city” for undocumented aliens by Fox News and conservative Websites. GOP presidential hopeful Donald Trump is scarfing up poll number hikes by calling Mexicans trying to enter the U.S. illegally “rapists” and proposing an expensive new wall project to block off the southern border. Pro-Confederate flag advocates are pushing back against anti-flag moves, but they can’t escape the reality they are conjuring up  old visions of white supremacy, not their version of respectable Southern “heritage.”

So, if you’d like to look at it, here’s a piece I wrote for The Washington Post in today’s newspaper. When I visited a new, international food store called New Grand Mart in Midlothian near Richmond, I was impressed by how large it was and how many people from diverse backgrounds were there.

Looking further, I found one study noting that Virginia is drawing new groups of higher-income residents of Asian and Hispanic descent. In the suburbs, African-Americans are doing well, too.

The Center for Opportunity Urbanism ranked 52 cities as offering the best opportunities for diverse groups. One might assume D.C. and Northern Virginia would rank well, and they do. More surprising was that Richmond and Virginia Beach rank in the top 10 in such areas as income and home ownership. True, mostly black inner city Richmond has a 26 percent poverty rate but it seems to be a different story elsewhere.

Stephen Farnsworth of the University of Mary Washington says that economic prosperity and jobs that had been concentrated in the D.C. area, much of it federal, has been spread elsewhere throughout the state. It may not be a coincidence that New Grand Mart was started in Northern Virginia by Korean-Americans who undertook research. It revealed that the Richmond area was a rich diversity market waiting to be tapped. They were impressed and expanded there.

Other areas that do well in the study are Atlanta, Raleigh, N.C. and ones in Texas, which show a trend of job creation in the South and Southwest outpacing economic centers in the Northeast, Midwest and in parts of the West. Another story in today’s Post shows that there are more mostly-black classrooms in Northern cities than in the South. The piece balances out the intense reevaluation of Southern history now underway. A lot of the bad stuff seems to have ended long ago, but somehow similar attitudes remain in cities like Detroit and New York.

This progress is indeed interesting since old-fashioned American xenophobia is rearing itself again.

In Virginia, the long-term political impact will be profound as newer groups prosper. They may not be as inclined as whites to embrace Virginia’s peculiar brand of exceptionalism, such as their emotional mythology of Robert E. Lee and Thomas Jefferson. Their interest in them might be more dispassionately historical.

And, as the numbers of wealthier people from diverse backgrounds grow, they may be less willing to keep their heads down when faced with immigrant bashing. That’s what people of Hispanic descent did in 2007 and 2008 when Prince Williams County went through an ugly phase of crackdowns on supposed illegals. They could strike back with their own political campaigns.

Whether they will be blue or red remains to be seen. It’s not a given that they’d be Democratic-leaning. Farnsworth notes, however, that as more diverse people move to metropolitan suburbs, whites in more rural, lower-income places may become more reactionary out of fear. Hard-working and better-educated newcomers might be out-classing them in job hunts, so they might vote for politicians warning of a yellow or brown peril.

In any case, New Grand Mart presages a very crucial and positive trend in Virginia. It shows the irony of the hard right echo chamber peddling stories designed to inflame hatred and racism, such as the one about Virginia Beach being a “sanctuary” for illegals. In fact, the city is attracting exactly the  well-educated and hard-working newcomers of diverse backgrounds upon whom it can rest its future.

But we’re in an age of bloated billionaires with helmet hairdos and no military experience claiming that former Republican presidential candidate John McCain, a shot-down Navy pilot who spent five years in a brutal North Vietnamese prison, is not a hero. If Virginia can ignore such time-wasters and embrace diversity, it will be a better place.

The Boston Globe Visits Richmond

Slavery? What slavery>

Slavery? What slavery?

 By Peter Galuszka

An outside view is always welcome, especially in these incredible days when a lot of Southern mythology is being turned on its head.

Richmond is a great locus for the examination given its tortured history. The former Capital of the Confederacy (more by accident than anything else) is a true crucible.

The Boston Globe is running a series of articles from cities across the country examining how Americans citizens view their identities and how they are reacting to the fast-moving examination of slavery, the Civil War and the debates over its twisted symbols, especially the Confederate flag.

Globe reporter Michael Karnish starts with Ana Edwards, an African-American Richmonder, as she stands near the Jefferson Davis Monument on the city’s famed Monument Avenue packed with Confederate generals, Arthur Ashe and an aviator.

Confederate President Jefferson Davis, who led the insurrection against the United States, is praised as backing “Constitutional Principles” and “Defender of States Rights” (strangely similar to the conservative reaction to the recent U.S. Supreme Court decision on gay marriage).

Nowhere is it inscribed about what the war was all about – slavery.

You might go down to Shockoe Bottom for that. It was once the second busiest slave trading market in the country. There’s a site for an old gallows, a “Burial Ground for Negroes.” Lumpkin’s Jail. Ghosts of about 350,000 slaves “sent downriver from Richmond over a 35-year period before the Civil War.

One of them was Anthony Burns, 19, who escaped to Boston in 1853 but was arrested under a fugitive law and after lots of public demonstrations, was returned to Richmond with federal troops at the ready. He ended up in Lumpkin’s Jail.

There’s not a lot in Richmond to remind about slavery. In fact, when one drives north across the James River on Interstate 95, the Virginia Holocaust Museum makes a bigger impression even though Virginia had nothing to do with the Nazi Final Solution.

The Globe reporter does a fair job of contrasting Carytown, the chic and artsy shopping district (that goes hand to mouth with the city’s annoying fetish for fancy food and craft beer) with other parts of the city that are chock full of impoverished people. One out of every four Richmonders is officially poor.

Mayor Dwight Jones, an African-American, discusses his plans to eliminate public housing and fill it with mixed-use and mixed-income developments.

The next page to turn will be the UCL World Cycling Championship where 1,000 international cyclists will converge on Richmond for nine days in September. It is expected to draw 450,000 spectators (as the promoters insist they be called). Jones is a big promoter.

But plans are to have the cyclists zip past the 1907-era Confederate generals and Jefferson Davis on the city’s most famous avenue about 16 times before video cameras that will be broadcast globally. What kind of impression will that make? Given Richmond’s enormous and unresolved image problems and insecurity, can it simply and politely avoid facing the past as it has for 150 years and expect everyone else to go along with it?

I wouldn’t expect Mayor Jones to come up with an answer since he has failed to do much to put a slavery museum in Shockoe Bottom, the most appropriate spot for it. Instead, he was pushing some kind of museum along with an expensive project including a minor league baseball stadium and bars and restaurants.

To be sure, I am not completely sure people or newspapers from Boston have a lock on any moral compass. I went to college there for four years in the early 1970s and heard so much self-righteous nonsense that I began to think of myself as a Southerner.

After all, in the fall of 1974, just after I graduated and went back to North Carolina, Boston erupted into racial violence over court-ordered busing to integrate its de facto segregated schools.

In this case, however, the Globe has a good perspective on Richmond. It is a valuable addition to the debate.

Is NoVa over the Job Hump?

Nova_jobs

Annual Job Change, Northern Virginia, 2002-2015. Image credit: Terry Clower.

There has been considerable wailing and gnashing of teeth over the abrupt halt in economic growth in Northern Virginia due to sequestration-mandated cutbacks in defense spending and other federal government programs. My fellow Bacon’s Rebellion bloggers and I have led the wailing chorus. Indeed, Don Rippert engaged in some ferocious teeth gnashing in a post this morning.

There’s no question that the Northern Virginia economy has under-performed the national economy over the past two years. But there is evidence to suggest that Virginia’s economic engine may be over the hump. That chart above comes from Terry L. Clower, director of the Center for Regional Analysis at George Mason University, who presented it during a business round table sponsored by the Thomas Jefferson Institute two days ago.

After shedding thousands of jobs in 2012, 2013 and 2014, the federal government has stabilized employment, actually adding a few in 2015. After declining for three  years straight, federal procurement inched back up in 2014. Perhaps most important, Northern Virginia’s professional & business services occupational category grew by 5% between April 2014 and April 2015. That category is the economic driver of the Northern Virginia economy, and the fact that it is expanding faster than federal employment and federal procurement suggests that maybe, just maybe, Northern Virginia tech sector is diversifying beyond the federal government.

It’s hard to imagine that the federal government, with its severe long-term budget constraints, can resume the spending growth path that propelled the Washington metro economy for so many years. Still, there are signs that Northern Virginia businesses are adapting to the new normal. I’m hopeful that the promising statistics represent more than a dead cat bounce.

– JAB

Tobacco Commission: Six of Eight Projects Fail

The old logo

The old logo

 By Peter Galuszka

Down Danville way, of eight companies that have received money from the Tobacco Region Opportunity Fund (the old, embattled tobacco commission) only two have managed to fulfill contractual obligations to create jobs and help the local economy.

According to a report by Vicky M. Cruz in the Danville Register & Bee, the six firms that have failed to meet their obligations mean a loss of 1,340 potential jobs and $63 million in local investment. It also means that Danville owes the tobacco commission $5.47 million.

Here’s a list of the companies.

The tobacco commission has been around since 1999 to supposedly help residents in the tobacco growing areas of the state move into non-leaf related jobs. The money came from the huge multi-billion dollar Master Settlement Agreement between four cigarette companies and 46 states that had sued them over health concerns.

The tobacco commission has been a bit of a sham. Money has been doled out without checks on how it was spent or how successful projects have been. A former director ended up in prison for siphoning off funds. A state audit has been ultra-critical of the fund, which figured in the political corruption conviction of former Gov. Robert F. McDonnell and his wife.

Last month, Gov. Terry McAuliffe renamed the fund, appointed a new director and changed its board. The cases reported by the Register & Bee obviously date before the reforms. Let’s hope they work.

(Hat tip to Larry Gross).

Who Are the Real Fiscal Conservatives?

Source: "Truth and Integrity  in State Budgeting"

Source: “Truth and Integrity in State Budgeting”

Paul Volcker is one of the real heroes of the modern economic profession. During the late 1970’s and early 1980’s he conquered the “Great Inflation” by taming the growth of the money supply. Interest rates rose to levels unprecedented in modern American history. During my time in charge of cash management at AIG, I bought and sold money market securities yielding 20%; today similar instruments yield less than 1%. His efforts led to President Ronald Reagan’s “Morning in America” and a renewed attention to monetary policy. His success, as painful as it was,  gives him lots of “street cred.”

The Volcker Alliance recently published an analysis of the budgets in three states:  California, Virginia, and New Jersey.  The results will be surprising to many.  He gives kudos to California and Virginia, and holds a dim view of New Jersey, home of Republican presidential wanne-be, Chris Christie.

Standing alone, California would be the world’s eighth biggest economy with domestic output equaling US$2.1 trillion. Under Democratic Governor Jerry Brown, the Golden State’s credit ratings have been raised multiple times by the rating agencies.  Under his leadership,  voters have approved some temporary tax hikes, increasing budget reserves and improved funding for pension liabilities of teachers and other government employees.  According to Volcker, California’s outstanding debt has been reduced by approximately US$10 billion in three years.

The Old Dominion comes in for praise by the former Fed Chairman.  In an interesting comment he states that the budget professionals in Richmond serve for many years while the Governor is restricted to one 4-year term.  Budget cycle planning, which takes as long as 6 years, removes some of the politics out of Virginia’s budget process.  Virginia’s unfunded pension liability of US$ 3,436 per employee is only a few dollars more than that of the Golden State.

New Jersey, home of Gov Christie, leaves much to be desired according to the former Fed Chairman.  Volcker’s analysis paints a messy picture of the Garden State’s fiscal condition.  Volcker lists myriad accounting and financial tricks that have been employed to balance the home of the Jersey Boys: these do include not using the proceeds of bond sales for their stated purposes.  Frequent use of non-recurring revenues for operating purposes.  And diverting tolls from the turnpike from their stated use to maintain that highway.

It is a shame that Volcker did not include Kansas in his analysis.  Governor Sam Brownback, a Tea Party favorite, has enacted a budget cutting, tax reducing program that only a “fauxconomist” like David Bratt would endorse.  The budget deficit has ballooned, school systems in some detracts have closed early due to lack of funding, and a liberal website reports today that the Kansas Gov has threatened to cut off funding for the judicial system if it does not rule in his favor should a court challenge arise to his policies.

— D. Leslie Schreiber