CEO of GM talks about the government investment in GM

The saving of the Detroit auto industry is a popular thing to talk about during this election cycle.  President Barak Obama was instrumental in engineering the structured bankruptcy and the investment in the industry that was needed.  Mitt Romney, the son of an auto executive, said he would have allowed them to crash.

Even hindsight can’t tell us if the dire prediction about the failure of the auto industry would have ever come true.  But, a threat of some kind was there.  It is too easy to say that they should have allowed the industry to fail because new industry would have risen from the crumbling empty auto plants.  Even if one did, how long would it have been before the benefits of the market failure would have worked its “magic?”

The truth is, in practical terms the auto industry is alive, improving and perhaps in the best condition it has been in decades.

Dan Ackerson, CEO of GM, in an interview with The Take Away’s Celeste Headlee, points out that this wasn’t the first time the country has saved an industry and that the benefits were much more far ranging in practical terms.  Ackerson is a Republican.  As a Republican, he is not likely to give an interview in support of something that a president and congress from the other party did in an election year if he didn’t think it was an important thing to do.

Let’s read what Ackerson had to say about the investment we made in the auto industry.

Dan Ackerson -”This is not the first time that the American government has injected themselves into the American economy. If I asked you, who [was] the biggest owner of commercial property in the United States 1990s, you wouldn't say the United States, but it was. [During] the Savings and Loans crisis, [the U.S.] [pumped] in $394 billion dollars. Call it around $400 billion dollars.  Not $50.  $400 billion.

“So it's not unusual to see governments for a short period of time, inject themselves into a marketplace to stabilize it.  The analogy I like to make, you remember last year when Joplin, Missouri had the terrible tornado or Katrina [in Louisiana], it's in the basic DNA of Americans [that] we don't walk to help our fellow citizens, we sprint.  This part of the country, the arsenal of democracy saved this country in many respects along with many soldiers, marines, coast guard's men.  But it built the arsenal that saved Western Democracies.”

During the world wars in the last century, it was the heavy industry that we had on our home turf and owned by United States companies that built the machinery to defend ourselves and our allies.  Without that heavy industry already in place, it is hard to image that we would have been able to build all the factories needed before we built one tank in time to make a difference.  As another example, during the early part of the last century, the shipbuilding industry was in the same situation as the auto industry was during the last few years.  The United States stepped in to save it because of the importance of having the ability to build on our own shores.  Can you image the need to build heavy equipment in times of a crisis and expecting Honda of Ohio and the other foreign auto companies in Georgia to do the building?  What would happen if we went to war with the home countries of those companies?

Ackerson continues - “[After World War II] what did we do[?]  In the interest of international economy, international trade, we lowered our trade barriers.  We lowered them in Japan, we lowered them in Germany, our mortal enemies.  And they built export economies to the detriment of this part of the country.  It didn't happen overnight with a hurricane or tornado: It happened over 30 years.  So a million jobs were saved, that's what I say.  $150 billion it's been reported in terms of total tax revenues that would've gone by the boards had the company not been saved.”

That doesn’t include the increase in taxes on surviving companies to pay for the unemployment benefits that would have been paid on those that lost their jobs.  Instead, as Ackerson says, many auto workers didn’t lose their jobs and are still paying taxes.

Ackerson - “And all the supply chain that would've gone with us.  And then if you back off and you say, at the time we went under, or we went into bankruptcy, we had about a $25 billion pension deficit.  But think back if we'd gone into bankruptcy and liquidated in '09.  That $25 billion would've gone into the PBGC (Pension Benefit Guarantee Corporation) which is government sponsored.  Footnote to that comment is, $25 billion would've bankrupted PBGC.  And whose dime would that've been on?  It'd have been on the taxpayer’s dime.  That's never in the calculus.”

It might be said that if we hadn't backed the PBGC, we wouldn’t have had the problem with the pension deficit bankrupting the system.  But, then there would have been no pension money for all those currently retired and those that have worked for many years depending on the pension fund.

As for finding private money to invest in GM, Ackerson also addresses that issue. Ackerson at the time GM was going through its problems was managing private equity money for investors.  This is what he has to say about finding private money.

Ackerson – “So when people say, it should've been saved in another way, it should've gone through a bankruptcy, controlled bankruptcy.  I was in private equity.  I was managing many buyouts, where you do a big buyout of corporations with a portfolio of $50-$100 billion.  There was no way you could've gotten me to put a billion dollars into this thing without the restructuring that was really mandated by the government.

“So, you know I know this is a political year and everybody wants to argue for tactical and political advantage.  Again, I don't have the luxury to do that.  I'm not making a political statement.  I would say, let's be pragmatic about it: It worked.

Finally, Ackerson says, “I think the government does have an obligation to step up and help its people.  This wasn't a giveaway.  It was an investment.  It was an investment from the American people.”

Communities are not a separate entity from the people that live in them.  They are not there to just police the streets and facilitate common services.  Communities form for the safety net and security that they provide.

Thank you, Mr. Ackerson.  Your words represent the best of a Responsible Community.
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Emergency Manager Law initiative may not be close enough

The Michigan Board of Canvassers was deadlocked on the approval of a citizen’s initiative petition asking for a popular vote on the emergency manager law.  This is one of those situations where you need a score card to keep up on the game.  Yes, it is a game, one that isn’t being played very well by any of the players.

A group that would like the emergency manager law to go away submitted petitions to have the issue placed on the November ballot in Michigan.  The board of canvassers for the state has the task of certifying the submitted petitions.  The board is made up of two Democrats and two Republicans.  They found that there were more than enough signatures according to the law to approve it for the ballot.  But, the board split on the size of the type on the top of the petition.  The two Republicans said the font size was too small, the two Democrats said something like, “close enough.”

The Constitution of the State of Michigan insures that citizens will have input on state affairs with an initiative.  The state law that governs citizen’s initiatives says that the font size on the headline of the petition must be 14 point type.  (MICHIGAN ELECTION LAW (EXCERPT), Act 116 of 1954, 168.482 Petitions; size; form; contents.)  It is understood that the large font size on the header is an attempt to prevent the head line from being unreadable, meaning that the signer would need to rely on the petitioner for an explanation of the ballot proposal.  This in the past has been problem when petitioners don’t properly represent the meaning of the proposal.

A spokesman for the company that printed the petitions says that the headline is in a 14 point font.  But he could be in trouble if he printed the wrong font size.  What the groups should have done is ask for an approval from the board of canvassers in advance of the actual collection of signatures. 

The committee has promised they will take it to court.  This is where this type of issue should be in the first place.  The members of the board of canvassers should be non-partisan.  But, according the Michigan Constitution, it is to have four members and no party is to have a majority.  To leave a decision about a ballot issue with a partisan committee is to know that there will be trouble.  One party or the other, for political reasons, is not going to want the initiative to get through the board.  The objecting party will place tremendous pressure on their party’s board members to find a reason to not pass the initiative. 

The court could rule that the size of the font is indeed, “close enough”.  The requirement to have a certain font size could be determined to be an unreasonable restraint to an initiative.  They have ruled in the past that way with the timing of petition submissions.

But for now, the law is the law.  Close enough is not close enough since there is a specific requirement in the initiative law for the size of the font.  If the court doesn’t decide to let the initiative on the November ballot, the group will have to start over for the next election cycle. 

Let’s hope they do a better job next time.

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No tax increase doesn't make sense

There is a hidden agenda in the no tax pledge that the anti-tax crowd is talking about. It isn’t to keep from raising taxes because it hurts the economy. It is the killing of all government in the end.

Many conservative politicians that are running in the next election have signed a no tax increase pledge from groups like Americans for Tax Reform. The pledges states that they will not vote for a tax increase of any kind, even if it is just a move to increase revenue. Americans for Tax Reform don’t care if it is legislations that increases taxes or removes a deduction that will increase revenue. Americans for Tax reform will provide significant support for those politicians that keep their pledge. If someone slips up and votes for an increase in revenue, the organization will find another politician to support in the next election.

Sometimes revenues need to be increased. Even the most conservatively run business find that they need to increase prices occasionally. Costs just have a way of always going up. Those that operate a business can search for new suppliers, can cut cost and do many other things that will enable them to keep costs in line. But, at some point, the price of their goods or services are going to increase. If they don’t, they will lose money and go out of business.

Government, just like business, should run as lean as possible. All the things that businesses do to keep costs in line, government should also do. But, sometimes costs are going to increase. In order to keep a balance budget, taxes will need to increase at some point in order to cover the deficient or the government will be running in the red.

Of all the things that we ask government to do, police, fire and other essential services like that should be maintained and control by the community. When inflation pushes up the costs of maintaining the essential services, if the elected officials have signed a no tax increase pledge they plan on keeping, it means that officers or fire personal will need to be laid off. Reducing the amount of people that protect the community, one of the primary things a government should be doing.

There are ways that we can cut the cost of government. We should be working on them all the time. But, pledging to not raise taxes, no matter what the reason, will place the basic services that we all need in jeopardy.

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Home prices are at their lowest in years, so are property taxes

Home prices in Michigan are the lowest they have been since 1994. Local property taxes that are collected based on the value of the property are, of course, at their lowest in many years. The rise and now the fall of property taxes have placed many local budgets in a crisis. That is why there should be no property taxes based on the value of the structure for individuals or for businesses.


As an example, in Wisconsin, they are running into trouble on the taxes placed on property based on the value. In 2008, a Wisconsin state law allowed local communities to place a limit on the type of challenges that individuals and businesses can make on their property taxes. Local communities were allowed to limit the challenges to the local Board of Review only. But, a large rental property owner sued to have a court review its assessment. The state’s supreme court recently rightfully ruled that individuals and businesses have a right to challenge the tax assessment beyond the local board of review, in support of due process. This means that communities in Wisconsin and around the country are going to have difficulty preparing budgets because there will be challenges to the revenue stream.

Property taxes are one of the most arbitrary taxes we pay. The amount of the tax is based solely on what a local Board of Review thinks the property is worth. The value of any property can’t truly be determined unless it is sold or is used to generate income. But even after a sale, the value of the property may change dramatically from year to year based on issues that are market driven and out of the control of the property holder.

Additionally, those that pay the highest property taxes; homes with high value, homes that have been improved or property that generates income; are those that help the community maintain the overall property values of the community the most. To tax them more, based on arbitrary values, is counter productive.

Communities need stable revenue sources to provided needed services. Even the most minimum of services, like police and fire, will have a consistent cost from year to year, rising with inflation and other factors. Over the last few decades, property values have increased enough to provide communities with a growing revenue source that kept ahead of inflation. But in the past couple of years, that has all changed. Property values are now falling, forcing down the amount of tax revenue received.

Local communities need to base the taxes collected for local services based on another idea. The way to approach this might be on “unit” collection. All property would be valued not on market value, but on size and type of property. All vacant property would have one tax based on the size of the property. Residential housing would have another value based on the size of the lot and the square footage of the structure. The larger the structure, the more tax. Commercial, retail and industrial would have the same concept perhaps just different numbers and taxes.

Details do need to be worked out. But, a stable revenue source for communities would mean that services won’t be cut just because revenues are down. Property owners in a community would also know from year to year what their obligation will be. If the value of their property rises, they will not suffer because of it. Finally, an improvement in the individual housing or business unit property wouldn’t mean that there will be an increase in taxes.

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Don't punishing school districts for good budget practices

Save money and spend wisely, but not too wisely.

What?

That’s right. A state senator thinks that school districts that save money should be punished for saving too much.

School districts in the state of Michigan have a cumulative savings account in so called “rainy day” funds of $1.6 billion. The districts have scrimped and saved as much as they could so they would have a cushion against drastic cuts in state aid or other funding. This not only is a wise thing to do, but fits very well into concepts supported by the Responsible Community.

State senator Jack Brandenburg, R-Harrison, thinks this is “obscene.” He is the chair of the Senate finance committee. It is Brandenburg’s belief that in the slow economy and with the state’s budget problems, each school district should spend their fund before they receive any more state aid. For each school district with a budget surplus the bill that he wants to offer would cut off of school aid until the fund is below 15% of the district’s annual budget. It would seem that Brandenburg would want it to be the other way around. He should offer incentives to school districts to save money and be financially responsible.

Brandenburg is a member of the party that demands government be operated like a business. Any business around, large or small, would be happy to have a reserve of more than 15%. A responsible community, school district or municipality, should save as much money as it can while still providing the services that its citizens expect. The fund, besides being a cushion against swings in funding, can be invested to help provide income to defray the costs of operating, or perhaps, be self sustaining.

Brandenburg is also a member of the party that believes in local control. Making sound budgeting decisions by each of the school districts that has enough of a surplus to establish a rainy day fund reflects exemplary local control. The state should not dictate the budgeting principals of these school districts.

When a community operates out of the establish norm, such as not being able to pay its bills, it is taken over by the state to bring its budget in alignment with general accounting and management principals. But, if that a community swings that other way, operating in a way that reflects sound business practices, it should not be punished.

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The citizens of Pontiac are losing control of their government

The government of any community has many responsibilities. It is up to the citizens of the community, to a point, to define what they expect from their government. Pick up the trash, manager police and fire, maintain parks, keep the streets in good shape, run the local little league may be some of the things city governments manage.

All of these things must be paid for mostly by local taxes. When there isn’t enough funding the list needs to be prioritized. The item with the highest priority is the security of the community. That means that police and fire should be on the top of the list for funding. Once they are paid for, other things can be funded.

The City of Pontiac is going through some tough times right now. With the city legislative branch essentially replaced by the emergency financial manager, Michael Stampfler, the community has little or no direct voice in the management of their city. They are not able to help decide the priorities that must be set because of the falling revenues that have placed the city in a deficient. Stampfler is setting the priorities and making all the decisions. One of his tricks to force changes in the police department was to lay off 23 officers to bring the total on the road to only 51. This has placed the security of the city in a dire situation and is forcing the outsourcing of the department’s services.

The Oakland County board of commissioners was asked and has approved a proposal to replace the Pontiac police and dispatch services with the Sheriff department. There are many agreements that need to be made before the Sherriff officially takes over, but it is likely to happen.

If there is trash collection, parks that are being maintained, road improvements being made or any other nonessential services being funded by the city, they should all be curtailed or eliminated before the police and fire is outsourced. Not only is police and fire the highest priority of any community’s responsibility, it is one of the ways that a government stays in balance and in control by checking the power of the other branches of government. With Stampfler replacing the legislative branch and the police soon to be controlled by an outside authority, the community is losing nearly complete control of its government.

Successful communities are founded and maintained by having the local citizens directly in control of their government. While the city of Pontiac must find a way out of the financial difficulties it is in, it must do so by not losing control of its government.

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Pontiac's emergency financial manager must communicate better

The Governor of Michigan, Rick Snyder, gave his state of the state address last night in Lansing, Michigan. As was expected, he touched on most of the broad issues that are important to the citizens of the state and its economy. Snyder promised to develop a system that will more effectively communicate how effective his actions are. He calls it a “dashboard” that will be on the state’s website.

One of the topics was that of emergency financial managers. They are installed in cities that are in financial trouble and have offered no plan to solve the problem. Snyder said that he wants to overhaul that laws that govern the managers. Pontiac is one of the cities in the state that is operating with a emergency financial manager right now.

For many reasons, usually because of a combination of politics and poor management, cities can get into financial trouble and run a deficient. Some cities are able to react to the problem with a tough plan that will bring them back from the brink. Others though, because of politics, are just not able to find a compromise between competing interests that will see them through.

That was the case with Pontiac. The current city manager, Michael Stampfler, has a resume that makes him very qualified to make financial decisions that will help the city get back on the road to recovery. But, he is not a good communicator and appears to not know how to work with political organizations. Just as Snyder has announced that he will develop a dashboard for the state, Stampfler needs to develop one for Pontiac.

There is no doubt that it is perhaps the toughest job on the planet. He has to dig deep into a budget that is out of whack, deal with people that are protecting their jobs and turf, make decisions that will make everyone unhappy and cut services that citizens have come to expect. Add to all of this the fact that he a non-elected boss that is placed there by an outside authority. Not a good mix.

But, Stampfler, is not forth coming with the reasoning for his actions. It is rumored that he shuts people out of meetings, make decisions with little announcements about why and doesn’t report to the people that count the most, the citizens of the City of Pontiac. When an elected official isn’t a good communicator many people complain. But when a non-elected official isn’t a good communicator, the entire community is left outside of the process.

Open government and decision making is an important principal in a republic. People in a community can’t make effective decisions about their representatives in government if they are not communicating with them about what decisions are being made and the reasoning behind the actions. This is even more important when someone from outside the community places someone with the authority of an emergency financial manager to temporarily make all the decisions. Stampfler, and his boss Governor Snyder, must be held accountable for their actions. The only way to do this is for both to communicate better with the citizens of Pontiac.

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