Excise unhealthy union greed with no auto bailout

With hat in hand, Shreveport Mayor Cedric Glover went to Washington to ask for (what is accurately termed even if he doesn’t like it) a “bailout” for American auto manufacturers. Shreveport was home to one of the largest General Motors production lines in the country until sagging company fortunes cut its production by over half. Glover equated the request with the loan Chrysler received almost three decades ago which it paid back, but this is a bailout because it throws American taxpayer dollars at a situation made untenable by the greed of unions.

As in almost every commercial enterprise, personnel costs are the largest single component for the automakers, and it is union demands which have escalated total compensation to absurd levels that have made American companies noncompetitive compared to their foreign rivals:

The average private sector worker earned $25.36 an hour in 2006 – $17.91 an hour in cash wages and $7.45 an hour in benefits such as pensions, paid time off, and health insurance. Autoworkers at Japanese plants located in the United States earn substantially more than this: between $42 and $48 an hour in wages and benefits. The typical United Automobile Workers member at the Big Three earned between $71 and $76 an hour in 2006 – almost $30 an hour in salary and over $45 in benefits.

Typical benefits include extraordinarily generous health care plans where a member pays less that $250 a year for family coverage, long paid vacations (15 –year employees at Chrysler got five weeks off in 2006), the JOBS Bank program that continues to pay almost all of a workers pre-layoff salary after their exhausting regular unemployment benefits that only recently was limited to two years, and “30-and-out” which until recently allowed all workers to retire after just 30 years service with generous benefits that means, for example, GM pays for three times the number of retirees than it had employees.

As a result, every American buying an auto made in Detroit pays an extra $700 to $1,000 to support health benefits far more generous than most Americans receive, and hundreds more per vehicle to support these other freebies, whereas the same car made by a foreign manufacturer in the country would cost over a thousand dollars less.

It is this perverse transfer of wealth from consumer to unionized workers that is the main cause for an ailing domestic auto industry, and a bailout only would compound the problem by allowing subsidization of this inefficiency. Fortunately, this bonanza at consumers’ and shareholders’ expenses partially was reined in by some reforms in the past couple of years, but too late to stave off these financial troubles.

In fact, in the current crisis provides a perfect opportunity to correct these wrongs. By declaring bankruptcy, the Big Three (likely with some different management) would have far greater latitude to do so. (Don’t forget that in declaring bankruptcy, it’s not like they’ll stop producing immediately: they’ll continue to make cars, even if slightly fewer – after all, Japanese manufacturing in the U.S. with its far lower compensation continues without major difficulties.) A bailout would do nothing more than transfer wealth from taxpayers to a privileged set of workers and prop up an diseased industry that will make its day of reckoning even more painful unless compensation is pegged at a realistic, sustainable level.

But that’s the entire point, isn’t it? With a new regime determined to “spread the wealth” coming to Washington that’s more interested in redistributing wealth to its allies such as unions and Democrat-run Michigan than in its creation for all, no doubt this bailout will occur in the early months of 2009, and the usual scapegoats will be blamed – society’s most productive people, for example. Naturally, the only thing that would be spread by this action would not be wealth, but economic malaise. Regardless, politicians like Glover need to quit chasing for votes and do the right and sensible thing instead by refusing to go along in recreation of the problems that got us to this juncture in the first place.

Review of dedicated funding desirable for possible unlocking

One idea Gov. Bobby Jindal has suggested as a way of dealing with budgetary inflexibility is to unlock state dedicated revenues. The idea should be developed into a broader review matching funding to purpose.

First, it must be understood that, even though the state took in around $30 billion last year, it had discretion to spend only about 30 percent of it. The other 70 percent is locked in a variety of formats. Some, approaching half of the locked amount, comes from federal grants to be spent on some legally-defined function. Others arise from some legal obligations of the state, such as repaying debt. Yet others are self-generated by agencies themselves, either through their statutory activities or through ancillary operations which also stay in the agency. Only the last of these essentially could be altered, as the state really can’t violate federal and financial obligations without severe penalty, and that would create financial chaos as agencies creating “surpluses” would be raided and thereby discouraged from performing these activities (not that this hasn’t been done before; in the past, revenues that exceeded expenses in the charity hospital system would be removed from the LSU system that runs it).

What Jindal refers to is the 36 different statutory dedications made by the Legislature for a variety of purposes. For example, it’s not commonly know that within the 4 percent state sales tax paid, 0.03 percent is redirected to the Tourist Promotion District that generates nearly $20 million a year to aid tourism across the state. These divert more than 15 percent or a little under $2 billion from the state’s general fund which leaves almost $9 billion for “discretionary” spending from the general fund. In times of deficit, normally it is from this pot only that cuts may be made in programs (as opposed to cuts in general government operations which can occur anywhere through tactics such as travel curtailment, position freezes, etc.).

Jindal must resist siren song to spend, not save

Recently it has been argued here that with a surplus for the last state fiscal year but a looming deficit for the next that Louisiana bankroll the surplus now and dole some of it out in the future. The need to do so is greater than ever and it will be a challenge to use the savings, collected in the Budget Stabilization Fund, in the most responsible way.

When House appropriators meet today, one option they say they will investigate to tackle an estimated 2009-10 operating deficit of $1-1.3 billion is to tap the fund. Legally, the initial portion of “excess” mineral revenues and a quarter of any declared nonrecurring budget surplus goes to the fund and the remainder is voluntarily entered into it. Up to a third of the balance at the beginning of this fiscal could be used next fiscal year so long as none is used this fiscal year.

This year’s ending balance looks to be about $854 million which technically is not the baseline on which the one-third amount eligible to be released is calculated as the Constitution states it is to be calculated from the beginning balance of the state’s current fiscal year, so it appears roughly $275 million would be available to shore up next year’s budget. That figure could have been over $450 had Gov. Bobby Jindal saved more than spent earlier this year (any appropriation into the fund cannot make the fund’s balance exceed four percent of the previous year’s revenues, and federal recovery dollars had boosted state revenues to $34 billion the fiscal year before Jindal assumed office).

So, a fund withdrawal still would leave a substantial deficit. Further, it essentially locks out using the fund again until another year has passed, so this is a temporary and incomplete solution at best. While economic growth from increased business confidence from ethics laws changes and tax cuts enacted earlier this year will occur, it won’t be overnight. All of this means that lawmakers are going to have to make hard choices.

Let’s say that the amount does get deducted, leaving about $575 million in the fund, and revenues come in at last year’s figures (even with further reductions in federal recovery aid), maintaining the $1.2 billion cap on the fund and leaving $625 that could be pumped into it for fiscal year 2009-10. Jindal therefore could ask to dump $550 million into the fund during any special session held to deal with the surplus, or if one does not occur during the regular session.

At the same time, Jindal must cut state spending deeply, and there are some legislators that are going to want a form of “compensation” through the use of the nonrecurring surplus, getting capital projects built to make up for losses to their favored recurring programs, especially when they point out committed funds could not be used for another year. Jindal must resist adding this sweetener and make sure the hard and correct choice is made, saving now and spending cuts (combined with fundamental reform) to ensure a solid state fiscal footing for the future.

Less, not more govt will overcome LA migration problem

Recently released census numbers only underscore the outmigration problem Louisiana has faced for many years, and add fuel to the fire for those who have argued for policy change to stem this tide. Unfortunately, the solutions offered typically range from the minimal to ineffective and ignore what really must be done.

It seems that Louisiana continues to be near zero population growth, courtesy of more emigration than immigration with births exceeding deaths taking up the slack. More worrisome is that a significant proportion of the migrants away are the prime productive – and therefore biggest taxpaying contributoring – citizenry, where well over half, or about twice the Louisiana average, had attended college and about a quarter made over $50,000 annually.

But some recommendations to deal with this rest upon the erroneous idea that government somehow has to prime the pump. For example, we get from the Council for A Better Louisiana the notion that government has to fund “research alliances,” even though that has been tried – and produced next to nothing – in most instances. Or also offered is appears-good but useless legislation such as attempting to bribe people to stay in the state by the state funding in part a down payment on a house – not understanding that a short-term incentive does not address the long-term disincentives present in the state.

In part, these ideas do little because they fundamentally misunderstand the nature of human economic activity and place too much faith in government to replicate the voluntary, beneficial exchanges promoted by free markets. The philosophy on which these public policy solutions need be built is neither novel nor complicated and best may be summarized by Edmund Burke’s quote, “To make us love our country, our country ought to be lovely.” In other words, if conditions that cause people to flee are mitigated, fewer of them will leave, and if they especially target the prime productive citizens, so much the better.

At least Gov. Bobby Jindal seems to understand what to do here, for the most part. He correctly noted that ethics reform he took the lead on will bring greater confidence in government to the citizenry that their tax dollars would not be wasted or misdirected. To a lesser extent workforce changes also will help although this is more of an attempt to realign resources than create incentives to generate new ones. But Jindal did not mention the most prominent successful such effort at beautification, this year’s tax cuts disproportionately directed at the most productive citizens, probably because he only belatedly jumped on board in support.

The latter, combined with restructuring of state spending that either will allow the state to do more with what it has or to make itself smaller and do the same, is what really will make a difference. The more government is gotten out of people’s way and the fewer resources it takes from them, the more attractive the state becomes for those who wish to pursue their passions for excellence. A state that taxes too much, regulates too much, misdirects resources to trivial pursuits relative to needs, allows politics to interfere too much with administration, and sees as its primary mission spreading the wealth is the state that will drive away those it precisely tries to attract.

Regrettably, the Louisiana of the recent past fit this description. Some, and in fact a growing number, like Jindal are trying to change it. But until we rid ourselves of the peculiar notion that it is more government and government itself, not the people, who create wealth, that kind of policy will deter those most capable of contributing to society through their marketplace activities from residing in the state, and the migration problem will continue apace.

LA indigent health care reform takes good first steps

Finally, the Gov. Bobby Jindal administration has issued its plan for reform of indigent health care in the state, which we then learned the changes hold great promise and look to annoy some special interests.

Essentially, the plan argues that money is being spent inefficiently that concurrently produces lower health care outcomes regarding the poor and indigent. This stems partly from procedural issues – making a variety of services “free” (since the procedures are performed and the state billed or it directly provides with no cost to the recipient) encourages wasteful usage – and from legal/bureaucratic constraints (since the state relies so heavily on state-run care through its charity hospitals it must depend proportionally far more heavily on a federal program designed not for preventive and ordinary care so patients are steered to more costly care).

The practical impact looms considerably. The administration of the present regime has costs rising far faster than the system can sustain in the long run, threatening to double its proportion of existing state general revenues in the 2004-2011 period from about 10 to 20 percent. Any attempt to rein in this spending under existing rules could threaten to make the system totally state run, if to make up the growing deficit reimbursement rates to the private providers, already low enough to discourage many from participating, get reduced further.

The plan proposes largely to remove the state from direct care and claims administration. Instead of concentrating on providing or paying providers with little control over consumption, the state wants to negotiate with networks that put together elements of health care any pay, in essence, the insurance premiums for each qualifying eligible recipient. It then would be up to the network to manage the care in a way that minimizes costs while adhering to mandated standards of quality; the better job it does, the more profit it can make (some of which will be required to be passed down to the actual providers).

In all, it creates a fundamental shift in the way indigent health care is provided in the state, one following in concept other states whose programs are judged to be successful. As a result, some interests vested in aspects of the current system are not too keen on this transformative change.

One is some lawmakers themselves. When the 2007 enabling legislation was passed, some probably intended that the legislation mainly assist the existing charity system run by the Louisiana State University System which would allow them to brag to constituents how they provided free health care to them. The “medical home” concept they figured would be created within the charity system, each component serving as a “home.” Jindal’s plan scrambles that arrangement by defining a “home” as members of a network put together not by providers, but by health care managers. By doing this, not only did the advantage the charity system’s parts and other hospital groups have disappear (by already having many functions put together), especially the charity hospitals’ bureaucratic natures may prove to be a disadvantage in what has become a far more market-driven process than many probably envisioned.

This is why some cautious words about the reforms are being issued by the LSU System (whose head of these operations is none other than the former Secretary of Health and Hospitals Dr. Fred Cerise who shaped the 2007 legislation) because it knows private sector outfits will eat into its revenues derived from providing indigent care. But more alarming to it is this new system potentially will transfer much money out of it. Already one aspect of the plan, to change the nature of W.O. Moss Regional Hospital in Lake Charles, does remove money that would have gone to LSU, and that could grow considerably. Like any government bureaucracy, LSU always prefers more than fewer resources so expect some resistance from it.

And then there are some opponents who just do not like the idea of less government and more free enterprise in indigent health care provision, even though it represents best practices, for ideological reasons, and others such as some physicians because it will make them have to pay more attention to their own business dealings. But the fact is, as long as the state is vigilant in quality control, the best way of increasing system efficiency is to bring more market elements into it.

The Jindal reforms at present speak to increased coverage at reduced costs. Whether the former can be had with the latter remains an open question, and specific details still need working out that potentially could blunt its philosophy (such as those imposed by a new Democrat administration in Washington that is hostile to the liberty provided by free markets). Regardless, this is a welcome, refresh, and absolutely vital step addressing one of the more arcane yet most significant area of Louisiana’s budget and its quality of life.

LA PSC needs to focus on reforms that really matter

At its last meeting, the Louisiana Public Service Commission had a motion to slightly tighten its requirements concerning permissible lobbyist expenditures on its members behalf. It wasn’t a bad idea, but was far from what is necessary to address negative concerns raised by the most recent Louisiana Legislative Auditor’s report on the agency.

Released last month, the audit was critical on several grounds. It did recommend that instead of following state statute that public servants accept only as much as $50 worth of free food and drink per day to have a total ban on acceptance by commissioners and staff. It also pointed out several areas in which internal procedures were unclear or undocumented, and also noted that even when procedures in areas such as rate review and auditing of those charges they were not being consistently followed.

In response to the former, Commissioner Lambert Bossiere III introduced an order that would have implemented this ban on commissioners. He got fellow Democrat Foster Campbell to go along with him but the three Republican commissioners voted it down. (Incidentally, these two had the least amount of free chow given to them or their families over the 2002-mid-2006 period, although Bossiere did not assume office until 2004; Campbell was a model of economy accepting a whopping $8 worth.)

This was not a bad idea, but not only did it not include all staff members of the LPSC, it didn’t really address the most significant shortcoming of the audit – inconsistent application of rate review procedures both before and after implementation. That is, requests for rate changes and determining whether approved rates were being charged accurately in the opinion of the auditor were being handled too sketchily to ensure comprehensive information was available for setting rates and that once set these rates were actually the ones being utilized in billing.

While the Commission staff disputed many of the discoveries, a common theme concerning its admissions of shortcomings appeared to be lack of resources. These are a matter of legislative appropriation and therefore, if it is not a problem of inefficiency in their use, it is incumbent on the commissioners themselves to lobby the Legislature for more than the roughly $10 million it receives to regulate over $1 billion in utility revenues.

But the commissioners have not made any public crusade for increased funding to hire more staff to more adequately address the rate setting and monitoring tasks. Instead, this year they quietly backed a two-thirds increase of their $45,000 salaries, which Gov. Bobby Jindal wisely vetoed.

Tinkering with the minor detail of commissioner acceptance of culinary gifts is fine, but if the Commission really is serious about improving its performance, the commissioners themselves must take the lead in changing procedures and procuring necessary resources to accomplish meaningful improvement.

Jindal doing, saying right things for future national run

Gov. Bobby Jindal showed some great political instincts when he turned down an offer to be considered running mate to Sen. John McCain’s recently unsuccessful Republican bid for the presidency. If he is interested in further national political advancement, he’ll have to keep up his perspicacity in a different way over the next few years.

Certainly it’s correct to muse that one or more of the next great political leaders will come from the party’s gubernatorial ranks. The chances of the party retaining the White House went nearly to zero with the nomination of McCain, and also reclaiming control of Congress when GOP Congressional leaders continued to be more concerned with power than popular policy, with Jindal accurately diagnosing the problem: drifting away from its “roots” of conservative principles and limited government, allowing big government to become their focus which spawned the temptation for corrupt behavior. The party became perceived more of an ill-defined echo than a real choice compared to the empty vessel/hidden agenda strategy of the Democrats.

New leadership more conservative and less enamored with big government for the party finally looks to be emerging in Congress, but it will take time for these figures to develop national electoral constituencies and they must fight getting steamrolled by the new Democrat majority. In the meantime, governors have the stages and opportunity to display their mettle to the public. And, as has been discussed elsewhere, Jindal will have plenty of opportunity (unlikely by choice) to show his abilities.

In retrospect, Jindal accurately seems to have gauged the impact of being on the McCain ticket if he brought any political criteria into that calculus. Losing vice presidential candidates usually don’t have much of a future on the national stage, and in this case he would have been tied onto someone whose electoral philosophy was the opposite of that needed to defeat a weak opponent trying to ride favorable political tides. Now all this baggage belongs to Alaska Gov. Sarah Palin, although she deftly used the opportunity to demonstrate she did have the correct philosophy for victory in these times and did prove she could withstand everything the Democrats and media allies could throw at her.

But whether these strengths would be enough for her to overcome the stigma of the McCain candidacy is another matter. Her presumed frontrunner status over Jindal may have become too impugned by this association and the job the media did on her. Jindal to some degree is better positioned to withstand a media assault, having done so to a lesser extent in his gubernatorial run in an environment larger and less isolated than Alaska which itself spawned some national coverage. The Democrats with complicit media largely have missed their chance to define Jindal negatively already and this may make him preferred by Republicans over Palin in a hypothetical presidential campaign.

Jindal also showed in his comments that he is politically astute enough to acquire and use the vacuous staple of the Democrats’ main campaign theme this year, “bipartisan change.” Of course, this crops up somewhat at odds with his diagnosis of Republican Party ills, because to Democrats “bipartisan” means the GOP acquiescing to whatever Democrats want and “change” occurs by pursuing policy fundamentally philosophically different than that of the majority of the American people, featuring big government interfering more extensively in people’s lives and liberty. Perhaps if Jindal becomes more serious about pursuing national office, he may begin to speak more accurately of a conservative “restoration” of smaller government and greater individual autonomy. But for now, he seems content to borrow these phrasings.

Jindal insists he wishes to remain governor if afforded that chance by Louisiana’s electorate. But should he change his mind to aspire to higher office, so far he has done everything necessary to make him a leading, if not the leading, contender.

College funding plan must not subvert its own goals

The idea that Gov. Bobby Jindal has to reward colleges on the basis of results which in part can be measured by graduations is a good one. But if not done correctly and in isolation of other considerations, this reform not only will not produce better-educated students, but may produce the opposite.

Presently, the financing formula for state universities inputs the number of students. This creates incentives to get students enrolled, but does not address their successful completion of degree programs. While any education is good, the credentialing afforded by a degree makes it most desirable to have students complete them, and to emphasize to universities’ efforts to facilitate this.

But at the same time, graduation rate is an inexact measure that can punish some universities and degrade the nature of collegiate education if done improperly. It must be recognized that many students start their academic careers at one institution and finish at another and incorporate the realities of placement choices. This especially is true for the state’s urban universities of Southern University – New Orleans, the University of New Orleans, and Louisiana State University Shreveport all of which are not the flagship universities in their systems. For example, only 26.3 percent of the student cohort that started at LSUS in Fall, 2002 graduated with a baccalaureate from any state school by 2007, with about a quarter dropping out after their first year.

Tough times may give Jindal chance to stand out

No doubt governors would prefer to be in the shoes of Alaska’s Sarah Palin, with a budgetary state surplus especially in these times where a slowing economy that, if they do what they say, will be slowed even further by Democrat control of the federal majoritarian branches which in turn will reduce federal largesse to states. Louisiana’s Gov. Bobby Jindal does not have this luxury – which may turn out to elevate his chances for higher political office.

The long-warned bubble economy infused with recovery dollars is coming to an end in Louisiana which will test Jindal’s governing ability. Already its looming has forced Jindal into tough decisions, the highest profile of which was his hesitancy to embrace this year’s income tax cut which will only start to come to fruition next year. Many more appear to be on the way.

But if he can get the Legislature to handle it with a minimum of pain to the state, he sets himself up as a devastatingly strong candidate for the presidential ticket in 2012 as the worst nightmare for a White House incumbent of Barack Obama. If Obama and Congressional Democrat leaders do what they promised they will do, the country will be in its worst economic shape since the 1970s with a daunting “misery index” and deficits as a percentage of gross domestic product the highest since World War II. Guiding Louisiana to a better economic picture will stand in stark contrast to that.

This is where Jindal would have the edge on today’s leading Republican for the 2012 national ticket, Palin, who has show she can govern in good times for her state but not yet the bad ones. Further, to some degree the Democrats aided by the media (who treated the first female vice presidential candidate from a major party Geraldine Ferraro with skepticism, but added outright hostility to coverage of Palin) demonized Palin aided by a narrow time frame which may have created enough of a negative lasting first impression to voters that also could give Jindal the edge.

Of course, Jindal must succeed, which means producing a balanced budget that also shifts priorities to areas that appear both necessary and popular despite an environment of increasing costs in some areas and decreasing revenues. But if he does, the fear he has struck into Democrats ever since he began his political career will become their painful reality.

Ideas, not skin color, matter most to most LA white voters

In their enthusiasm to validate certain agendas, some observers are (again) using Louisianans’ voting behavior as a means by which to attempt to do this. Thus, it is imperative to set the record straight.

Upon observing that, according to exit polls, Sen. Barack Obama improved upon his proportion of white voters in many parts of the country but not in some deep South states such as Louisiana, some argue it was Obama’s race (officially mulatto but thought of as black) that primarily explained this. That is, vestiges of racism remained in some white Louisianans who otherwise would have voted for Obama on the basis of other qualities, according to this view.

While such a hypothesis might support a larger ideological view that racism is thereby still too ingrained in American society and therefore would justify activist government to “correct” for it, one obviously very ignored and blatant piece of evidence cannot be admitted by these advocates for it to stand: last year, an overwhelming proportion of white voters in the state touched the screen for a very dark-skinned Gov. Bobby Jindal, even when there were plenty of white alternative candidates.

This points us to the real reason behind much greater white enthusiasm for Jindal than Obama – ideology. Jindal’s Republican identification and rhetoric made clear his conservative credentials, and although Obama intentionally muddied his liberalism with generic bromides, this and his Democrat label clarified to all but the most causal voter that he was liberal. White voters in the state are overwhelmingly conservative (exit polling shows of all voters 42 percent call themselves conservative and only 16 percent liberal; half of the latter figure is probably nonwhites) and these elections have shown that they will respond accordingly if given at least minimal amounts of cues about candidates.

While undoubtedly a few whites will harbor racial prejudice in their voting behavior, the notion that it is widespread or generally significant to an election outcome cannot be sustained by the facts (as I demonstrated elsewhere), at least in Louisiana. Give Obama Jindal’s rhetoric and not only would he have done much better in the state, he would have won; paint Obama paler and little would have changed. Until analysts understand this basic truism, their conjectures on voting behavior in the Pelican State largely will be useless.