LSJ Blogs: Derek Melot is Just Asking

What happened to Santa?

“Congress won’t erase state deficits” is the news from stateline.org. Egads, the Michigan Legislature might have to make some unpopular decisions to close a $1.4 billion budget gap.

Money woes at BWL

In advance of a Monday public hearing on a 2.5 percent rate increase, and a Tuesday commissioners meeting to approve said request, BWL has issued to us the contents of two memos from Peter Lark to BWL staff. See them below in their entirety:

"In yesterday’s e-mail regarding the challenges confronting the BWL this fiscal year, I emphasized the importance of weathering this economic storm together.

 Times like these demand difficult choices, and, yes, sacrifice.  However, I will not ask others to sacrifice unless I, too, am willing to make personal sacrifices.

 I want you to know that my team of executive directors and I will reduce our salaries by 5 percent through this fiscal year.  This decision has the full support of the entire executive team. 

 Together we will continue doing the hard and necessary work on behalf of our customers, and together we will move forward to what I am confident is a bright future.

*****

Every challenge in life presents an opportunity.  This country’s economic downturn is no different.  The BWL is well positioned to weather this economic storm – just as the BWL has weathered all sorts of bad news throughout its 124-year history.

 We’ll get through this – together.  I cannot emphasize that last word enough.

 Is the BWL feeling the impact of this troubled economy?  Of course, and, it’s not just the home mortgage crisis or the Wall Street meltdown.  

 For instance, last summer’s revenues were 15 percent less than anticipated due to cooler than normal temperatures, and environmental remediation expenditures at the

Lansing

landfill have significantly exceeded initial estimates.  Plus, natural gas prices have fallen this year.  Natural gas prices set the market price for our wholesale electric sales, so while our sales volumes have been excellent, we have not made nearly as much money in the wholesale market as we would have liked. 

 Nevertheless, what the Wall Street crisis did do was erode our investments in our Defined Benefit Pension and Retiree Health Care Plans.  Because investments have taken a hit, we’ve had to increase our contributions to the Retiree Health Care Trust (VEBA) this year and will be unable to make our annual transfer from the Defined Benefit Plan to the VEBA trust.  The bottom line: The BWL must contribute $700,000 a month to the VEBA trust – that’s $8.4 million a year, $6.4 million more then we had anticipated in our original budget.

 Let me be clear about one thing, though.  The BWL will weather this storm.  I am fervently optimistic about the BWL’s financial health.  Yet, we cannot stand on the sidelines and blithely watch the recession play itself out.  We have to act prudently, but aggressively, to reduce spending wherever and whenever an opportunity appears.

 Just so you know: We are planning to seek a modest rate increase next week.  But given these difficult economic times, I find it unacceptable to ask for rate increases of the size that were approved in the 2009 budget.  My recommendation is to seek a 2.5 percent increase for each of our utilities.

 Those are modest increases, and, one might argue, not enough to meet our budget needs. However, as I said, the state of the economy dictates we help our customers by continually seeking ways to cut spending.

 I’m sure you’re all aware of some of the efforts already underway.  Travel and overtime have been curtailed.  We are reorganizing and combining some departments to find ways to operate more efficiently.  We are creating a motor pool.

 We are evaluating the manner in which we utilize our electric generation units.  We are moving forward with the elimination of most of our purchasing card (P-Card) system and your share of health care benefits have increased.

 I’m convinced there are many little things – lights that can be turned off, paper that doesn’t have to be used – along with bigger items that can add up to substantial cost-savings. We need to identify those items.  How are we going to accomplish this?  I return to that word I used earlier.

 Together.

 I am asking each of you to do your part. We are a team, and the only way we’re going to succeed is if we stand shoulder to shoulder, as a team.  We need the cooperation of every employee to make sure we “live within our means” and that of our customers.

 Exceeding our budget is not an option.  In fact, we are already half way through our 2009 fiscal year and I have asked all our directors and managers to reduce their budgets by 10% by year end.  As a public utility and especially during these difficult times, we must be as scrupulous in all our spending as our customers are in maintaining their own budgets.

 I expect we will all be hearing more about “living within our means” in the coming months.  It’s the new reality.  The BWL has to adapt, and work within a leaner, more cost-conscious budget.  I am asking – not merely for your support – but for your help in accomplishing this critical task.  In fact, I welcome your ideas on how we can proceed in a smarter, leaner fashion without sacrificing safety and quality.

 But there’s another motivation to stay on budget.  Exceeding our budgets puts additional strain on our cash reserves that will have a negative effect on our current excellent AA- bond rating.  When we issue bonds, we must be able to demonstrate to bond rating firms that we can live within our budget and maintain sufficient cash balances to support our programs.  If we cannot make these showings our bond ratings will drop.

 The lower the bond rating, the costlier it is for us to borrow money.

The BWL must continue to maintain its ability to borrow money at reasonable rates to keep our system operational, replace aging infrastructure, and, perhaps in the future, build a new power plant.

The storm will pass. And I have absolutely no doubt that the BWL will thrive in spite of the lagging economy. While the obstacles are before us, so are the opportunities.

 

Can Michigan be paroled?

I’m still banging through this new list of recommendations to cut prison spending, but the very first page offered an incisive, and sad, analysis of the state of Michigan’s leadership.

I quote from the first footnote (emphasis mine): “During the initial meetings, the Justice Center and the working group agreed that any analyses and policy options related to the Department of Corrections’ operations (such as labor management, where there might be opportunities for increased efficiencies) would be beyond the scope of the project. Additional policy options were discussed and considered during the working group process; however, policymakers concluded that the options offered in this brief were among the most likely to achieve consensus on reducing crime and victimization and generate significant savings given the current circumstances in Michigan."

So, let me get this straight ... the duly elected lawmakers of Michigan have to rely on an out-of-state group, the Council of State Governments, to determine what’s politically feasible in Michigan? This is like Red Wings’ management going to Norway to ascertain how much fans will pay for a rink-side seat.

Here’s the current landscape in few short points:

1. Michigan imprisons at a far greater rate than its neighbors — and to no discernible advantage in crime rates.

2. Michigan’s corrections budget is so large, it hamstrings the state’s ability to invest in anything else or even maintain a stable balanced budget.

3. People in prison can’t victimize the law-abiding the way a released prisoner could.

4. Released prisoners have committed crimes, some trivial, some heinous.

5. In the world of politics, the safe play is to advocate for more prisons, more prisoners and longer sentences.

6. In the world of politics, it’s easier to cast change as jeopardizing the  safety of our streets than it is to show how rampant incarceration impoverishes the entire state.

A CSG report, or the CSG itself, can’t alter that landscape. Only Michigan voters and their elected representatives can.

Obama vs. Washington (the city, not George)

One last thought about the inaugural: NBC is embarrassing.

Now a commercial ... we'll be back for the rest of the invocation

In my time, I’ve heard many an “Amen!” during an invocation at a gathering. But Barack Obama’s inauguration may have made history. For the first time, I heard people applaud in the middle of a prayer.

Rick Warren droned on so long Tuesday that I guess people lost context. Is this a prayer or a speech?

The Obama team caught flak for selecting Warren, whose views on some issues are rather ... interesting. Still, from this example, it would seem Warren’s principal flaw is a common one: a passionate love for the sound of his own voice.

He should have given the invocation at pne of the Clinton inaugurals ... he would have been a perfect fit.

Use michigan.gov to your advantage

Pam Nelson of DeWitt was kind enough to send me a link to a useful feature of the state of Michigan’s Web site:

Routine announcements of Parole Board hearings for imprisoned felons.

Nelson wrote, “(T)he main reason why I sent you the link was because I am intrigued to find that the parole board is posting its hearing notices on the michigan.gov Web site. I wonder if they want more input from the public. ...”

Parole hearing notices are not the only news you will find on the michigan.gov site. At the top of the screen, you will see rotating headlines for all manner of government announcements and information. It’s called “Mi newswire.”

If citizens are going to gain more control over their government, they must empower themselves with information. It’s hard to join the debate, after all, if you have no idea how the government is spending all the money you send it.

If you don’t have it on your bookmark list already, add michigan.gov. When you have a free moment, explore a little. You may not always like what you find, but ignorance is no defense when it comes to the proper relationship between citizens and their government.

Blue Cross turns up the heat

“Blue Cross cites $1B loss in job cuts, proposed rate hikes,” reads the Free Press headline. I have to say I’m surprised BCBS waited this long to play this card.

After all, what do you do when campaign donations and furious lobbying don’t bend the Legislature to your will? Threats on jobs have a long track record of success in political management — or manipulation, if you prefer the term.

“Andy Hetzel, vice president of communications, said in a statement that the state’s largest insurer needs the rate hikes because the Michigan legislature did not pass legislation that would have allowed Blue Cross to raise rates immediately, as commercial insurers do, subject to later state approval.”

I pretty much expected that Blue Cross would get its way on an insurance law rewrite in the lame-duck legislative session last year. When the Legislature adjourned without a Blues-approved bill, the frustration had to be high at Blue HQ. They needed a game-changing play and here it is.

Of course, such dramatics carry their own set of challenges. Legislators could get peeved and argue that if Blue Cross is in so much trouble, than more radical reform is necessary.

One positive angle: Blue Cross wants a 32 percent increase in rates on its Medigap policies — a product that has cost Blue Cross a fortune in recent years. Maybe the Legislature can discuss with Blue Cross execs a path to get Blue Cross out of that business entirely now.

Blue Cross says it also will be cutting back on its executive ranks, and on advertising and lobbying. That last bit won’t go over well in Lansing, where Blue Cross, along with DTE and Consumers, have thrown around some major bucks in the last 18 months.

I thought 2008 would be the make-or-break year on Blue Cross legislation. Seems I was a year off.

Silence of the drivers

The evidence is mounting on a public health threat. Sooner rather than later, the state of Michigan will have to make a choice — a politically painful choice.

No, it’s not about banning smoking. It’s about cell phones and how using them in your car is dangerous to everyone’s health.

The New York Times reported this week that the National Safety Council, which once helped lead the charge for seat belts, is now calling for an all-out ban on your jabbering. Details here, but the quick summary is:

You can’t safely operate a car and talk on the phone at the same time.

As the Times put it, “Laboratory experiments using simulators, real-world road studies and accident statistics all tell the same story: drivers talking on a cellphone are four times as likely to have an accident as drivers who are not. That’s the same level of risk posed by a driver who is legally drunk.”

And, please, spare me the hands-free excuse. The Times again, “(A) large body of research now shows that a hands-free phone poses no less danger than a hand-held one — that the problem is not your hands but your brain.”

Oh, and spare me the “there are many distractions in the car” excuse too: “The studies show that cellphone conversations are highly distracting compared with other speaking and listening activities in the car.”

Of course, drivers, even phone-using drivers, know this already. We seen the results of this habit ... the oddly slow vehicle, the vehicle drifting over lane lines, the vehicle that makes a sudden turn or stop. All these actions are the result of driver distraction.

There are really only two possible end games here.

No. 1: After the carpet-bombing of U.S. culture over seat belts, cell-phone bans are politically inevitable. The research will fill out the threat; the public safety crowd will engage fully on the issue; the insurance industry will either sign off or stand aside; and the cell-phone industry and its clients will get rolled.

No. 2: A break-through on robot cars frees all Americans from the hassle of actually paying attention to the tons of metal and plastic that carry us about town each day.

If you’re addicted to your phone, you better start rooting for the robots. Of course, once they drive our cars, it won’t be long before they do take over the world.

Why play Tax Santa one 'child' at a time?

“Pfizer to Cut Researchers as It Hones Its Focus” read the New York Times Web site headline yesterday. See the rest of the story here.

“‘Erik Gordon, a professor at the Ross School of Business at the University of Michigan, said Pfizer’s problems were not unique. “Other companies need to do the same thing,’ Mr. Gordon said. “It’s really hard to turn a research dollar into a profit dollar.” He predicted more layoffs in Pfizer’s sales force, too.

Building an economy via surrender

Today’s odd linkage is the announcement by GM to locate a battery production plant in Michigan and a caller who blames Gov. Jennifer Granholm for not keeping Federal Mogul jobs in Michigan.

Bear with me, it could take a minute.

In October 2008, the once-bankrupt Federal Mogul was reporting good times, even $1.3 billion ($800 million in cash, $500 million in credit) with which to engage in acquisitions. That’s cold comfort to people who used to work for FM at plants in St. Johns and Greenville.

Skip back to 2004: Responding to threats of job relocations to Mexico, Granholm, the Legislature and MEDC got to work. They crafted $65 million in state tax credits to keep FM jobs in Michigan.

Skip forward to 2006: FM announces the closure of its Greenville and St. Johns plants, despite the state (and local) tax help.

Skip forward to 2007, Crain’s Detroit reports, “Companies reorganizing under Chapter 11 bankruptcy will have more time to hold onto certain state tax credits they receive, under a newly signed state law. Public Act 62, sponsored by Sen. Jason Allen, R-Traverse City, was sought by automotive supplier Federal-Mogul Corp., according to state and legislative officials.

“The company, which is awaiting U.S. Bankruptcy Court confirmation of its plan of reorganization, faced the possibility it could lose the benefits of a previously granted Michigan Economic Growth Authority tax credit at the end of 2007 received the nearly $65.5 million MEGA tax credit in December 2004, when it announced it would keep plants open in Greenville and St. Johns, invest $6 million in the operations and retain more than 1,800 Michigan workers.

“Under Michigan’s MEGA law, firms in Chapter 11 have had three years after entering into a tax credit agreement to have their reorganization plan approved by a bankruptcy court; otherwise the tax credit is rescinded. Allen’s bill extends that time limit to six years.”

The jobs are gone and all of this is Granholm’s fault?

Understand, I’m no fan of the governor’s penchant for political favoritism in the market place. My caller the other day was under the impression that Granholm could have included, but did not, an ironclad provision with the aid that the jobs stay here.

But, if we learned anything about the business world in recent years, it has to be that no commitment to the public is ironclad. The only agreements that do seem to survive are golden parachutes for executives; everything else is worth only the paper it’s written on.

Which brings us back to GM.

This week, the automaker said it will site a battery production plant for its new Volt vehicle in Michigan. Exactly where the plant will be is not determined, though.

“The battery manufacturing plant and the research center are subject to negotiations with state and local governments over financial incentives to build the centers,” mlive.com reported. “The Michigan Legislature recently passed legislation to give battery manufacturers $335 million in tax incentives to locate plants here.”

In other words, despite the state’s act of good faith, GM still needs to see how many more incentives it can get from the public.

That’s good business. Why settle for a few handouts when you can receive many.

But what happens if GM decides making batteries outside Michigan is the better deal? Think Granholm or anyone else in state government is going to get anything back from GM? Would they even try?

If they did, all GM would have to say is that state interference would lead to even more GM cutbacks in Michigan. Think the public would side with the state?

I don’t.

Once you accept the premise that state government’s primary duty is to create private sector jobs AND the premise that the only way anyone would do business in Michigan is because they’re handed money, it seems a wee bit ... hopeful ... to think the public retains any leverage on conditions.