Thursday, August 30, 2012

The fed budget Problems: Part Two

“Spending vs. GDP. [Here are some] CBO projections: by 2022, [Federal] spending will be 23% of GDP; by 2050 = 55%; by 2070 = 90%. Totally unsustainable. Revenues have only increased 20% historically.”
“Debt vs. GDP. Now the ratio is 67%. [By that is meant for every dollar the Federal Government spends, $.67 cents is borrowed.] By 2050 it will be 100%. The recently recommended debt goal is 40-60%. So if we don’t reduce debt, we will be bankrupt, no question about it.  Social Security and Medicare will turn into “pay-as-you-go” programs [because we can’t afford to borrow to pay for them].  Bottom Line: more pain now, and more pain later.”

“Two recent Task Forces produced recommendations. Let’s see how many we agree with: 1. They both recognize the problem as real, and opine that Washington must act now; 2. It’s cruel to make promises that can’t be kept, [like Social Security]; 3. We must still protect the disadvantaged; 4. We must reform and simplify the Tax Code, [which has over 5,000 provisions]; 5. We must have Social Security reform; 6. We must reduce healthcare costs – it’s our biggest spending problem; 7. We must reduce annual spending deficits to only 3% of GDP, [now they are 5%]; 8. We must adopt a progressive tax system; 9. We must institute a National Sales Tax (Internet etc.); 10. We must cut Corporation Taxes from 35% to 27%; 11. We must eliminate tax deductions and credits, saving $1.1 trillion; and we must eliminate the Alternative Minimum Tax (AMT); and 12.We must institute  higher gas taxes to fund transportation infrastructure (on top of state sales taxes). Bottom line: [In all of this,]the Feds don’t care about the states problems [at all.]” 

“Congress has also convened separate Debt Reduction Task Forces: 1. Healthcare, 2. Social Security – with no income limits on contributions, and reductions in benefits to millionaires, 3. Debt reduction – Freeze spending (in place now, including Defense), and enforce spending caps; become a pay-as-you-go system. Problem: Bush II abolished the spending caps. And 4. A Biennial Budget (every two years instead of one) – 26 states have it now, but the problem is revenue estimating that far ahead.”

In closing, Rich stated: ‘“A lot of these things better start happening now.” We must cut our national debt to 60% of GDP by 2024, and below 40% by 2037.  Raising taxes alone will not solve our problems – we need cuts too. Bottom line: we need much better controls on spending.”  I agree wholeheartedly, especially about the need for more and better controls.

Rich also showed many documents from to make his points.

That’s a lot to think about, and even more to do. But we can’t just stop everything and pay off the debt.  Think of the thousands of decisions, big and small, that have to be made to solve this problem!  Aren’t you glad you’re not a legislator or the President? So, tell me, what tax deductions can you personally live without? Your mortgage deduction? Or, would you also like to pay a higher gas tax?  How about higher Social Security taxes? Guess what? We’re in store for these and much, much more in the days ahead. I can only say that I pray to God every day that I continue to receive my monthly state pension and social security checks. Think about the millions of people who have neither, or very little. Or those still looking for a job. How will we get them out of this mess? 

Somehow, our representatives in Congress, must put aside their differences and work towards consensus. Wouldn’t it be novel if they voted their individual conscience and not by party lines?  What about having more voices in government? How about establishing “The Independent Party” who can vote to end these deadlocks? All in favor?

The Fed Budget Problems: Part One

I really respect Richard F. Keevey.  I knew him 15 years ago when he was the Budget Director and Comptroller for the State of NJ under two Governors. I worked for the State then as the Manager of the Contract Administration unit in the Treasury Department. In that capacity I initiated dozens of contracts and procurement documents worth millions of dollars that had to be approved by the State Budget Director; in other words, by Rich.  All spending had to be approved by Rich’s office. Every check issued by the State had Rich’s name and title on it. So I got to walk thru many documents directly to him for his signature. He was always professional and keen-witted, and made sure all the i’s were dotted and the t’s crossed. After leaving the state Rich went on to work in high positions in the Federal departments of Housing and Defense, at the Policy Institute for Princeton University, and as a Distinguished Practitioner in Public Affairs at Rutgers.  He’s experienced,  smart, and savvy.

In April at the Annual AGA Spring Symposium, I got to hear Rich present a seminar on the current Federal Budget problems. It was fascinating and I took rapid notes. I’d like to share them with you because I think they boil down some facts that we really don’t understand. This information helps explain why our government is so screwed up.

Here’s Rich’s presentation, [with my additions for clarity]:
“I will speak on three areas: Terminology – first, the federal government is a different world than the states, with different terms. Second, the current problem. And third, recommendations to reduce growth in spending.”

“The Feds always end in deficits. Deficits have rolled into our $13 trillion in debt. Feds borrow for everything. The Feds mix operating and capital budgets together. NJ only borrows for capital projects [never for operating expenses]. “ 

“The Federal Budget has two spending parts: mandatory, called entitlements, and discretionary. Entitlements are 57% of the Budget, i.e. Medicare, Medicaid and Social Security alone. Discretionary spending has been flat at 43% of the Budget – it’s not growing, mainly because a freeze has been on for some time. [Discretionary spending is what flows into and out of the 21 major executive branch departments, and then some.] So that’s the spending side. On the revenue side, the Feds have three main revenue sources: Income Tax (45%), FICA (37%), and Corp Tax (9%). The Feds do “Current Services Budgeting” which is the baseline. That means, looking at what the government will spend over the next ten years based on current laws. They look at all growth, increases and decreases.  Their terminology is: Expenditures equals Outlays equals Cash. All projects must have budget authority for outlays.”  

“The Feds have 12-13 annual Appropriation Bills. Until they are passed in their entirety, Congress passes “Continuing Resolutions” as stop-gap measures. Those are the 11th hour bills on things like Homeland Security and Defense or they get shut down.  [More recently it was Transportation.] The President has no Line Item Veto like we have in NJ, [which makes it much more difficult to trim the fat]. All the Federal numbers come from the Congressional Budget Office, or CBO. It is the Gold Standard as far as estimates and reports, and is very respected and objective. All reports are comparisons to national Gross Domestic Product, or GDP, which states don’t do. [GDP is how the Feds measure the value of goods, services and property produced in this county. Recently it was $15.5 trillion annually.]” 

“The CBO also gives alternative projections [for everything]. Even so, the NJ and local municipalities are better [because we follow GAAP, GASB, CAFR etc., that is, recognized accounting principles], and we don’t borrow for operating expenses. The current CBO projection is $14 trillion in debt by 2020. The Feds have been borrowing at very low interest rates, but they will be higher in the future, and money will cost a lot more. The long term problem is 77 MILLION retiring Baby Boomers.  Now, there is a 3 to 1 ratio of workers to retirees; in the near future it will be 2 to 1.  That’s a huge problem.”

How to Change Terrible Business Practices

#1. Show, don’t just tell.
No matter what you do, writing is much more effective. Anonymous reviews and complaining rants don’t really change anything, and can be easily ignored or deflected, like the Amazon example. Be positive, yet direct. Take an extra minute, send an email to Customer Service, and complete those customer surveys, as a start.  
#2. Identify yourself.
This is a requirement on Angie’s List, for example. Even if you are red in the face because you’re so angry, calm down! Think about it rationally. It’s much easier to attract flies with honey than it is with vinegar. This is especially true when taking something back to the store and dealing with a lowly clerk, who is just trying to do their job the best way they can. Always start there and work your way up. And work your way up until you get satisfaction – most people stop at the first step and don’t take it further. And, most importantly, take a moment to send the company an email about your experience, good or bad.
#3. Hit all outlets with your message, not just one.
If it’s particularly egregious, don’t just email the company on their “Contact Us” link, but also write to anyone with a website and an email address, and that includes congressmen and senators. It’s so easy to do on the Internet, it’s comical. Again, the old method of writing works best, but now we have a brand new tool, much easier to use: your web browser.
#4. Tell people about your experience.
 Research has proven every time a person says a good thing about a company, three people hear it. That’s compared to 10 people who hear about a bad experience. The law of supply and demand, and market forces, will have their effect, even though the progress may be too slow for your liking. Also, telling your friends will prevent them from making the same mistake.
#5. Contact government and other agencies and complain.
 To be honest, this really works best in fraud cases. Same for the CFPB and other agencies at the Federal level, and, there are lots, like the FTC, FCC, EPA, DOT etc. Yes, you can and should file a complaint, but don’t expect an earth-shattering response. However, it does help put the nail in the coffin of bad businesses. The more details the better. Also write an email to Consumer Reports. Best of all, go to and take your pick of caring orgs.
Bottom line: the Internet is fast becoming the best consumer protection tool there is, bar none. Use it. And use it often.

Remember Costly EDECA?

EDECA is 1999's NJ law called Electric Discount and Energy Competition Act.  Let’s examine some significant EDECA Provisions.

Basically it unbundled electric and gas rates, i.e. electricity supply, and later gas supply, are separate from physical delivery over wires or thru pipes; they are now two separate charges on everyone’s bill.  This allowed for retail Energy Choice in NJ, which was a huge government and private campaign when it first started in 2000. 
(Note:  in 1999 the average residential (RS) rate was 11.4 cents per kWh (combined); now it’s 16.57 cents combined. In other words, energy prices in NJ have increased 29% since 1999.  This is slightly lower than the average Inflation Rate of 2.72% per year.  However, inflation isn’t the real reason why energy costs have risen in NJ; it’s mainly because of the added costs of EDECA.

What are these added costs? Think of it in terms of 3% added to your utility bill each month.

1) EDECA required mandatory 10% electric rate reduction over 4 years (there has been cost control at least).  In the first year of EDECA, there was a 5% price decrease, so everybody just loved that. After that, price decreases ended.
2) It mandated that Utilities must provide basic generation service (BGS); or basic gas supply service (BGSS); as “provider of last resort” – in other words, energy availability is guaranteed to all New Jerseyans.
3) Subject to BPU approval, electric utilities were required to either functionally separate generating assets, i.e their power plants from their supply business, or divest them - which they all did – the four NJ major utility companies no longer own generating stations, i.e. power plants, except PSEG’s nuclear plants).
4) EDECA established a Societal Benefits Charge (SBC) on your monthly bill that includes 6 charges, and 1 hidden charge. They are: 
a) Social programs like COOLAdvantage and WARMAdvantage, which are rebates for things like air conditioners and heaters, for example. All these programs are administered by the NJBPU’s office of Clean Energy.  Have you gotten a rebate yet?,
b) Nuclear decommissioning costs (i.e. the billions of $ to close old plants like Salem),
c) Demand Side Management (DSM) programs, which pay big commercial customers to turn down their power usage in peaking events – i.e. when blackouts might occur otherwise; also it mandated $256 million/year for past commitments and new programs –for eight years - which has actually been much more, and has been ongoing,
d) EDECA included Manufactured gas plant (MGP) remediation costs, i.e. cleaning up inactive industrial waste disposal sites.  I couldn’t find out how many we have in Jersey, but it’s as high as 5,000 nationwide,
e) It provided consumer education (mostly about OCE, Energy Choice and energy conservation or efficiency),
f) It included a Universal Service Fund charge, i.e. a subsidy to low income customers, and finally, a hidden cost, the cost of running the Office of Clean Energy.  All these costs are contained in everyone’s SBC charge every month.  
5) EDECA established a mechanism for recovery of stranded costs (i.e. the costs to build and operate the power plants the utilities had already built). It said that stranded costs may be recovered through transition bonds (which are secured by an irrevocable obligation of ratepayers to pay off over 15 years). You dear friend, are the ratepayer. “Stranded costs” are original costs borne by the utility to build power plants, or to buy energy supplies in the new EDECA model, and provide power thru delivery lines.
6) EDECA had gas and electric supplier licensing requirements (which are very, very low, in my opinion).
7) Most importantly, EDECA had emission disclosure and portfolio standards, i.e. Generating plants and suppliers must disclose how they produce their power, whether from coal, gas, nuclear etc.  and, the State legislature made minimum required Renewable Portfolio Standards that utility companies must meet each year, for example, the current RPS requires nearly 8% of total generation to be Class I or Class II Renewables, e.g. solar, biomass, wind, landfill gas etc., and
8) EDECA had distribution reliability standards, i.e. the “grid,” which you’ve heard mentioned I’m sure, is composed of high tension transmission lines (which you see many places, especially along the NJ Turnpike), with substations and equipment etc. to transfer and deliver electricity all around the state, and it must have 99.9% reliability.  

All these things in fact, cost a lot of money and add to your monthly gas or electric bill. The sad part is, that in our legislature’s wisdom, all these added costs (3%), DON’t get shown on your monthly bill, including the 7% sales tax! But that will be another story coming soon.

Sunday, August 12, 2012

Are Killer Wasps Reincarnated?

For the past four years, we've found anywhere from three to six dirt mounds in our lawn made by Killer Wasps. Sometimes they build their nest in the middle of a perfect patch of thick grass, and there's no telling where we'll find one. Now, early August, is when they're out in force. There were so many mounds in our neighbors yard three nyears ago, she had to pay an exterminator to get rid of them. Results were mixed.

Killer Wasps are huge by insect standards. Anywhere from 3 to 4 inches long. They look like like normal wasps with yellow rings. They have a huge area for the eyes, big thorax, a tiny waist, and an even bigger gastor, with a stinger at the tip. The dirt mounds are caused by the wasp digging a deep hole in the grass/dirt, depositing eggs at the bottom. They can be very hard to kill with a flyswatter. However, I've learned a technique to kill them by hand. Well, with a shoe in one hand actually. It's the same method I use to kill flies with my bare hand. Step 1 is finding them stationary. Step 2 is slowly creeping up on them with hands spread about 10 inches apart and moving closer. This confuses them, as they watch both hands approach from different angles. Step 3, if a fly, is smashing them quickly with your dominant hand (I'm right-handed). This works 90% of the time with flies. Same process with Killer Wasps, only you smack thenm with your shoe. A fly swatter to them is just an annoyance. You have to smack them a number of times to kill them, as they are very hardy.

Another, slightly easier technique, is to fill a watering can with water. Take it to their nest, and continue pouring it down the large hole. Do this in the early morning. If home, the Wasp will struggle out thru the water. Then you step on it or smack it many times til dead. These methods are much more effective than just putting pesticide powder in their holes. Then you scoop up the loose dirt in the mound, spread the grass a little, and it's like they were never there.

Some people believe in reincarnation, to the extent that even killing insects like Killer Wasps is forbidden. Mostly reincarnation refers to the spirit being reborn into an animal or a human, when it passes from this life. This doctrine is central to the Indian religions, but can also be found in Christianity and Shi'a Islam. Obviously I don't think it applies to insects. I do believe there is some merit to the idea, but not in the same sense its been classically interpreted.  More on this next time.