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How Municipalities are Saving Tax-Payers Dollars

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No one likes paying taxes. The only thing worse than paying taxes is knowing that they are being spent unwisely, into services and projects with bring very little, if any, value to residents or you personally.

Today municipalities, like us, have to find ways to deliver their mission within the limited budget that they have to their disposal. More and more things are being downgraded from federal to state, and now from state to municipal with the tax division staying roughly the same. So how are cities today coping with an increasing mandate while having the same funds?

They are forced to be crafty.

One way is to increase controllable revenue by raising property taxes, while another way is to cut the fat on services and more.

The first is not as appealing as the second because high property taxes can also drive residents out of the area and into cheaper places to live. With a highly mobile population, people are willing to get up and move if the conditions don’t suit them. This makes municipalities hesitant to simply increase their taxes. Quite the opposite, many end up lowering them to stimulate development by investors and individuals who are drawn by the lower cost of living but potentially high level of satisfaction and quality of life.

Outsource to the private sector

Everyone wants to have a cushy city job. Why not? A nice pension, decent hours, good pay, are all things that we can easily get used to. However, it’s your tax dollars which are covering all those benefits, including those trips to the watercooler and the budget for throwing baby showers at work. Nowadays, many municipalities are decreasing their staff levels and outsourcing when possible. The private industry is traditionally the better bang for your buck, as they have to keep their prices competitive to gain clients in this market. They are also more accountable when it comes to the quality of their work, meaning that you get more done at a lower price and with better results. That we can all understand. That’s why you’ll find fewer and fewer city-owned landscaping trucks, while maintaining roads has been outsourced to experts in road marking services, line marketing, car part markings and warehouse line marking.

Invest into revenue-making projects

Never before have cities felt the pressure to generate revenue like they do today. Every decision they make has to bring a revenue generating aspect to the table, even if maybe the effects are not immediate. So if by building a stadium they can attract large concerts, sporting events, and more, then they would be more willing to create the potential for direct and indirect revenue than, for example, add a new playground to a run-down park. Unfortunately, this can also mean that the funding for important but non-revenue generating services like welfare or support for families dries up. It’s all about balancing the needs of the individuals living within the municipality.

Promote Citizen Involvement

When the city asks for people to get involved and gives them more leeway with certain projects, be they beautification, historical restoration, or social justice, it means that they can lay off the gas and transition into the role of liaison rather than main planner. By giving local organizations more power, municipalities have a chance to disengage themselves and act as supporters, meaning less of a staffing and financial obligation than if it were strictly up to them.

If you feel like your municipality is spending tax dollars the wrong way and aren’t employing the popular methods outlined above, it might mean that it’s high time for you to voice your concerns. American debt is mounting, and we are all part of the potential solution by becoming involved in our communities.

Making America Great Again: What does that really mean?

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Though we are probably sick of this slogan already, there is some truth in the power of the American people to be world influencers, and truly a great nation in every sense. However, with the rise of globalization, it seems like America’s economic power seems to weaken, mostly due to the decrease in industry and production in this part of the world. Many companies have moved operations overseas in order to remain competitive with their pricing, often crippling American industry towns.

However, things seem to shifting recently with the political atmosphere, and though not everyone would agree on the social and environmental direction, many can get onboard with the economic agenda. This is especially true for those involved in industrial production and are hungry for more opportunity and work.

The good news is that American companies looking to either expand or start up in the industrial space have a few things going for them that wasn’t the case even 10 years ago.

  1. Cheap Space

Manufacturing takes up a lot of space. Arranging machinery, storing materials, and packaging products all requires a lot of room. It used to be very difficult for a company to afford a spacious building near a readily-available workforce. However, in places like Detroit, the administration of the city is so hungry for economic development, that they will lease you a large building for very little if any money at all. This makes it easier for the manufacturing industry startups to initiate their operations and maintain cash flow in the first few months. With so many empty warehouses and buildings, this capital investment will not be a burden on a newly expanded or created company like it would have been in the past.

  1. Used Machinery

Unfortunately, in the last few years, many North American manufacturing companies went out of business. However, they left behind a wealth of preowned industrial machinery, much of which is still in good condition and usable for many years to come. All a new start up needs to do is get in touch with a company selling a large range of used process equipment for industrial purpose. No need to order or buy new machines, some of which cost upwards of several hundreds of thousands of dollars. With such a wide supply of used machinery, there’s a good chance you’ll get what you need at a winning price.

  1. National Pride

In the last few years, Americans have developed a sense of pride around items made in the States. They are willing to pay a premium to support products and services created in America rather than oversees. This is mostly due to seeing and feeling, directly or indirectly, the impact of purchasing power. One thing that America never lost was a high level of quality and pride in its work. Thanks to this, manufacturing companies can in a way compete with offshore producers. Unfortunately, sometimes it takes something bad to happen to get us all united under the same goal.

  1. Taxes and Duties

Though it’s mostly been just talk until now, if President Trump gets his way, manufacturing in the States will become an even more attractive option for those who are currently on the fence. By taxing imported manufactured goods more heavily than domestic ones, items made in the States will cease to be at a price-point disadvantage. This means that people won’t just be choosing American over foreign because of patriotism, but also because it makes fiscal sense to them.

If you are considering either opening a manufacturing company or are deciding if training for manufacturing jobs is a good investment of time and resources, the answer is “do it”! Right now, Americans are getting a second chance at becoming a country of producers and manufacturers, and you could be part of this resurgence!

Debt Kills…RIP Twinkies?

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Today’s guest post comes from William over at Drop Dead Money. I really enjoyed meeting William at FinCon12 and he definitely writes some of the most entertaining, informative posts around. Leave him a comment and let him know what you think or say hello on Twitter!

Image: Wikimedia Commons

I don’t think I ever ate more than a single Twinkie in my life. You know, as somebody once said: try everything, keep that which is good — that kind of thing. But there can be no doubt that, for better or for worse, the Twinkie is an icon of America.

As is the case with so many icons, Twinkies have a question mark or two swirling around their virtue. Through the years, it has had its share of critics and would-be assassins. If we had a penny for every scathing review of Twinkies’ nutritional value, we’d all be millionaires.

These days it seems icons of dubious nutritional value are under attack everywhere. In France, they’re indulging their penchant for dramatic outrage as we speak (or read) over something called Nutella. Nutella is a chocolatey nutty spread most French parents put on their kids’ lunch sandwiches. (Personal confession and disclaimer: our pantry reached out and snagged a jar. Don’t ask me how, but it did. Stuff’s not bad at all.)

Well, the French government decided recently Nutella isn’t healthy enough and they could not longer allow parents of today to continue the wanton destruction of future generations that their parents perpetrated on the planet. Disregarding the fact that the passers of the law themselves are Nutella graduates, they decided that the future of French humanity requires government intervention of the most serious kind: taxes. Butter, eggs, pâté and cheese are what France should be built on, it seems, but not Nutella. Politics being politics, they couldn’t just single out a product and tax the living daylights out of it, so they fine-combed the ingredient list until they found something they could pick on. And so the government of France decided to triple the tax on… palm oil. Even though the tax is on palm oil, every citizen of France knows the real target is Nutella. (The fact that the parent company is Italian presumably has nothing to do with this brouhaha.)

Twinkies, though, were not attacked by our government. While Twinkies never were the poster child for health food, it wasn’t all that harmful, either, truth be told. Sure, if you eat a million Twinkies you’d look silly, but so would you if you ate a million muffins, chocolate bars, or even carrots.

And so our government, our infinitely wise government, passed on the opportunity to obliterate Twinkies.

That task, as it turned out, was accomplished by a more effective public enemy: debt. That’s right: debt killed the mighty Twinkie.

How?

Private Equity

The corporate debt ogre is like a chameleon, changing its name with every economic cycle. Back in the 80s and 90s it was called leveraged buyouts, done by LBO funds. Junk bonds were often the source of money for these funds, characterized by more hubris than common sense. When those funds were exposed as nothing more than the age-old ugly corporate debt monster, they changed their names to things like private equity funds.

Was there ever a more inappropriate name for something as “private equity?” Because there is usually very little equity involved in these things. Oodles of debt is what they usually are, with as little equity as meat in a strip of bacon. Private equity funds (or LBO funds, or whatever they will be called five years from now) usually spring up at a time when banks have too much money to lend.

These funds typically raise a million dollars and borrow ten. Then, with their eleven million dollars, they buy a low growth business that generates a lot of free cash flow. Their hope is that in time, this cash flow will enable them to pay off their debt so they can sell the company and move on to the next thing. Once they own the company, they try to speed up the payout by squeezing more cash out of their acquisition.

As a concept, buying solid companies with debt is as old as the ages. J.P Morgan used it a hundred years ago to become one of the most powerful men on the planet. Henry Kravis of KKR does the same thing today. In the UK , Jim Slater of Slater Walker did it back in the seventies.

Debt Kills

However, for every buyout success, there are ten failures. J.P. Morgan himself discovered that when his White Star Line’s flagship, the Titanic, sank. The company went under soon after its flagship. What sank the White Star Line was not an iceberg, but debt.

The reason leveraged buyouts fail so often is because they typically are done near the top of the economic cycle, when bank debt is plentiful and lending standards are low.

Armed with more money than brains, these private “equity” funds go searching for decent businesses with solid cash flows.  Then they look at the best case cash flow scenario and project it to keep growing from there. Armed with lovely spreadsheets they approach the owners of these businesses and make them a ridiculous offer. No sane person can turn down such a ridiculous offer, and so the business changes hands.

The previous owners take their windfall and go on their merry ways. Before long, the new owners discover this thing called the economic cycle when it crashes, as it always does after a boom period. Then they can’t make the payments on the debt.

And then the solid company, the one whose good products, good workforce, good vendors and good customers, simply disappears.

All because of debt.

I received my first lesson in how this works back in the late 80s. We lived inSouthern Californiaat the time, and we loved a local company, RB Furniture. It was a good company, making good products, and it was growing, as good companies making good products tend to do. However, they got bought out by a leveraged buyout fund run by Gary Winnick. Of course, the company failed when the recession of 1991 rolled around. And we lost our favorite furniture company. Compared to good people losing good jobs, that was nothing, of course. But it was my first close-up acquaintance with the evil of corporate debt.

And the 18,500 people working for Hostess stand to lose their jobs now, because of debt. If the company had been owned by owners with lower (or no) debt payments to make, Twinkies would still be corrupting (or pleasing, depending on your view) the nation, one cream filled angel cake roll at a time and we wouldn’t be talking about it.

Twinkies, of course, may survive. The rights may be bought by someone else, who may employ some of the workers and equipment.

But, if they do the deal with too much debt, we will see this scenario play out again. They may blame the unions, and they may blame the fickle consumer. But the real culprit will be, as it usually is… debt.

Debt does kill. It’s no accident that Warren Buffett’s businesses run with low debt levels. It’s no accident that Heinz Ketchup survived the Great Depression and flourished because they passionately avoided debt.

Debt (or short term loans) on an individual level leads to hardship. It’s true in the business world, too.

Measure B: Actually, I DON’T Care About County Officials Inspecting Adult Film Sites for Safe Sex!

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The San Fernando Valley: Hotbed of unregulated ‘sex acts’ between unprotected porn stars. LA County will fix this.

Election time is getting close, and despite the fact that there was no Legalize It proposition this time in California, I studied my sample ballot to see if there were any interesting propositions to vote on. Check out Measure B from Los Angeles County:

“Shall an ordinance be adopted requiring producers of adult films to obtain a County public health permit, to require adult film performers to use condoms while engaged in sex acts, to provide proof of blood borne pathogen training course, to post permit and notices to performers, and making violations of the ordinance subject to civil fines and criminal charges?”

In other words, do you want to vote to create new regulations in pornography? Because adult film stars are required, by the nature of their employment, to engage in sex acts which are, by their very nature, prone to spread diseases especially in a multi-partner environment that could allow HIV and other sexually-transmitted diseases to spread unchecked, as quickly as a brush fire in Imperial County in the beginning of September? Hmm? Well? Shouldn’t these unsafe acts be regulated somehow? Maybe with some permit-posting and some official inspecting? Wait, is this really a ballot measure? What the hell for?!

I’ve talked about pornographers before. Obviously, there are serious problems in this industry and all this crazy porn (gonzo porn is not the same as gonzo journalism) is changing the way we see a lot of things. But I don’t see the point in spending LA County resources on making sure actors in adult films are wearing condoms, not to mention the actual enforcement of which seems bizarre, like something out of Kafka or a magical realism novel. Rampant drug use and any possible abuse of minors would appear to be much more important areas to focus our concern of the adult film industry, and posting your permit from the public health department is not going to change a damn thing about how porn gets produced.

Tell me: Is this ballot measure crazy or am I? How many times can I use ‘sex acts’ in a post? 

*For an unrelated read on Money and Sex, check out L Bee and the Money Tree’s latest post. Blog Post of the Week!

Construction Starts Data and Building in a Down Economy

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The smart and data-friendly folks at DQYDJ.net and I have collaborated on an article over at their site! That article considers construction spending as a percentage of GDP, and whether that metric means anything at all. It’s an interesting read, so go check it out. In the meantime, I am very interested in understanding the construction industry (since I work in it) and what economic trends change for builders. Residential construction is looking up, with a notable increase from 2011 in both permits and actual starts. But commercial and public construction projects are also worth considering, since those projects are often in our backyards, from transportation (light rail, airports), new schools, commercial centers and public infrastructure that needs regular maintenance and updating. The activity in the public and commercial sector has increased since 2009, but contractors are still not rosy in their outlook. Competition is fierce for each new project, with large numbers of contractors bidding on jobs. Contractors are well aware of this situation, but for the first time, I heard a public official of a very large LA public agency comment on the situation at a recent construction event. He acknowledged that while their organization had had a great few years in terms of building, it had been at the expense of contractors who had sometimes underbid so severely that they hadn’t been able to finish the project. All of us in the contracting community already knew all that, but I was amazed to hear a public official address the situation so frankly and openly. Even though I’ve often been dismissive of government agencies and assumed all of them to be slow, top-heavy and process-oriented versus results-oriented, this frank discussion of the main concern for contractors was exciting and groundbreaking. If key players on both sides can talk about how we can achieve great building results with reasonable margins for contractors, then progress for both sides is possible, not just major profits for contractors at the expense of public agencies or excellent savings for agencies at the expense of contractor livelihood.