Right Wing Fuzzy Math & The True Cost of Local Government

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s a candidate in the 2012 general election, for a seat on the Grundy County Board, I and all other county candidates were asked to answer a series of questions compiled by the local newspaper, The Morris Daily Herald. The Herald has set up an Election Central website which will contain a short bio of each candidate and their answers to the questions. Currently this site is not live for the public, however the answers are now posted for at least half the candidates and other candidates can view the information. I will update this blog with an attached link once the site goes live.

After previewing each candidate’s answers to the six questions one recurring theme from my opponents deals with county spending. Here are a few quotes from various candidates:

"Overall, I oppose the county’s recent issuance of upwards of $20 million in new debt (with interest) to construct a series of government buildings in the county. Specifically, I oppose the Public Building Commission’s (PBC) purchase — with the Grundy County Board’s blessing and your tax dollars — of the old Sav-A-Lot property in downtown Morris." - Curt Mercandante (R), District 1 Candidate

"Contractor’s statements or bids in regard to county improvements need to be available to the public. After thorough examination and approval, the projects need to be completed within the budgeted amount. An example of our inability to do this is our recent 911 center. It was originally budgeted as a 2.5 million dollar project. It then grew to 8 million, which will eventually cost the taxpayers in Grundy County over 21 million after interest and bonds." - Vicki Geiger (R), District 1 Candidate

"Unemployment is a huge concern in our area. The loss of many jobs, which can eventually cause the loss of homes, has affected all of us in Grundy County. When a home is foreclosed and sold, it reduces the value of all of our properties. Responsible county spending and reasonable real estate taxes may have saved some homeowners from this loss." - Vicki Geiger (R), District 1 Candidate

"I disagree with continued irresponsible spending. *Millions over budget on the 911 center." - Vicki Geiger (R), District 1 Candidate

The county board has been spending on building projects while the rest of us tighten our belts. I oppose the most recent purchase of the old Sav-A-Lot property in Morris. It is a prime piece of property close to route 47 that will now be taken off the tax rolls. More money will be required to develop it. I also opposed the building of the new 911 center that will cost more than $20 Million dollars of taxpayer money to pay off the bonds created to finance it. - Teryl Lundeen (R), District 2 Candidate

Over the course of the past 18 months my opponents have inflated the true cost of the 9-1-1 center from $2.5 million to now $20 million. They call these government buildings "wasteful". But let's cut through the "small government at all costs" political posturing and look at the true substance of the bond issuance, overall costs of the government buildings, and cost impact to the average Grundy County citizen.

I'm a CPA, auditor, and forensic accountant, so I like numbers. Numbers have a way of telling a story in a very objective manner. They are what they are. Numbers don't have an agenda, and they don't have political aspirations. However, as the old saying goes, figures don't lie but liars can figure. But I am also a firm believer in the scientific method. My career calls for objective analysis of evidence, even if that evidence may have a negative impact on the future of my employer. I go where the numbers lead. Twisting the numbers for personal gain isn't in my nature. Better the hard truth than a fantasy, no matter how rewarding or comforting. That said; let's begin by reviewing the various county bond issuances’ so strongly opposed by my republican opponents.

In late 2007 the Grundy County Highway Department maintenance garage burned to the ground in a massive fire, which was fought by over 200 fire fighters in sub-zero temperatures. The fire wiped out the county's entire snow removal fleet, causing over $2 million in damages. The building also housed county Highway Department offices. Roughly a year after the fire there was a series of existing bonds, floated by the county in 2000 that were about to be rolled off. A decision was made by the county to rebuild the Highway Department building along with other projects and instead of dipping into savings (County accountants wanted the county to maintain 6% savings), a further decision was made to instead maintain the county levy (the portion of home owners tax payments impacted by just the county portion, NOT school board) at the same level it was at prior to the 2000 bond series expiring and rolling off. Thus, a new bond series was issued in 2008 for $10 million over 20 years. And an additional 2010 series for $2.6 million for 20 years under the federal stimulus bill in which 45% of the interest is reimbursed every year by the federal government. More on the hard numbers later.

With the Highway Department burned down, the 2000 bonds rolling off, and exceptional municipal bond rates, the decision to issue these bonds was a bipartisan decision and reflected leadership with the type of foresight any private company would love to have. According to the Board of Governors of the Federal Reserve System, the municipal bond index average in 2008 was 4.8 percent with a high of 6 percent. This low bond rate atmosphere makes local infrastructure expansion easier on the tax payers, and fiscally responsible.

This argument that the county government should act like a household and tighten their belts at the same time households are tightening theirs in some sort of sympathetic gesture, is myopic and displays a naiveté of government responsibilities to the public welfare. Borrowing and expanding today, with low municipal bond rates, is cheaper than spending down the road. As JFK used to say, "The time to fix the roof is while the sun is shining." As an example of why government doesn't act like a household consider your own situation. If you have children you'll eventually come to retirement, the children will have grown and moved out, and you will have your home paid off. Hopefully. If someone offered you a new home at 4% interest you probably wouldn't jump at it, as your kids are gone and you don't need the expansion. The government doesn't exist in this dynamic. It must provide services for thousands of people into perpetuity. Buildings such as the 9-1-1 center and court house will need repair and renewal continuously in order to carry out its constitutional duty of providing for the public welfare. So while government should be responsible, and spend on those items that provide a positive return on investment, let's dispel with the myth that it must act in that same manner as a household.

So besides the Highway Department building, what are the "other projects" mentioned above? First was the Animal Control building which was a literal health hazard. Second, the courthouse needed extensive rehab work which included asbestos abatement, providing hot water to the second floor, bathrooms that were handicapped accessible (required by law), new judge chambers (due to a new judge coming on board), law libraries, and all the wiring and piping connected with such work. Third, the 9-1-1 dispatch center. Why was a new dispatch center needed? Because the 9-1-1 equipment was housed in a closet, with no ventilation, and the inherent risk of a dropped emergency call was more than an acceptable level. This is the one project I truly do not understand the outrage, especially when you drill down and realize how much this center costs each home owner per month. It equates to 27 cents a month of your tax bill. Let me repeat that. 27 cents a month. Are my opponents honestly saying that the improved emergency response times, cost savings to the municipalities within Grundy County, and a service that could save the life of your child, mother, father etc. is wasteful? Just how much is a life worth? I'll break down how I arrived at 27 cents a month further on.

So how much was the 9-1-1 center really? I think the confusion comes in through not understanding how bond interest and amortization works. It's either that, or Republicans are purposely misleading people. One speaks to competence, the other to integrity. But I digress. The initial allocation was for $2 million, but estimates were around $4 million which included future expansion of booths. Republicans argued that a new building wasn't needed, or that the new facilities should be located at the old City Hall. However, that building cost $600,000 and required $3 million in work to bring it up to minimum code. Plus, it was not expandable for future county growth. More would have to be spent over the long haul. The goal of the final site was future expansion, such as a satellite health department. So, the 9-1-1 center ended up costing approximately $4.6 million dollars. Now, with interest on the bonds over the course of 20 years, which is where the $4.6 million came from, that total rises to roughly $7.9 million. But of course, when someone asks you how much you paid for your new car do you tell them the sticker MSRP price, or the final amount of your 4 or 5 year payments with interest?

And what about the claim by Vicki Geiger that the 9-1-1 project was "over budget"? Pure fiction. The BID amount was $4,727,465 and the final DRAW (the amount actually paid) was $4,607,477.75. Then add in the fact that roughly $200,000 in spending came from a federal grant. This means the 9-1-1 center was NOT over budget. In fact it was $119,987.25 UNDER budget. Nobody in any industry includes interest on that $4 million-plus as part of the cost budget.

So where do county candidates like Curt Mercandante, Vicki Geiger, or Teryl Lundeen get this $20 million figure (Well, actually Vicki Geiger says $21 million, but what's $1 million between friends)? That is the total cost after 20 years of the entire bond issuance consisting of principal of $10 million (issued in 2008) and $2.6 million (issued in 2010) plus the amortized interest over 20 years. That total actually totals $20,689,557. 

So how do all those building projects impact and the related $20,689,557 over 20 years affect the property tax bill for you the tax payer? Okay time for more numbers. If you have a low tolerance for math and your eyes have already glazed over, please stay with me through this next analysis. The final numbers really call into question the complaints, and also bring to light the foresight of leadership on the board in 2008. 

Currently, every year approximately $550 of the average property tax bill in Grundy County goes toward the County levy (i.e. all the services you receive from the county aside from the schools. Such as the court system, roads, police protection, health, emergency services, etc.) Last year the total principal and interest paid on the total bond issuance came to approximately $700,000. The county has a full budget of approximately $33,000,000, which means the bond repayment is equal to roughly 2 percent of the full county budget ($700,000 divided by $33,000,000). Now, multiply the $550 noted above by the portion allocated to bonds ($550 * 2 percent). This equals roughly $11 for a full year. Or, 91 cents a month. If we apply that same math to just the 9-1-1 center, which as I stated before costs a total of $7.9 million, it equals $3.3 per year, or 27 cents a month. You can't get a cup of coffee for 27 cents. It costs each tax payer 27 cents a month for a state-of-the-art emergency communication service that could ultimately save the life of a loved one. The republicans view that as wasteful and have vowed to make sure none of that happens again. Keep that in mind as you go to the polls this November 6th. 

To be fair, and honest with my calculations, the bond servicing is weighted heavier in later years, anticipating zero economic growth in the very early years. This is much like the mortgage on your house where your initial years are mostly interest and the principal rolls off in larger amounts as time moves forward. The approximate $700,000 servicing this past year becomes approximately $1 million by 2018. And as the yearly servicing gradually rise, the final payment in 2030 equals $1,384,684. That final payment represents roughly $1.90 per month on your tax bill, but that assumes all variables remain constant over the next 20 years. It can be safely assumed that won't be the case and the $1.90 figure will most likely drop accordingly.

Something to also keep in mind, the 9-1-1 center's size and capabilities is also turning into a revenue generator. Various entities are looking at utilizing the facility, such as Seneca Fire, Police and Emergency Services, and Braidwood Police. While still in the works, these deals will provide entry fees of approximately $200,000 with no new personnel needed. Also, with the State Police possibly reducing from 21 districts to 7 and revamping communications, our facility could be utilized by them with rental fees to the county. We shall see.

So given the overall impact on each tax payers annual bill, one can easily see that Vicki Geiger's statement that "Responsible county spending and reasonable real estate taxes may have saved some homeowners from this loss." is completely misplaced, to be kind. This is nothing but fear mongering, or a total lack of understanding of the facts. Either way, do you want individuals on the county board who can't grasp facts, or purposely mislead for political gain? Or more importantly view 27 cents a month to provide for your basic safety and welfare as wasteful? I think the answer is clear.

An additional complaint from Mr. Mercandante was the Public Building Commission's purchase of the Sav-A-Lot property in downtown Morris, approved by the County Board. Again, this is a complaint from a myopic viewpoint. The owners of the Sav-A-Lot property were in foreclosure (not taken off the rolls, as Teryl Lundeen the republican candidate from district 2 proclaims) and the county was able to purchase the property for $500,000. The PBC and County Board saw an opportunity to purchase a site for future needed expansion at a very low price, rather than waiting until the expansion was actually needed and the price was double. Short-term the property is being used for additional downtown parking, which local business owners appreciate. Future use, while not set in stone, may be used for a Law and Justice Center. Any intellectually honest individual would acknowledge that everything is a crisis in government because nobody looks forward. Our leadership on the County Board ensured that wasn't going to be the case.    

In summary, it is important to keep certain things in the forefront when you hear republicans in Grundy County grumble about what a terrible waste of money the 9-1-1 center was, or how the board should have been tightening their belts. The 9-1-1 center came in $119,000 under budget, on bonds with very low interest rates, the bonds didn't raise the county tax levy, and the center only costs you 27 cents a month for state-of-the-art emergency response. That's the kind of leadership Grundy County voters should be demanding from every politician. Election Day is less than a month away. Let's send knowledgeable, honest brokers to the county board.

Press Conference Speech 11-28-11

[Introduction remarks………]     

While a record number of candidates have filed petitions this year, we also possess a wide breadth of knowledge, and professional experience  - both in the private sector and public. From:

·         Mike Clemons – Lifelong Grundy County Resident, Instructor with Illinois Valley Community College, Journeyman wireman with the IBEW Local 176 in Joliet, and Commissioner with the Minooka Planning and Zoning Commission.

·         Warren Kronberger –  

·         Tim Macheck – Neighbor of mine,

·         Rudy Martin – 22 year Teamster & Truck driver for Keytone Freight in Minooka, and a formerly licensed insurance agent. He’s also a Village of Minooka trustee for the past 2 ½ years.

·         Yolanda Wilhelm –  Currently employed by the Minooka School District 111. Previous work experience includes working as the Legislative Clerk of Calumet City for 5-years, before moving to Minook, and more recently, she worked for the Illinois Road & Transportation Builders Association.

·         Myself – An 8 year resident of Grundy County, a CPA, and Forensic accountant, I’ve spent the majority of the past 10 years in the banking industry, and have also worked for fortune 100 companies and consulted small and midsized businesses while working in public accounting in Chicago. I’m currently the VP and Chief Internal Auditor for Great Lakes Bank in Matteson IL.

In addition to our professional backgrounds we also have raised, or are currently raising families, as in my case with my twin 5 year-old girls, Yolanda with her 3 children, Warren with 2 children, Rudy with his 3 teenagers, Mike Clemons with his 5 teenagers.       So we also understand the needs, desires, and stresses of families in Grundy County.

While we each bring different ideas and individual reasons for why we chose to run, we also have common threads that run through us all. We each understand the importance of Economic growth, fostering an environment which will allow our citizens and businesses to grow, and create jobs; standing side-by-side with private industry, acting as a public partner in their growth within our county. We believe in holding the line on expenses, especially those expenses that don’t help economic growth, and we believe in providing the services our citizens depend upon, including working toward higher education opportunities, for which there is both demand and need for further economic development to occur.

But aside from these common threads on the substantive issues unique to Grundy County, we also share an overwhelming pride in our country, towns, and our individual neighborhoods, and a strong belief in a government of We the People. And nowhere is that type of government more exemplified than at the local level. Our opponents are running on “limited” “smaller” government. And if they were running on the national level, it’s an arguable point. But this is Grundy County, it doesn’t get more limited. This IS a government of We the People.

In the past couple decades it seems the parties have become far too polarizing, with those in the republican party that don’t believe in government, and some in the democratic party that never believe there is enough government. But make no mistake, Government, especially at the local level IS necessary, essential and fills a vital purpose.

As Americans, the most important part of our social identity is our role as citizens. To be a citizen means to be part of, and defender of, the commons of our nation. The water we drink, the air we breathe, the streets we drive on, the schools that we use, the fire departments and police that protect us, our histories, our religions, and our notions of ourselves

But, there are those on the right who don’t believe in government overseeing the commons. They instead believe in big corporations running the commons of our nation, and they think that the most appropriate role for citizens is that of infantilized consumers, of both commercial products and commercially produced political packaging.

On the other hand, there are those on the left that all too often over reach and over regulate the protection of the commons to the most extreme and absurd conclusions.

We believe that the most important element of citizenship is the commons of government – the creation and servant of We the People. And the main benefit of citizenship is freedom. Not freedom from external or internal dangers that conservatives obsess on, but freedom to think as we want, to pray as we want, to say what we want, and to live as we want provided it doesn’t harm others, all in order to fulfill our true potential as humans.

And we also believe it is time for the bickering and partisanship, existing all too often in our politics at all levels to end. It is time to work together, appealing not to the sum of our fears or misunderstandings, but appealing to the angels of our better nature; working toward solutions to our common problems, while maintaining the values on which our nation was founded, and reflected by our constituents. It is what the citizens of Grundy County deserve, and they should accept nothing less.

The question, ultimately, is whether our nation, beginning with our local politics, will continue to stand for the values on which it was founded. I believe it will. With the election of those who believe in the story of We the People our republican democracy will strengthen and see us through the toughest challenges.

On March 4, 1801, in his first inaugural address, Thomas Jefferson stated “I know indeed that some honest men fear that a republican government cannot be strong; that this government is not strong enough.” But, Jefferson said, our nation was “the world’s best hope” precisely because we put our trust in We the People.

Debt Hysteria

While rumblings about our national debt have occurred on and off over...well, as far as I care to remember, the majority of those rumblings always came from the right during a democratic presidency, after the right ran the debt through the roof in the years prior to that democratic presidency. However, the democrats (and republicans) in Congress can't be let off the hook, as it's they who are responsible for the country's pocketbook. While today is no different, the Tea Party movement who seem to be bent on government destruction at all levels, and European issues have raises the rumblings to a new tempo.

When dealing with our debt, it helps to obtain some historical perspective. What is often stated, for impact effect, is debt as a total dollar amount. But total dollar amounts are misleading if not compared to something else as reference. Debt as a percentage of our Gross Domestic Product (GDP) is a better guide to where we are, and where we've been. Post WWII our debt to GDP was 127 percent, due largely to the deficit spending used to help bring us out of the depression and of course the spending on the war. From that high water mark of 127 percent the debt to GDP slowly decreased over the ensuing three and one-half decades to 33 percent by 1981.

What's interesting is that Ronald Reagan ran on the "high debt" in 1980, comparing the "dollar amount" of 1980 to the "dollar amount" of 1965. A bit deceptive to say the least. Then in the eight years of Ronald Reagan the debt as a dollar amount almost tripled and the debt to GDP went up to roughly 55 percent. Aside from a claw back of a few percentage points in the late 90's, that percentage has been going up ever since, to today's 100 percent.

But it seems this 100% is causing more of psychological reaction than a reaction built on reason. While the debt is nothing to just blow off, it shouldn't be our main concern when trying to dig out of the deepest recession since the Republican Great Depression of 1929.

If the market was truly concerned about the debt, we would be seeing the cost of borrowing going through the roof and equity prices heading the opposite direction. But we're seeing the complete opposite of this. In fact we're at record borrowing lows. The 10 year T-bills are at 2 percent, and core inflation is going nowhere. Our real problem is a liquidity trap, as interest rates can't get much lower.

In my view, what we should be concentrating on right now is not austerity measures, which will tend to actually slow the economy and increase debt even more, but we should be focused like a laser on infrastructure building. Concentrating on repairing our roads, bridges, electrical grids, internet grids, etc. will put people to work on engineering projects, not just jobs filing potholes or racking leaves, allowing them to learn while making money. The money they make will be spent in the private market, causing a multiplier effect, and as they roll off these infrastructure repair/building jobs, the private sector will begin to hire due to the increased demand for goods and services caused by people actually having money in their pockets and out spending.

And for those concerned with spending more money, keep in mind that millions of people put back to work, making money and out spending that money back into the private sector will grow the nations GDP, and reduce the deficit over the long haul. Spending as percentage of GDP in this county is at 39 percent. You would be hard pressed to find a country who's spending is below 25% that you would be happy to live in. Burma, the Dominican Republic, El Salvador, and Guatemala comes to mind. Recently the republican icon Grover Norquest said he would like to see spending brought back in line with that of 1900, which was around 8%. That's great, if you don't mind going to the bathroom in a hole in the ground out in your back yard, not having air transportation, or electricity provided to rural areas, among hundreds of other things we enjoy today. I for one like my reliable electricity, my FAA regulated air transportation, and my indoor plumbing among hundreds of other 21st century conveniences.