Tuesday, July 07, 2009

Junk Fee Revolution: Government Is an Enterprise, Too

As local governments face revenue shortfalls and the consequences of their hiring/wage-benefit largesse of the past decade, they are squeezing the private sector and non-Elite citizenry with huge increases in junk fees.

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Frequent contributor Cheryl A. recently sent in some examples of the sudden proliferation of local-government junk fees and gigantic increases in existing fees. One, an inactive professional license suddenly requires a $70 annual fee to remain inactive (now that's creative--you have to pay to not make any money) and the West Virginia turnpike tolls just leaped from $1.25 to $2.00.

Here in my neck of the woods, our municipal water agency just jacked rates by 8% and BART (regional subway) also just raised their ticket prices again for the second time in three years. (Could it have anything to do with the 24% raises they handed to employees three years ago? Hmm.)

Here's the context: in the bogus "prosperity" of the dot-con era (Internet bubble) and the housing bubble (roughly 1996-2008), local governments hired huge numbers of new employees, far outstripping population growth, and then raised already- generous benefits and wages packages to levels which no private-sector employee could possibly match.

Examples are endless: work five years, get lifetime healthcare coverage. (UCSF and city of San Francisco.) Please find even one private-sector employer which offers that benefit.

Here's another: work half-time for seven years, qualify for a lifetime pension which pays you starting at age 55. (City of Berkeley library.) Please locate even one private-sector employer which offers that benefit.

Local government and its employees are in denial of a simple fact: government is an enterprise which must, like any other, align expenses with revenues. Like a ratchet, local government and its employees seem to believe that increases in wages and benefits are "rights" which can only go up, regardless of the finances of the enterprise (local government).

Is this prudent or even common-sensical? Clearly, it is not. In every enterprise, huge boosts in benefits offered during "prosperity" are subsequently axed to match revenues when revenues plummet. This is especially true in enterprises (like government) in which 70% of all expenses are employee-related.

Local government is attempting to avoid draconian cuts in skyrocketing compensation costs (check out those healthcare and pension costs) by slapping high junk fees on a citizenry struggling to survive. Cheryl sent in the following stories as examples:

Tourists pay price as states jack up taxes to balance budgets:

Taxes on travel are soaring as states and cities target the wallets of tourists and business travelers for new revenue. Hotel taxes, car rental fees and other charges were jacked up in many states in an effort to balance budgets by last week, when the fiscal year started in 46 states.

Popular tourist destinations were hit especially hard. Among places where taxes rose:

•Hawaii. The hotel room tax increased from 7.25% to 8.25% on Wednesday and will rise to 9.25% in July 2010.

•Nevada. The room tax will increase up to 3 percentage points, to a maximum of 12%. In Las Vegas, the hotel tax jumps from 9% to 12%. Reno's tax was already 12% and is not scheduled to change.

•New Hampshire. The tax on rooms and restaurant meals rose from 8% to 9% and was extended to include recreational vehicles at campgrounds.

•Massachusetts. Cities were given authority to raise the hotel tax from 4% to 6%, in addition to the state tax of 5.7%. Taxes on eating out will rise from 5% to 6.25% statewide, plus another 0.75% if cities choose.

•New York City. The city, which raised its hotel tax March 1 to 14.25%, not counting other fees, will start charging more for Internet reservations.

"You couldn't pick a worse time to make it more expensive to rent a hotel room," says Mark Woodworth, executive vice president of PKF Hospitality Research in Atlanta. Hotel occupancy this year will be at its lowest level — 55.5% — since his company started keeping track in 1936, Woodworth says.

Cities, states tack on more user fees

State and local governments are turning to user fees to raise quick cash — from increases on hunting licenses to fees for enrolling in the Little League. One town is considering charging accident victims who need to be extricated from their cars. As cities and states struggle with sinking property values and declining sales tax revenue, many see raising fees as more acceptable to voters than increasing income taxes and sales taxes, said Bert Waisanen, a fiscal analyst for the National Conference of State Legislatures.

Money from the federal stimulus package will bolster some parts of states' budgets, but it won't be enough to close the gaps, said Scott Pattison, executive director of the National Association of State Budget Officers. "The stimulus favors education and health care," Pattison said. "Other parts of the budget are going to be disproportionately hit, like parks and recreation."

Colorado lawmakers, who cannot raise taxes without a statewide vote, this month raised fees for car registrations and rental cars to help meet a $600 million shortfall.

"There has been a blizzard of fees," said Colorado Senate Minority Leader Josh Penry, a Republican who favors cutting the budget instead of raising revenue. "The state is balancing its budget by knocking the budgets of families … out of balance."

House Speaker Terrance Carroll, a Democrat, said the state already has cut $300 million from the budget. "The common good requires certain sacrifice," he said. "The vast majority of people understand why it's important."

Seven Questions for Mr. Carroll:

1. How much did Colorado state legislators cut from their own salaries, medical benefits, retirement benefits, per diem expenses, state vehicles provided, staff expenses, and all other forms of reimbursement and compensation?

I suspect the answer, if total compensation and bennies are used as the baseline, is between 0% and 5%.

2. How many employees did the State of Colorado add in the years 1999 - 2008? What was the percentage increase, compared to the increase in state population?

I suspect the answer will be employees were added at twice the rate of actual population increase. Thus a 3% rise in population, 6% more state employees, etc.

3. Starting with total compensation (salaries plus total benefits value), what is the average pay cut imposed on state employees?

4. How much did total compensation (especially pension benefits/contributions) paid to state employees rise in the period 1999-2008? How does this increase compare to the inflation rate in the same time frame?

I suspect the answer, if total compensation and bennies are used as the baseline, is that total compensation increased at twice the rate of inflation.

5. How much, in dollars and as a percentage of total state tax revenues in 1999, did tax revenues rise in the period 1999-2008? How does that compare to inflation in that period?

Surprise: I suspect the answer, if total tax and fees revenues are used as the baseline, is that taxes/fees revenues rose at twice the rate of inflation, thus inflation rose a total of 20% and total taxes rose 40% above the total collected in 1999.

6. If government is an enterprise with revenues and expenses like any other, then why shouldn't expenses be cut by 30% to match a 30% decline in revenues? Exactly what exempts government employees, contractors and recipients of benefits from the notion that when revenues fall, then expenses must be trimmed in parallel fashion?

Thus if local government added large numbers of employees during "prosperity" then the number of employees should be pared back to what it was before "prosperity."

If government employees were granted raises in wages and benefits during "prosperity" (in quotations because it was always a visibly bogus prosperity based on debt and irresponsible lending/spending) then as revenues fall by 30%, so too should employee compensation be trimmed by an equal percentage.

I am occasionally accused of union-bashing or public-employee bashing whenever I point out what can be easily verified: that private employees have on average been losing ground for decades, while public employees (at least in California) have been granted huge increases in total compensation--the cost of their healthcare and pension benefits are ballooning at guaranteed-to-bankrupt rates.

This is all easily verifiable. In my city of residence, city contributions to employee pensions leaped from $2.8 million to $15 million in the span of two years: Scale Invariance: Is Your Neighborhood Sliding into Recession? (February 6, 2007)

In fiscal year 2005, $15 million of Berkeley’s $115 million general fund will pay for contributions to the California Public Employees System (PERS). Last year, the city spent $8 million on retirement benefits. The year before, the city spent only $2.8 million.

A lot of that money is going to cover stock market losses, but a good chunk will pay for improved pension benefits to Berkeley’s growing ranks of retirees who threaten to strangle the city’s general fund for the foreseeable future.

“Basically they’ve given away the store,” said Ron Roach of the California Taxpayers Association, one of the few groups to oppose the higher pension plan. For local police and firefighters the bill meant they could now retire at age 50 with a pension that equaled three percent times their years of service—75 percent of his or her highest yearly salary, for instance, for an officer who retires at age 50 after spending 25 years on the force. Subsequently the state passed a law allowing police and firefighters to receive a pension as high as 90 percent of their highest annual salary. (source: Berkeley Daily Planet)

What's Different Now (July 12, 2007)

And please don't tell me how underpaid everyone is; there are plenty of schoolteachers and police officers in my extended family, and $65,000 for 9 months work is not underpaid. Low-skill clerks at UCSF (University of California at San Francisco) make $45,000 a year; that's also not "low paid." They get their medical benefits for life after a mere 5 years of employment, as do all employees of the City of San Francisco.

Uh, can you spell "government bankruptcy"?

7. How do you think the citizenry feels when parking meter fines jump to $35 or more, and other parking fines (parking even for a minute in a no-parking zones, double-parking for a few minutes to answer a phone call, etc.) jump to over $50, while minor moving violations (not coming to a complete stop at a deserted intersection, being 6 MPH over the speed limit, etc.) cost hundreds of dollars? Do you believe they feel this is "democracy in action" and "necessary sacrifice" or simply extortion to protect your gargantuan pension?

How do you think they feel as the debt/layoffs noose tightens around their neck to get a $35 parking ticket, a $15 "fee" to enter a county/state park, $150 for the planning/building department to glance at their plans, never mind if the department actually issues the citizen a permit--that costs thousands of dollars more--on top of the property taxes, sales taxes, phone taxes, internet access taxes and income taxes they already pay local government? Do you really think the "sacrifice" of paying junk fees on top of all the other taxes endears the citizenry to your immense healthcare benefits and staggeringly costly pension benefits?

In Survival+: Structuring Prosperity for Yourself and the Nation, I posit the emergence of a "high-caste" class of public employees and corporate technocrats who are protected by their service to the State/Plutocracy (two sides of the same coin).

Like any Elite, local government is protecting its own income via extortion (pay or you don't get any service) and by nickel-and-diming "the little people," i.e. all of us who are not protected by membership in the "upper caste."

What the upper caste and local government politicos don't yet grasp is the rage their extortion racket will unleash. I have gone on record predicting that the junk-fee game will absolutely backfire on local government, which will find its revenues plummeting even faster than expected.

Here is another simple fact to consider: we don't have to opt into any service but water and electricity. Yes, you can increase the junk fees on those and we will have to pay the extortion, but as for the rest:

1. Raise hotel tax: stay with relatives, camp or don't travel.

2. Raise turnpike fees: choose backroad alternative routes.

3. Raise subway fares: Share rides, carpool, bicycle, stop going to events in the city.

4. Raise sales tax: buy stuff at swap meets, garage sales, barter, trade.

5. Raise fishing license: fish on private lakes or stop fishing.

6. Raise rental car fees: slash employee travel to zero, teleconference; borrow relatives' car, take the bus, don't travel.

7. Raise fee for inactive license: cancel license, exit the profession, close down your side business (it's not making money anyway).

8. Raise parking meter fines to $40: stop shopping in that city. Refuse to go there for any reason.

And so on. It's called "opting out." If you don't think it's already happening, you're not paying attention.

I can only hope that voters will awaken and vote out every incumbent of every party. Not that I have much hope of this, but it would be a start.

How will the revolution start? By opting out. By that I mean opting out of everything which is a rip-off: private university fees, pro sports "seat licenses" and all the rest, all the way down the line to fishing licenses. Some will opt out by choice, some by way of protest, and others because they no longer have the money to pay the fees and ticket prices.

Lagniappe thought: As the inflation/deflation debate rages unabated, perhaps it would be instructive to turn to a simpler question: the cost of living as measured in purchasing power of our currency (in the U.S., the dollar, but the question is equally valid for the Aussie dollar, the Canadian dollar, the euro, the pound, the RMB, the yen, etc.)

If we consider the cumulative costs of junk fees, extortionate increases in fees, licenses, sales taxes, etc., then we have to conclude that these increases substantially increase the cost of living for non-Elites. This is how the cost of living can rise even in macro-deflationary times.

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