30 Year Celebration

We had a small party today to honor City Clerk Jan Meisinger. Thursday, Jan celebrated her 30^th anniversary with the City of Hillsboro.

Doing anything for 30 years takes a considerable amount of fortitude and dedication. Her work has given her an interesting perspective on how humans work and interact. She would have a bunch of stories about how Hillsboro works. Knowing Jan, I know the secrets are safe—at least until the offer comes to write "the book" we would all like to write about our experiences.

Congratulations on your 30 years with the City of Hillsboro.

Kansas impact on the Economy

Last week, I attended the KU City Manager seminar. The theme of the program was how cities were coping in this economy. The example cities/counties experienced the desperate times we hear about in the news daily.

One thing like to do at conferences with my colleagues is spend time in the halls talking and comparing notes. This year the comments are not like the stories we hear from the major media outlets. Like Hillsboro, Kansas communities are coping well during this time. The more I listened to the stories in the seminar and the stories in the hallway a theory developed in my mind. In Kansas' smaller communities, local governments do not stray far from the core purpose of what government is supposed to do! The purpose of government activities is to do for the community that we can't do for ourselves. When we gather in community living, we try to spread the jobs around. One person does law enforcement, another does fire protection. One provides water and another teaches school. And the activities go on.

In larger communities, there are more people asking for more things to be done and because there is money available, the diversity of activities grows.

This is the contrast I saw last week. Since folks want more and their government is willing to provide it times like we are seeing create pressure to keep doing the same grandiose things. In our smaller communities, I see us doing the core services well and fairly Spartan. (We certainly could use a couple more people in certain areas too.) We are living within our means and we have a sense of not getting too extravagant. The Midwest work ethic plays here too.

So my unofficial poll is this, we are doing well compared to the east and west coast. We are thankful that our community does not hurt like those I heard about last week.

And they say Crime Doesn’t Pay

One of the Blogs I read regularly is one called Evolving Excellence. The March 31, 2009 posting summarizes some thoughts I have concerning our financial situation. I pasted it below for you to see. One of the thoughts I had yesterday while reflecting on the GM CEO sacking was how similar it is to the actions the CIA took in the 1960's and earlier with foreign governments. If our government didn't like the leader of another country, we set about to have a coup and "bam" they were gone or dead. About the only nice thing about the past weekend's maneuvering is Mr. Wagoner only lost his job.

 

Posted: 30 Mar 2009 03:24 PM PDT

By BILL WADDELL

Bank of America got $25 billion last Fall, then another $20 billion in January, plus a guarantee against losses of $118 billion, and now the New York Times is reporting that the bank also grabbed another $5.2 billion unbeknownst to the rest of us through an outfit called American International Group. By my arithmetic, that comes to a shade over $168 billion of our cash the bankers needed to cover their screw-up.

Part of the bailout money went to cover the $20 billion+ losses of Merrill Lynch, which the B of A bought knowing full well that Merrill Lynch had lost all that money. It also went to pay hundreds of millions of dollars in bonuses to thousands of Merrill Lynch employees right before the deal closed.  The B of A then covered the bonuses with the first bailout check, and is now dragging their feet as the New York State Attorney is demanding the details.

The boss at the Bank of America - a good old boy named Ken Lewis - not only stays out of federal prison, he keeps his $10 million a year job.  Note: In fairness to Mr. Lewis, he demonstrated great personal sacrifice by settling for $10 million in 2008 while the bank was in D.C. with its grubby hands out.  The previous year he took home $20 million.

Contrast that sad story with GM.  They get $9.4 billion - 95% less than the shifty banker got.  And now for reasons Mr. Obama has yet to explain, if GM wants another dime, the big boss has got to go. Rick Wagoner is fired.

As readers of Evolving Excellence well know, I am hardly a member of the Rick Wagoner fan club, but no one has ever breathed an insinuation that he is sneaky, devious or in any way dishonest - like the bankers and brokers with their bonus shenanigans.  No State's Attorney's Office has reason to investigate Wagoner, or his management of General Motors  

What are we to think of this other than to draw the obvious conclusion:  The folks in the financial community can play as fast and loose with ethics, the law and other people's money as they want without consequences? Manufacturers, on the other hand, can't even fail, let alone wallow in the self-serving ethical sewer the bankers and brokers inhabit, without losing their jobs.

What's up with that???

There might have been some logic behind it had Obama demanded that GM put a manufacturing pro in charge like Alan Mulally at Ford where a bailout wasn't needed, but no.  Wagoner is being replaced by Fred Henderson - another in a long line of career GM accounting and finance guys a whole lot like Wagoner.  So what's the deal?

We are told we have to follow through on bonuses to sleazy bankers and Wall Street shysters or else they won't be able to attract the best talent.  But throw the manufacturing bum out on his ear - after all, anybody can run factories ... is that it Barack?  Screw the manufacturers and fawn over the bankers and brokers? 

Why didn't UAW President Ron Gettlefinger get canned part of the mandate? Didn't the union have an awful lot to do with the mess at GM? Or maybe canning Wagoner is Obama's way of helping his union backers by giving GM management a hearty head slap. 

Whatever this deal, it is, like just about everything Obama has touched in his first few months on the job, it stinks. Bankers and union bosses sail through the economic mess unscathed, while manufacturing management and manufacturing workers get the shaft.

Most laughable is that the auto industry crisis is largely the result of bankers so fouling things up that no one can get a car loan.  If the Bank of America had found their way clear to make just a little bit of the $168 billion available for people to buy Chevys, maybe GM wouldn't be in such dire straits.  Just a billion or two of it would have helped, but no, that hasn't happened. 

You blew it Rick.  You have acted honorably, and naively thought you were dealing with honorable people. Shoulda paid yourself a whopping bonus out of the $9.6 billion instead.

The wonderful world of municipal finances

This is a long and involved posting about the City's 2008 and 2009 finances. I didn't expect it to be as involved as it ended up. It is technical and really designed to supplement the article that appeared in the Free Press last week. This is their story. Hillsboro Free Press - City intends to monitor cash flow in troubled economy

The City of Hillsboro is starting 2009 as a number of other organizations—watching where and for how much our revenue stream takes us this year. Because of the national economy, how we operate the many facets of what we call the City of Hillsboro will be different in 2009 compared to any recent year of operation.

For most of 2008, I watched two of the city's funds—electric and water. Earlier in the year, I reported to the city council that the utility funds were under financed. We passed rate increases in Water, Sewer, Electric and Sanitation. Because of the cooler, wetter summer, water consumption was lower than the recent history shown here.

	Water Consumption.
	in Gallons
2002	112,894,350.00
2003	103,875,606.00
2004	102,557,808.00
2005	93,061,646.00
2006	99,762,566.00
2007	91,054,053.00
2008	87,229,292.00

 

We all felt the hurt of rising fuel costs during the summer of 2008. In the electric utility, we felt the hurt of fuel costs in the cost of power. The cost of power always includes cost of fuel as one of the components. In 2008, our fuel adjustment was $432,525. When we forecasted the rate adjustment, we were expecting $272,613. Another way of saying this is the projected fuel cost was $0.0098 per Kwh. In August, we paid $0.031 per Kwh. The table below shows that the cooler weather this summer also affected the electric utility.

	Total	Total
	KWH	Sales
2,001	21,301,884	1,898,523.03
2,002	21,966,858	1,942,454.45
2,003	21,330,321	1,904,157.48
2,004	21,583,919	1,993,473.74
2,005	22,478,221	2,069,403.19
2,006	22,512,665	2,064,434.00
2,007	22,911,018	2,133,872.89
2,008	22,664,202	2,067,733.46

 

Traditionally, the City's general fund receives a transfer from the utility funds. Since the cash flow here was so low, we did not transfer the full amounts. Since every action has it consequences, the impact on the general fund was that $125,000 that it would have been received wasn't. We finished 2008 with a lower cash balance there as well. The bottom line for us is that we will be looking at possible rate changes in 2009 as a result of the lower than projected revenues. I am working on recommendations to the City Council now.

The rest of this post will be for the die-hard finance person interested in seeing how the municipal finance world works. If you bail out now, I won't be offended. It is stuff I need the keep the City Council updated on to fulfill our financial accountability responsibilities. Don Ratzlaff's (Hillsboro Free Press) story about our efforts covers the basics.

So the question "Larry, why should we care about these cash flows?" The Kansas "cash basis law" requires that we keep positive balances throughout the year including having a positive balance at the end of the year. As a result of not having a larger cash balance several months will have negative balances, thus violating the law. I know this now because I have projected the revenues and expenditures of several funds to see this.

The City of Hillsboro has 39 separate and distinct funds. It is somewhat like running 39 different companies and each of them must be profitable every month and at the end of the year. A large number of these were created for what is called a "special purpose." We have a number of funds for the Public Building Commission, Recreation Commission and several unique funds like the tree fund, K-9, DARE, paying sales tax and employee withholding taxes.

I said two paragraphs up that I was projecting the revenue/expense stream of several funds. What I am actually tracking are 17 distinct funds. These are the funds where a considerable amount of business is being done. Here is a list:

1. General
   

1. Library
   

1. Recreation
   
2. Special Highway (Gas Tax for repairing roads)
   
3. Industrial
   
4. Special Law Enforcement/Fire
   
5. Family Aquatic Center
   
6. Equipment Reserve
   
7. Sales Tax
   
8. HCMC Plant Property and Reserve
   
9. PBC Family Aquatic Center
   
10. Capital Improvement
    
11. Bond and Interest
    
12. Water
    
13. Electric
    
14. Sewer
    
15. Sanitation
    

An example of the complexity of the cash flow process is tracking the General Bond & Interest fund. It receives payments from other funds (City of Hillsboro companies like water and sewer) to pay debt issues. These debt instruments receive principal and interest deposits at least two times per year and are then paid twice a year. What makes this fund "fun" to watch is that the first series of payments start February, March, and April and the second set start in July and go through October. Each debt issue requires payment in the Bond & Interest Fund the month before it is to be paid. The Bond & Interest fund is also property tax supported, the property tax revenues received from Marion County must be in the Bond & Interest fund as well.

One of the more unusual flows of cash occurs with the Family Aquatic Center. When the sales tax issue was approved to build the pool, a Public Building Commission (PBC) was formed to be the owner of the pool during the duration of the pool debt. Sales tax is deposited in the General fund then transferred to the Family Aquatic Center (number 7 on the list above) as rent. Then the Family Aquatic Center makes a payment to the PBC Family Aquatic Center (number 11 on the list above) and that fund makes the pond payment. In my view, there is one too many funds in that transaction—that being #7 Family Aquatic Center.

New "Hillsboro" Sign is Up

I just have to brag about persistence. There is a new billboard sign on Highway 50 telling the world how to get to Hillsboro.

Most folks remember the former sign was broken down and needed to be replaced. The Chamber of Commerce was responsible for its maintenance and keeping the rents coming. When the director resigned this spring, Clint Seibel, Executive Director Hillsboro Development Corporation, took up the cause to get the sign rebuilt. The old sign had to be removed. A design needed to be developed. A new agreement needed to be reached with the land owner. Funds needed to be raised for the construction and printing of the new sign. An application needed to be approved by the Kansas Department of Transportation before construction could be started. Clint worked on this over 8 months. Now it is done. It looks great.

Hillsboro’s New Welding Program

The third of this year's economic development projects came to life yesterday. The new welding program under the guidance of Butler Community College (El Dorado) started class with five students. The program is to train new welders to meet the needs of our two trailer manufacturers. Read and watch the Wichita Channel 12 report here. There is a video clip there too.

This project started early this year with the idea of having a ready resource of welding talent in the Hillsboro/Marion County area. Recruiting welders to the two trailer manufacturing businesses was tough given the strength of the US Dollar helping nearby AGCO in Hesston. They were hiring everybody they could so they could build farm machinery for sale overseas. Our local businesses wanted to expand their operations but the supply of trained workers was very small. The answer was to build a training center where folks could be trained, get a nationally recognized certificate and have an industry ready to hire the best students in the class.

To make the situation work, local industry met with the City of Hillsboro Butler Community College and representatives of the Kansas Department of Commerce. All these folks had their hand in making this program start. Hillsboro Industries manager, Phil Wyssenbeck, sits on a Department of Commerce Work Force Development Council. His efforts brought the Department of Commerce to the table. This gave access to a $100,000 grant to purchase equipment for the classroom. The City of Hillsboro had space in the AMPI building that was large enough for both the shop and the classroom.

Once all the details were worked out, City of Hillsboro staff and contractors began a short timeline project to get everything ready for the first day of class. We had to reroof the portion of the building to be used by the program, add heating and air-conditioning, rebuild one of the dairy work rooms into a classroom with a teacher's office, replace doors to meet current industry standards, and install air a make-up system so welding fumes can be exhausted.

The objective is to train 15 students at a time in the program in 8 week sessions. This class started with five. It is a great start. Now we will nurture it and help it grow.

National Financial Crisis

The past couple of weeks watching the various players in the financial crisis has me reflecting on our country's history. The memories of the crash of 1929 were told to me by my father and grandparents. Decisions they made subsequent to the depression were forged by that experience.

We are now hearing that some of the laws that came out of that time to protect us from future problems were based on "crowd think." A story I heard on NPR last week as I came home from work suggested the divisions and regulations of investment banking and commercial banking were based on bad analysis. Back then, any bank could be both a commercial bank, taking deposits and doing loans plus have the ability to sell stocks and bonds. It was assumed then that the commercial banks had a hand in selling more risky "paper" to their customers. The historical research since then has (according to the NPR story) proved that the commercial banks did a much better job of selling "good" stocks and bonds than did other financial institutions. A couple of Senators got together and wrote a set of regulations that focused on dividing the business so commercial banks could no longer sell stocks and bonds.

Pondering this leads me back to one of the first blogs I wrote. My dad sent me some money for my birthday and as I normally do, I went to the book store and spent it "wisely." I purchased Tom Peters book Re-imagine. The early chapters had me thinking about the consequences of bad decision making. In business, the consequences results in bankruptcy. Of course, there are a number of other casualties in the business failure. Employees of the firm are as directly affected as ownership. There is financial pain and suffering with both parties but in one sense it is different. Employees are putting their trust in ownership that they make good decisions to keep the firm going. The business either restructures or goes away. The penalty for bad decision making is the death of the company. There are consequences and they are sometimes harsh.

This led me to continue thinking about bad decision making in government. Typically the consequences are not the same. What would normally result in a business death does not happen in government. Maybe someone gets fired but the organization goes on. What usually happens is the organization is reorganized and someone has to clean up the mess. That usually means a new set of taxes to pay for the problems left behind.

So, watching the current situation, we see a clamoring by national figures saying "protect us from the bad decisions people make." There are, of course, impacts on the general public. There will be hard times. But isn't this somewhat nature's way of getting things back in balance when we get out of balance. Having the Federal government step in and save the situation is not good. We have learned that the government will always be there to protect us from the "bad" while letting the good happen. Accountability is lost. I expect we will not learn from these events and we will be paying more taxes until the next lesson comes along. Maybe then, we will learn.