How much should one be paid to be an office secretary? How much should one be paid to be road maintenance worker? How much should one be paid to be a health inspector, bus driver, school teacher, building inspector, mental health counselor or an attorney? As with all organizations, government is no different in that a large portion of its cost structure is found in employee compensation. To reduce expenses often means reducing head count. A department can delay capital expenses for a year or two, but it is unrealistic to ever imagine delaying employee compensation.
In the free market, the answer to the questions above are quickly found by the laws of supply and demand. Suppose I own a coffee shop. How much should I pay my employees to make espressos for customers? I would quickly figure this out by posting my job description with a wage and benefits package. If the compensation is too low, no one will apply or those who do are likely to be less skilled than I may need. If the compensation is too high then I will have more than enough qualified applicants to chose from but it will destroy my ability to make a profit and pay myself. Over time I will find the right balance between compensation and the skill set required to serve my coffee customers well and still make a profit.
In contrast, these market forces are completely absent from pubic union employee compensation. Public unions have "negotiated" with the government what each job is worth based on the previous negotiation — plus more. Built into the public union contract is better pay for those who have worked longer in the union. Also built into the contract is a very difficult process for dismissing a public union employee unless they commit an egregious act. So when comparing which system best reflects reality, the free market wins hands down. It pays employees what they are worth based on their skill and based on the supply and demand of the surrounding marketplace. On the other hand public employee compensation is based on tables, charts and lawyers that have no idea (and no care) what a particular job should cost.
Today's Herald and News featured two articles about how rising tuition might lead to lower enrollment. Then at the same time the school is facing fewer and fewer dollars coming from Salem which means it is having to make tough choices to cut services and some personnel.
This is what the Herald and News and OIT call a budget shortfall.
As mentioned several times in this blog, budget shortfalls are caused by two things — not just one. When looking at budget one must look at the revenues and look at the costs. Both articles in Herald and News focused solely on the revenue side of the equation. The Herald and News was all to eager to report tragic news that state funding is decreasing for OIT and how that translated into higher tuition for students. Students are being told they need to bear a larger burder for their own education. Imagine that?! And yet each article was whisper quiet about ever-increasing rising costs (even when cutting jobs).
It's amazing how many smart candidates we have this year. It doesn't matter whether they are running for County Commissioner, County Sheriff, State Representative or State Senate. Almost everyone is saying the same thing:
In order to solve government's fiscal problems, we need to create more jobs.
Seems like a simple statement. Seems like the right thing to do. But here's where the rubber meets the road — how? The way someone answers how they would "create jobs" tells you much more about them as a potential government official, than does their statement that we need more jobs in our local economy. That part is easy. Just say it. Now you are brilliant too.
The Klamath Falls City School and Klamath County School Districts have both approved "Open Enrollment." Open enrollment means that students (grades 7-12) can apply to switch schools before the April 1st deadline. If you don't like the current middle or high school that you are forced to go to based on geographical location, you now have an opportunity to switch and go somewhere else.
While open enrollment is in the direction of liberty, we still aren't there yet. What if someone wants to go to Triad or Hosannah? Since those aren't public schools, those don't count. You can go, but will have to fork out an additional $5-6K/year. Competition works best when pricing is involved. In combination, price and competition always turn out the best product or service — in this case schools.
If the two public school districts would embrace a voucher system, where parents get $10K per student (what is currently spent on each public school student), then we would have real competition. Nothing would be free as each school would have a tuition and parents then can make informed choices on where they want their child to attend. The school that is most popular would probably become the most expensive, but that's okay as other schools would rush to make their schools better. And there is the key, schools that are highly motivated to make their school better than the others. Price, like no other mechanism, automatically does this better than any central planning agency could ever dream.
We can breath a sigh of relief now that the County Commissioners have come to their senses and removed the three year Public Safety levy off of May's ballot. It is amazing that when properly motivated the commissioners could find the needed money that was there all along. Apparently, it was just in a different account they weren't allowed to touch without the Governor's permission. Imagine that. Government regulation getting in the way of being able to govern. Laughable if it wasn't so sad.
So now it's the Klamath Falls City School District's turn. They don't have enough teachers and their text books are old and outdated. Well who has been in charge the past ten years to let such a thing happen? We're supposed to pretend that the powers in charge just found themselves in this situation by no one's fault. It just happened. And now the taxpayer needs to dig deep into their pockets to help the City Schools out (again).
We need to remember that the district receives around $10,000/student per year from the county, state and federal government. If a class room has 22 students it means that class room gets funding of $220,000 each year. If the average teacher's salary & benefits package is $100,000, there is still $120,000/class room per year to account for. Seems one could buy new text books every month with that amount of cash!
The 1992 Presidential race between then President George H.W. Bush (41) and Governor Bill Clinton can be remembered by a simple slogan, "It's the economy stupid!" The notion was that President Bush was too stupid to understand the problem that the nation wanted solved was a slumping economy. President Bush didn't get the message and Governor Clinton went onto be President Clinton (42).
Back home in Klamath County we could use a similar expression: "It's the Costs Stupid." While almost every government agency characterizes their financial problems as a "funding shortfall" this characterization is only a partial truth. A much better description is that the county government is facing a deficit problem. That may sound like a distinction without a difference, but that's not true. There is a big difference. By characterizing Klamath County government's financial problem as a funding shortfall, the natural reaction is to try and replace that revenue. Yet that only looks at half of the ledger.
To understand the real problem — the complete problem — we need to begin describing government's financial problem as a deficit problem. Deficits are caused by one of three things:
The statement that raising taxes often lowers tax revenues seem to be anti-logical. If the government raises tax rates shouldn't it follow that tax revenues also should rise?
Well not necessarily. This logic often falls flat because it makes a large assumption: tax payers will behave identically after a tax increase as they did before. The beauty of capitalism is the ability for capital to move from one person to the next, from one business to the next or from one location to the next. This free flow of capital is what makes for a robust economy. If Bob's baseball card deal is the same as Billy's but Billy's is less expensive, then Billy gets the sale. No one forced us to buy from Bob who had more expensive deal, so we went with Billy. The same goes for businesses and taxes. When a businesses' tax burden becomes too great, businesses will look for a more tax-friendly location.
People behave the same way — just look at California. California has the highest taxes in the nation. You would think they were doing well then. Well not really. Tax receipts were down 22% this past February compared to February 2011. What happened? Both people and businesses continue to leave the Golden state for more friendly havens. According to Spectrum Locations Consultants,
After six months of Public Safety Committee meetings and another month of Commissioner contemplation, the answer the Wizards of Smart gave us to a Public Safety funding shortfall was to raise your taxes. You see the money had to come from somewhere and of course the government couldn't look to itself to reorganize or drop funding to any other program. Nope, you were the solution to their problem Mr. & Mrs. taxpayer, so it was time to cough up some more dough.
But wait. According to Wednesday's Herald and News the Governor is to soon pass a bill stating that Klamath County (and six others) can use their Road funds to fund patrols. This means the money allocated for patrols can pay for Jail Pod B and therefore the county doesn't need your money (for now).
Huh? You mean the county had the money all along, it was just locked up in a special road fund that even the commissioners couldn't use?
Watch our good friend Fred (left), help his friend Bill (right) understand why our officials are wrong to ask us for more money.
The reason we have this fiscal crisis is because government revenues are down. Why have revenues decreased? They are down because our local economy has tanked. So the solution — according to the wizards of smart — is to take MORE money out of the private sector. What?!? They claim they want more jobs and economic growth and in the same breath say they need to take more money from the private sector. Just think about that for a second and the response is, Really? Really.
It pains me to watch the political process in Klamath Falls and Klamath County. I am constantly amazed how government always seems to be short on funding. It doesn't matter what the issue is, the solution is inevitably that government just needs a little more money. Add a fee here or support a levy there. If it is a bold measure then government officials will dare to call it a tax. Whether one is talking about Public Safety, Public Health, Education, Tourism or Economic Development — the solutions are always the same: government needs more money from those they serve.
The reason this mantra is repeated is not because it is the only solution a particular problem, but because it is the easiest solution. It is easy to say, "We need just a little more more money to fund programs X, Y or Z." On the other hand, it is far more difficult to say, "We will cut back on programs A, B or C in order to fund X, Y or Z." To sell the idea of raising fees, levies or taxes for the city or county is second nature to the masterminds and central planners. To them this thinking comes as natural as breathing.
Why does government get a free pass? Why doesn't government first need to show beyond a reasonable doubt that they are spending the public's money in an effective and efficient manner? For example,