Ed Morrison · The bloat tax

November 29th, 2008

Jill Miller Zimon passed along this post to me.

It underscores how far Cuyahoga County public employment is out of whack.

One of the best ways to compare public employment levels is to evaluate the number of public employees per 100,000 population. When you do that, you can see that Cuyahoga County has higher than the national average in public employment in most categories.

You can view a spreadsheet here.

Where is Cuyahoga County heavy in public employment overhead?

  • Hospitals: (Most places don’t have a public hospital like Metro Health)
  • Public Health
  • Public Welfare
  • Transit
  • Water and Sewer
  • Judicial and legal
  • Firefighters
  • Housing and Community Development
  • Elementary and Secondary School Administration

    • It’s not chump change

    Here’s how you can use these number to get a ball park of the additional costs from a relatively inefficient public sector. Let’s take the Judicial and Legal employment in Cuyahoga County. Compared to a national average the county (all units of government) employs 148 employees per 100,000 population more than the national average. That’s equal to a head count of 1,919 above the national average. (Cuyahoga County’s population is 1.3 million.)

    If we assume that the average wage is $50,000 and the payroll burden is 35%, the additional overhead in the judicial and legal function of government is costing county taxpayers about $130 million a year. The water and sewer inefficiencies impose a bloat tax of about $80 million a year. That’s about the same bloat tax we pay for inefficiencies in our fire department. (This includes only head counts and not the costs of duplicate, expensive equipment.) A top heavy school system costs about $36 million a year. Inefficiencies in regional transit cost us about three times that: $110 million a year.

    Inefficiencies in housing and community development cost us $50 million a year. (These inefficiencies may be offset by the benefits every neighborhood having a community development corporation, but these corporations can also act as fiefdoms or “door keepers” closing down innovation.)

    The lost benefits of scale

    We should expect Cuyahoga County to realize some savings from scale. The county is one of the largest in the country. But that’s not happening.

    (You can see the slightly downward sloping line on page 14 of the REI report listed below. There’s not much of a scale advantage — government is a service business, after all — but there are some. Cuyahoga County falls way above the line. Our “leaders” are self-dealing and leaving a lot of productivity penalties for the rest of us to pay.)

    More on the cost of government

    Here’s the web site developed by The Fund for Our Economic Future’s consulting team (data through 2002).

    You can read through their report here.

    You can read through the report we prepared a few years ago at the Center for Regional Economic Issues here.

    Finally, there was a recent report on reorganizing Cuyahoga County government, but that report does not really address the underlying cost of government in the county. Their web site is here. You can view their report here.

    The conclusion: We are paying too much for the government we are getting

    The iron triangle: Map the Mess

    In my view, this situation reflects the insular politics of Cuyahoga County. There’s an “iron triangle” that has allowed this situation to get out of control. The business community, led by the Greater Cleveland Partnership, turns a blind eye to political excess (and the corruption potential of patronage out of control) in exchange for public sector support of leading real estate developments, such as the the Forest City’s relentless steering of the convention center/Med Mart. These connections have led to a lot of speculation about the connections.

    But don’t forget Browns stadium, the goofy Cleveland casino “learn and earn” initiative, the Juvenile Justice Center land deal with Forest City, the Jacobs deal on the Ameritrust Tower. The list goes on. Roldo and otehrs have chronicled the abuses.

    It’s a convenient quid pro quo and a sad consequence of a business leadership controlled by commercial real estate interests. (The shift away from manufacturing leadership started in the 1970’s with the collapse of the steel industry.)

    The Plain Dealer, meanwhile, has largely turned a blind eye to the abuses, bowing to pressure and too close connections to the business community under the previous publisher. (Weak-kneed editorial decisions have not helped the PD’s reputation.)

    That might all change now that the PD editors get a brief whiff of a Pulitzer for their coverage of the county corruption scandals.

    Bloat taxes power the corruption in the county. The best antidote is transparency and an aggressive corp of professional journalists focusing on big issues.

    Meanwhile, we’re steadily putting together the connections over at Map the Mess. We welcome your contributions.

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    Category: Economic Development
    8 Comments »

    8 Responses to “The bloat tax”

    1. Jill Says:
      November 29th, 2008 at 11:10 pm

      Ed, thank you so much for fleshing out what that kind of data means in real terms. I get a bit overwhelmed, know that it’s important but can’t quite get down to why. Thanks for doing that. Really telling.

    2. Bill Callahan Says:
      November 30th, 2008 at 7:00 pm

      Ed,

      Back in July, when Chris Thompson posted here at BFD about that FFOEF consultants’ study (by the Center for Governmental Research), I commented about some serious methodological issues with its “comparisons” among counties: e.g. the inclusion of the entire Metrohealth and Tri-C budgets even though these are relatively unique institutions and county taxpayers cover a minority of their costs; the inclusion of the City’s airport and electric system, which are also fairly unique and entirely self-supporting; and so on. Chris promised to pass these observations on to the consultants. Maybe he did, but I haven’t heard anything since and there are no corrections posted on the study website.

      Are you sure those per capita employment numbers don’t have the same problem?

      Also, isn’t it about time to start specifying exactly where you’d like to see those jobs and budgets reduced? “Inefficiency” and “corruption” are nice vague targets, but after a couple of years of this it would be nice to know where you think the layoffs should take place to make things more efficient and clean. Want to close some more fire stations (presumably in the suburbs)? Fire some more teachers? Where’s the bloat in the courts, and how would you get rid of it?

      More to the point, assuming we really do have lots of unneeded $50,000 employees on public payrolls, I’d like to hear how you think the regional economy would go about absorbing a few thousand of them. Seriously. Is this just lower taxes = business growth = jobs? What jobs? How? When?

      Finally, a word about “inefficiencies in housing and community development cost[ing] us $50 million a year.” Ed, what could this possibly mean and how would you calculate it?

      Please don’t tell me about “CDCs in every neighborhood”. At most there are 50 or 60 publicly supported community development corporations in the county (Cleveland has about 35). If they get an average of $200,000 a year in public support — which I think is pretty far to the high side — that’s a grand total of $12 million or less.

      The City of Cleveland spends about $68 million a year on all CD and housing activities, including code enforcement. The county’s Development Department budget is $25 million. Add in five other CDBG entitlement communities and you still have to stretch to get to $100 million in CD/housing spending — the majority of which is spent on projects and grant programs, not staff. So where the heck do you get $50 million in “inefficiencies”?

      Also please note that this is almost all Federal money, that it can’t be used for anything else but a defined range of CD and housing uses in low-moderate income areas, and therefore it has just about nothing to do with local “tax bloat”.

    3. Ed Morrison Says:
      November 30th, 2008 at 10:31 pm

      Well, Bill:

      Yes, it is clearly so that Tri-C and Metro Health are not separately accounted (as I made clear in my Metro Health comment above).

      But we need to start somewhere, and public employment data is a pretty good start. You can make adjustments in the next stage of analysis for Tri-C and MetroHealth, if you like.

      I’m not looking for accounting accuracy; I’m looking for recognition that Cuyahoga County has a big problem: public overheads are relatively high, and headcounts are the main cost of government. This county is beginning to sink. This cost structure drives higher local taxes, which are relatively higher than Chicago.

      To understand the depth of the problem, these headcount numbers give us a good place to start looking for productivity improvements.

      Why, for example, are legal and judicial employment numbers so high in the county? I have no idea. But it seems to me that it make sense for some organization (like a foundation) to undertake some research to explain why.

      Why do we have a relative imbalance in primary and secondary education? (Fewer teachers, more administrators.)

      Are there things we could do to make fire protection more efficient in the county? (Before he took the job in Columbus, Eric Fingerhut was working on some really good ideas in this area at Baldwin Wallace.)

      Why is water and sewer employment relatively high? A number of people from former Cleveland administrations now work there. Are they simply protecting their pensions? And what about regional transit? Same story? Is there featherbedding going on? The headcount numbers give us a prima facie case.

      Housing and development includes more than the CDCs, and although my experience with these organizations is limited, I suspect that many of them are run without serious performance metrics. Doesn’t it make sense for the county to re-eaximine how development is taking place in this county?

      Let’s look, for a moment, at workforce development. After a number of years, we still actually have two workforce staffs, one controlled by the mayor, one controlled by the county commission. While it is true that no local funds are expended here, the workforce system in the county (which controls $15 million to $20 million in federal money) is, in my view, remarkably inefficient.

      Federal money goes to support training providers who are often politically connected. Fanny Lewis and I had a number of discussions about the waste int his system, and she understood how hard it would be to change the political dynamic. And then, of course, there is the public housing agency.

      (As for CDC’s I’m not sure why we need 50 to 60 CDC’s in the county, but that is a relatively small part of the problem. With 35 in Cleveland, my guess is that we have a CDC for just about every neighborhood — and city council district. This appears to me to be more of a political than a market driven approach to economic development. The solution: begin by benchmarking how other cities do their development. What does their development infrastructure look like?)

      But, look, don’t worry so much about the community development turf. (It will be very resistant to change.)

      Look at the bigger issue of the county. We are paying too much for the government we are getting. So the issue, to me is not where do I start, but where do you?

      Critiquing people’s work (which you are very good at doing, by the way) does not lead to solutions, unless you suggest alternatives.

      In my view, we need a far leaner, more entrepreneurial approach to government. My question to you: How do we get there?

      As for absorbing laid off public employees, I have no real concerns here. I’m not suggesting that we terminate jobs recklessly. That won’t happen. I am suggesting that over time we drive down headcount numbers and focus on delivering clearer outcomes more effectively.

      I am suggesting that the foundations and the business community start focusing on the cost structure of government in Cuyahoga County. It’s unsustainable and getting worse.

      You could help by leading a discussion about how we could do become a national leader in innovative community development.

      What models of infrastructure sharing can we follow to achieve greater efficiency and effectiveness?

      What pooled approaches are available to raise capital, both debt and equity, from a broader array of funders?

      What are the most promising collaborative models and strategies to promote sustainability and scale in an industry comprised primarily of small, local, independent organizations?

      I have some ideas, but I’d like to hear yours.

    4. John Ettorre Says:
      December 1st, 2008 at 4:58 pm

      Bill, at least as I read it, your comment seems to imply that it’s the public sector’s responsibility to worry about full employment, and that if the private sector can’t create enough jobs, taxpayers are supposed to silently sit by and accept featherbedding in public agencies. I hope you’re not meaning to suggest that. Ever single dollar spent in a public or quasi-public environment must be justified on its own. Okay, so the waste may not be quite as giant as some of these studies suggest, but I would think that anyone who has dealt with any public agency anywhere would have more than enough cause to observe that many of these organizations are larded over with people who appear to be, at the very least, horribly unproductive, and whose evident disdain for the elemental courtesies of customer service spit in the face of every taxpayer. This is all a long way of saying that the burden of proof rests with those who spend taxpayer dollars, not with those who suggest economies.

    5. J Murray Says:
      December 1st, 2008 at 6:59 pm

      Good dialogue. Ed is pointing to something important here, which is that what you measure drives what results you get. If you’re not measuring productivity in some way, or if you’re measuring the wrong things (like employment), you don’t generate the results stakeholders want.

      To John’s point about customer service, I have renewed my driver’s license in California and Ohio. In California, you go to a Web site and schedule an appointment. You show up at the appointed time and stand in the line for people with appointments. You are called immediately to the counter for payment, testing, and eye tests. People with various needs are sent to separate lines or windows that focus on those needs. The process takes 20 minutes. People without appointments stand in another line, wait, and watch people with appointments get served. Even there, though, people get their licenses renewed in 30-40 minutes. Electronic signs on the wall post the wait for each line. Data are gathered and employees are measured by how efficiently they process people through.

      In Ohio, you show up at a license office and stand on a line the length of which cannot be predicted in advance because people just show up when they want to. There is no scheduling of appointments or management of work flow. One day the lines may be short, and another long. The office is staffed the same each day, though, so that sometimes employees are overwhelmed, and other times they are idle. Even staffing is for the convenience of the employees, so that they can predict their work days. They generally are pleasant enough when they can be bothered to make eye contact, end their personal conversations, and provide service, but their general behavior and demeanor suggests that they know they are not their primarily to serve customers, but to possess jobs. There is no apparent productivity measurement, signage is unclear, and there is one big line. I usually budget a half-day to get a license in Ohio.

    6. John Ettorre Says:
      December 1st, 2008 at 7:02 pm

      Funny–well, it’s not so funny really–but I happened to have in mind that very agency, the DMV, as I wrote.

    7. Chris Thompson Says:
      December 1st, 2008 at 8:16 pm

      Great conversation. One of the many mysteries that emerged from the Cost of Government Research that the Fund for Our Economic Future (my employer)participated in was why are our judicial costs so high in Cuyahoga County specifically, and Northeast Ohio generally?

      One limitation of that research was that the most recent data dated back to 2002. Because the state of Ohio doesn’t require local governments to report revenue and expense data in a consistent manner that can be aggregated, researchers relied on the Census of Governments data issued every five years — but increasingly governments aren’t reporting their numbers to the Census, so even that data is incomplete.

      The first step to addressing this problem would be to have the state of Ohio implement a consistent government reporting process so citizens can see what they spend on different services and compare it with other communities. And perhaps foundations and others will continue to compare our local spending data with that of other regions across the country (since we know Ohio isn’t on the cutting edge…)

      A new state commission on local government reform that is just getting started on its work could help by making better reporting one of its first recommendations. It’s hard to answer the questions raised by Ed, Bill and others without better data. But it is save to say the public wants to see more steps taken to improve the efficiency and effectiveness of local government. We all need to find ways to help the public get what it wants. I hope you will be hearing some new ideas from the Fund in the near future.

    8. roldo bartimole Says:
      December 2nd, 2008 at 2:14 pm

      Although the cost of patronage employment becomes a problem at most government levels, there’s another cost that doesn’t seem to get much attention.

      I recently reported $113 million in County tax money that went to pay Browns Stadium, Art & Culture recipients, and the medical mart/convention center; a while back I accounted more than $100 million to the convention bureau over some 17 years; also $240 million of sin taxes went to pay for Gateway; in January,the County will pay from its general fund some $6 to $8 million in an annual bond payment for Gateway overruns, which total more than $100 million. Playhouse Square gets funding from the County on its buildings annually,
      the city is paying several million a year for the Gateway garages, which don’t make enough to pay its cost because of free parking for the Indians and Cavs.

      City tax revenues from its parking income and admission taxes are diverted for other than city tasks.

      Add to this contributions to various civic and arts institutions annually by the County.

      Then if you add in tax forgivenance from tax abatements and tax incremental financing for private investors, you add hundreds of millions in lost taxes. The city recently gave $1 million to the Rock and Roll Hall of fame for its induction dinner and festivities.

      You are beginning to talk about real money.

      So if you are going to ask about responsible government spending, you can’t overlook these payments by every level of government, city, county and then state.

      However, it seems no one wants to take a close look at these vast expenditures of public money.