Posts tagged ‘CFO’

Government Agencies Run For Their Employee's Benefit

About 20 years ago I did a rail transit study for McKinsey & Company with a number of European state rail companies, like the SNCF in France.   With my American expectations, I was shocked to see how overstaffed these companies were.  At the time, the SNCF had more freight car maintenance personnel than they had freight cars.  This meant that they could assign a dedicated maintenance person to every car and still get rid of some people.

Later in my consulting career, I worked for Pemex in Mexico, where the over-staffing was even more incredible.  I realized that in countries like France and Mexico, state-run corporations were first and foremost employment vehicles run for the benefit of employees, and, as  distant second, value-delivery vehicles and productive enterprises.

Over the last 20 years, I have seen more and more of this approach to public agencies coming to the US.  If nothing else, the whole Wisconsin brouhaha hopefully opened the eyes of many Americans to the fact that public officials and heads of agencies feel a lot more loyalty to their employees than they do to taxpayers.

I see this all the time in my business, which is private operation of certain state-run activities (e.g. parks and recreation).  I constantly find myself in the midst of arguments that make no sense against privatization.   I finally realized that the reason for this is that they were reluctant to voice the real reason for opposition -- that I would get the job done paying people less money.  This is totally true -- I actually hire more people to staff the parks than the government does, but I don't pay folks $65,000 a year plus benefits and a pension to clean the bathrooms, and I don't pay them when the park is closed and there is not work to do.  I finally had one person in California State Parks be honest with me -- she said that the employees position was that they would rather see the parks close than run without government workers.

Of course, if this argument was made clear in public, that the reason for rising taxes and closing parks was to support pay and benefits of government employees, there might be a fight.  So the true facts need to be buried.  Like in this example from the Portland transit system, via the anti-planner.

In 2003, TriMet persuaded the Oregon legislature to allow it to increase the tax by 0.01 percent per year for ten years, starting in 2005. In 2009, TriMet went back and convinced the legislature to allow it to continue increasing the tax by 0.01 percent per year for another 10 years. Thus, the tax now stands at $69.18 per $10,000 in payroll, and will rise to $82.18 per $10,000 in 2025.

At the time, TriMet promised that all of this tax increase would be dedicated to increasing service, and as of 2010, TriMet CFO Beth deHamel claims this is being done. But according to John Charles of the Cascade Policy Institute, that’s not what is happening.

Poring over TriMet budgets and records, Charles found that, from 2004 (before the tax was first increased) and 2010, total payroll tax collections grew by 34 percent, more than a third of which was due to the tax increase. Thanks to fare increases, fares also grew by 68 percent, so overall operating income grew by about 50 percent, of which about 7 percent (almost $20 million) was due to the increased payroll tax.

So service must have grown by about 7 percent, right? Wrong. Due to service cuts made last September, says Charles, TriMet is now providing about 14 percent fewer vehicle miles and 12 percent fewer vehicle hours of transit service than it provided in 2004 (comparing December 2004 with December 2010). TriMet blamed the service cuts on the economy, but its 50 percent increase in revenues belie that explanation.

By 2030, according to TriMet’s financial forecast (not available on line), the agency will have collected $1.63 billion more payroll taxes thanks to the tax increase. Yet the agency itself projects that hours and miles of service in 2030 will be slightly less than in 2004.

Where did all the money go if not into service increases? Charles says some of it went into employee benefits. TriMet has the highest ratio of employee benefits to payroll of any transit agency. At latest report, it actually spends about 50 percent more on benefits than on pay, and is the only major transit agency in the country to spend more on benefits than pay. This doesn’t count the unfunded health care liabilities; by 2030, TriMet health care benefits alone are projected to be more than its payroll.

We Don't Need To Turn Over No Stinking Evidence

A few days ago, I pointed to a Tom Kirkendall post where he reported that a large volume of evidence, including interview notes with star witness and Enron CFO Andy Fastow, was finally turned over to the Skilling defense team.  This is required by law to occur before the, you know, trial itself but in fact comes months and years after the trial.  Apparently, there are a lot of bombshells in the notes, including this one as described by Skilling's attorneys in a brief linked by Kirkendall: (citations omitted)

Task Force prosecutors called the "Global Galactic"  document "three pages of lies" and the "most incriminating document" in  Skilling's entire case. At trial, Fastow testified Skilling  knew about Global Galactic because Fastow "confirmed" it with him during a  spring 2001 meeting. Skilling denied knowing anything about Global Galactic.  To bolster Fastow's testimony and impeach Skilling's, the Task Force introduced a set of handwritten "talking points" that Fastow said he prepared in anticipation of his meeting with Skilling. At trial, Fastow swore he "went over" the talking points with Skilling, including the crucial point "Confirmation of Global Galactic list." Id. In closing, the Task Force relied heavily on this document to corroborate Fastow's testimony that he discussed Global Galactic with Skilling.

The raw notes of Fastow's interviews directly impeach Fastow's testimony and the Task Force's closing arguments. When shown and asked about the talking-points document in his pre-trial interview, Fastow told the Task Force he "doesn't think [he] discussed list w/ JS."

This obviously exculpatory statement was not included in the Task Force's "composite" Fastow 302s given to Skilling. Nor was it included in the "Fastow Binders" the Task Force assembled for the district court's in camera review of the raw notes. It is not possible that this omission was inadvertent. Fastow's statement is one of the most important pieces of evidence provided during all his countless hours of interviews. Moreover, in preparing both the composite 302s and Fastow binders, the Task Force extracted and included other"”relatively inconsequential"”statements from the same interview date and even the same page of notes. The Task Force's exclusion of this critical piece of evidence for over three years is inexcusable and, on its own, warrants a complete reversal of Skilling's convictions and other substantial relief.

Disclosure: I actually worked with Jeff Skilling briefly at McKinsey & Co.  From that experience, I have always thought it unlikely that this incredibly detail-oriented guy did not know about a number of these key Enron partnerships.  However, that presumption on my part in no way reduces my desire to see him get a fair trial, and I am becoming convinced that he did not.

Startup Looking for Help

I know a gentleman named Alan Shapiro who has come up with what looks to me to be a nice new boat concept he calls the "Raptor".  Pictures of the boat are below (click on any picture for larger image)





I believe he also has a link to some YouTube video at his web site.  Update:  Here is the YouTube link.

He knows how to design and build the boat and has pretty good contacts for selling it, but needs help from a CFO/Strategist/business-type to push the company forward.  He has a prototype built and the production model fully costed-out and sourced.  However, he is about to look for a new round of financing and need help in that process.  He is offering equity in the company but can't pay a salary.  The job would not be full-time in the beginning.  If anyone has some time on their hands and has experience with startups and likes boating, this may be something to look into.  I have helped him a little bit, but I am out of time and need to focus on my own business.

I do not in any way warrant whether this is a good opportunity or not.  Don't assume that because Coyote seems like a smart guy, that this must be a viable business, because I just don't know.  I have given him a bit of startup money in exchange for some future boats, and a bit of advice, but that is the extent of it.   He has a draft business plan I am sure he would share with qualified candidates.

What I like about the product is that in the rental business, there really is a need for a personal watercraft or jetski that is enclosed, such that it will rent in colder waters and does not require renters to get out of their street clothes.  If you know what a mouse boat is, these are much higher performance versions of that type product.  He takes jetski engines, from 50-110HP, and puts them into this really fast hull shape.  This boat is fun to drive (see the video linked above) and my opinion is that it would rent well, but I of course have not been able to prove that with actual boats.  Alan believes there is also a strong market for individual sales, but I can't confirm or deny that from my own knowledge.

If you are interested, or know someone who might be, email me at the link on the right with some information about yourself and I will pass it on to Alan.