Mitt Romney has to be scratching his head (wonder if he can do that without mussing) about his predicament as he heads into next weeks big primary in Michigan. Most of the recent polling has him behind Rick Santorum in Michigan, with PPP’s newest poll showing Santorum up by 4% (down from a 15% lead a week or so ago). The survey shows Santorum at 37%, Romney at 33%, Ron Paul at 15%, and Newt Gingrich at 10%.
Romney and his team have sought from the very start to run a general election campaign, figuring they would lock down the nomination and not alienate independent voters while doing so. For a while it looked like they might be successful, as they have out-raised, out-organized, and generally out-hustled their Republican opponents. But every time they seem on the verge the Republican electorate drags them back to earth and presents a new challenge. Rick Santorum running the table on the Minnesota, Colorado, and Missouri contests certainly brought the Romney doubters forward, and a loss in Michigan for Romney would certainly hurt his electability argument, and create a mini-panic within the GOP elite. Romney is taking no chances, unleashing a barrage of ads highlighting his hometown ties to Michigan, as well as a series of attacks on Santorum. It looks like he has stanched the bleeding, and may just pull this off. But without question the Republican nominating process has pushed Romney further to the right than his campaign blueprint originally called for. He is fortunate that Santorum has taken a position on the auto bailout similar to his own, and that Santorum does not appear to have the money to strike back hard.
So what happens if Romney loses Michigan? The chatter about the Republican establishment seeking to provoke a late entry is still out there, with a focus on Jeb Bush, Mitch Daniels, Paul Ryan, or Chris Christie. But as Paul Ryan said himself on Meet the Press, and Karl Rove on Fox, it is just too late for another entry. Republican insiders recognize the beating they will take with Santorum at the head of the ticket, and are now desperate at that thought. Maybe they better get used to it. The Republican voters just don’t want to give the Republican establishment the “chosen” candidate. If Romney does have that “Detroit Breakdown” expect all hell to break loose in the GOP.
David Paleologos and Suffolk have released a new survey on the Massachusetts Senate race, showing Senator Scott Brown leading Elizabeth Warren by nine points, 49% to 40%. Recent polling has had Elizabeth Warren holding slight leads, but Scott Brown has ramped it up a bit for the past month or so, re-establishing a connection with voters and a lead.
This race is just beginning, with plenty of money to be spent, debates to be had, and pendulums to swing. Brown having a nine point lead is probably where handicappers would have thought the race would be at this point when Elizabeth Warren got in, but some positive polling results early for Warren probably got some folks a bit giddy. This is going to be a tough race. Scott Brown is an excellent campaigner with a lot of money to spend, and he will not go easily.
The Suffolk poll does contain some data that will be critical to the eventual outcome. Scott Brown won his race with Martha Coakley by winning independents by a huge spread (about 30 points I believe). That is the number to watch in the polling, and the key to victory for Brown. In this survey Brown leads Warren by 32%, 60% to 28% with independents. Warren must close that gap in order to win this race. Brown has a slight lead with women, and leads with men by 17%. When this race is done I would expect that Brown will have maintained his lead with men, but Elizabeth Warren must do better with females in order to win.
If the Republican Presidential race has taught us anything it is that the numbers can change quickly, and you can expect peaks and valleys in this race too. For today Scott Brown has to like where he sits, but he shouldn’t get too comfortable. For Elizabeth Warren there is lots of work to do, and a lot more face time with voters in her future. The Suffolk cross tabs are here. The Suffolk press release is here.
The U.S. Government’s intervention in the domestic auto market, via their direct assistance to American automakers General Motors and Chrysler in 2009, is receiving some real attention now that we have some results to look at. That attention, with the Republican primary in Michigan coming up, has Mitt Romney struggling to give a coherent answer on what his position was at the time of the assistance. But more on the politics later. Lets take a look at some statistics that show how far the automakers have come, and the impacts on the U.S. economy and jobs.
The U.S. Government, under President Bush, first committed TARP funds to both G.M. and Chrylser in 2008. The Bush Administration, aware that the situation was critical for both automakers, declined to allow the U.S. auto industry to disappear, committing TARP funds worth $17.4 billion to both, with GM taking $13.4 billion. (See the Bush Administration “fact sheet” here) The Bush Administration estimated that a failure to intervene by the Government would result in a net loss of 1.1 million jobs, and decrease GDP by 1%. (See oversight report written by Elizabeth Warren in September 2009 here.)
Elizabeth Warren’s oversight report gives some of the history leading up to the crisis, but it is easy to forget some of the facts involved in light of the time that has passed. In addition to a sharp drop in sales the companies had clearly been mismanaged, with bad labor agreements, unsustainable legacy costs, over-capacity, poor quality, poor choices in the development of new lines, and a host of other issues. President Bush, and then President Obama, both determined that the companies needed to restructure, but that an infusion of federal money was necessary if the companies, and the jobs, were going to survive. There was a tough debate on the auto bailout, with critics, such as Mitt Romney, calling for the government to let the companies go through a standard bankruptcy without the infusion of federal money.
Now that the time has gone by we can look at some of the results and determine whether Romney and the critics were right. What did Romney say in that op-ed piece?
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
No money, just a “turnaround”. But the oversight report by Elizabeth Warren points to the obvious, which is that credit markets had dried up, exacerbating the woes of G.M. and Chrysler. As with other sectors of the economy liquidity was a problem, even for firms that had no financial issues. So the idea that a standard bankruptcy procedure for these companies would have maintained them as going concerns is dubious. From the April 2010 report from President Obama, entitled “A Look Back at G.M., Chrysler, and the American Auto Industry”,
By the end of 2008, both GM and Chrysler were on the brink of disorderly liquidations.
As the Congressional Oversight Panel explained in a recent report: “[u]nless they could raise billions of dollars in new financing, they faced collapse – a potentially crippling blow to the American economy that Treasury [at that time] estimated would eliminate nearly 1.1 million jobs.”Other estimates at the time suggested that the near-term jobs at risk from a disorderly liquidation could be even higher.
Romney’s criticism then, and his continuing criticism today, leaves the implication that the federal government simply took cash and threw it at the companies, as is, and said good luck. His contention is patently false, and he well knows it. The task force convened by President Obama rejected the first plans submitted by G.M. and Chrysler for their companies, forcing them to restructure more comprehensively. From the Elizabeth Warren oversight report:
The auto team found GM‟s plan “not viable as it‟s currently structured,” chiefly because it relied on overly optimistic assumptions about the company and the economy‟s recovery. The auto team focused on:
GM‟s consistently decreasing market share over the past 30 years, which the auto team
calculated at a 0.7 percent annual decrease – much greater than GM‟s assumption of 0.3
percent annual decrease going forward to 2014;
consumer perception of GM‟s poor product quality compared to competitors;
GM‟s large network of underperforming dealers;
GM‟s costly and unprofitable European operations;
GM‟s vulnerability to higher energy costs due to its disproportionate profit share from
SUVs; and
increasing legacy liabilities that would require GM to sell almost a million more cars in
both 2013 and 2014.
In short, GM had too much catching-up to do, even without accounting for the sunk costs of restructuring, to generate positive cash flow over the projection period. GM was therefore
asked to submit a “substantially more aggressive plan” and was provided an additional 60 days of working capital.
The nonsensical notion that GM and Chrysler were simply handed federal money and told to carry on is rebutted by a careful examination of the facts. As far as the ramifications for our country and for Michigan and the industrial Midwest of a “disorganized bankruptcy” the facts are also fairly apparent. In November of 2010 the Center for Automotive Research did a report called, “The Impact on the U.S. Economy of the Successful Automaker Bankruptcies”, which outlined some of the impacts to the economy, including foregone transfer payments, that the successful intervention has brought. From that study:
The difference between the two scenarios presented in CAR’s May 2009 memo represented the anticipated private and public benefits of avoiding the scenario of a bankruptcy liquidation of both General Motors and Chrysler. The “good bankruptcy” outcome was projected to have avoided a loss of 1.28 million jobs in 2009, and 267,300 in 2010. Personal income losses were expected to be $65.3 billion less in 2009, and $16.5 billion less in 2010. It was estimated that avoiding the worst case scenario provided a net government impact—in terms of changes in transfer payments, social security receipts and personal income tax receipts—of $25.8 billion in 2009 and $6.5 billion in 2010, a total of $32.3 billion.
As we examine the intervention and begin looking to see whether every federal dollar that was invested has been recouped these numbers are very important. The estimate over two years of a positive impact to government revenues of over $32 billion from the intervention certainly doesn’t seem to be talked about much by critics, but it is real, and reflective of people working, earning, and paying taxes instead of seeking unemployment, and other assistance. The Chrysler intervention has been fully paid back, with the exception of about $1.3 billion. GM has an outstanding balance of about $27.2 billion, but the US Government holds about 500 million shares, which if sold at current prices would result in a $12 billion dollar loss. If the stock price appreciates the government could recoup that investment fully. Mitt Romney has advocated a sale of this stock now, presumably willing to accept that loss. Even if the government were to lose that money fully the CAR Report shows that the positives of over $30 billion absolutely outweigh, on a dollar basis, any potential loss. But measuring the intervention on a straight dollar basis was, and is, a fools errand. The government needed to protect American manufacturing and American jobs, and the intervention has done both. The jobs success obviously extends well beyond the two auto companies, as the government intervention protected and preserved the auto supply chain, the loss of which would have had negative impacts throughout the United States, and in the short term would have had a very bad impact on Ford, as well as foreign manufacturers with US plants.
What else has Mitt Romney said about the intervention? In a Detroit News op-ed Romney accused the Obama Administration of crony capitalism. He relied on the ownership stake taken by the UAW in Chrysler and GM as evidence of this charge. Does the Romney charge have merit? Did President Obama reward union cronies as part of this process? Was the union ownership of 55% of Chrysler such a “reward”? Let us go to footnote 49 of the Elizabeth Warren oversight report:
By the end of the last century, Ford, Chrysler and GM found themselves faced with tens of billions of dollars in employee health obligations. In 2007 and 2008, after it became clear to both the companies and their unions that the state of the American automotive industry made these healthcare obligations unsustainable, the UAW and each of the three companies ultimately entered into an agreement whereby, in exchange for significant upfront payments principally in the form of cash and notes, healthcare obligations for retired union employees would be transferred off the books of the companies and into a trust (an independent entity totally separate from either the union or the automotive companies), the UAW Retiree Medical Benefits Trust, also known as a Voluntary Employees‟ Beneficiary Association (VEBA). VEBAs are tax free entities that pay health, life, or similar benefits.
Although subject to the fiduciary requirements of the Employee Retirement Income Security Act of 1974 (ERISA), they are not subject to ERISA funding rules as are qualified retirement plans – a company‟s funding obligation is solely contractual. The threat of a Chapter 11 bankruptcy filing by Chrysler and GM made it clear that these companies would not be able to meet the cash commitments they had made to the UAW Trust. As part of a new agreement reached with representatives from both the old and new Chrysler and GM entities to enable them to emerge from bankruptcy, the UAW agreed to significant changes to the funding structure of the UAW Trust. While the UAW was able to get these companies to transfer cash amounts already set aside by the old Chrysler and GM entities (about $10 billion from GM and about $1.5 billion from Chrysler), the balance of the commitments these
companies had made will no longer be paid up front in cash. Instead, New GM and New Chrysler have agreed to contribute large portions of equity, as well as notes that will allow cash commitments to be deferred and paid over time, into the UAW Trust. In order to help it remain competitive and avert bankruptcy, Ford negotiated similar alterations to its settlement with the UAW. Starting January 1, 2010, UAW retirees‟ healthcare benefits will be funded solely by the assets in the UAW Trust, and will receive no further commitments from Old Chrysler, Old GM or Ford. New GM and New Chrysler – as with Ford – will no longer have the healthcare obligations that have been weighing down their predecessor companies‟ books for decades, while the healthcare benefits of the UAW‟s retired members will still be linked to the fortunes of all three companies through the tens of billions in stock and notes.
So all of the domestic auto companies, including Ford, managed, through negotiation, to shift huge retiree health care costs to the UAW. In return for this the three companies agreed to make cash contributions to these “VEBAs”. Since cash, for the Big Three was hard to come by, they contributed both cash and equity. As you can see from the above Ford, who did not participate in the so called “bailout”, also entered into a similar agreement. Again Romney knows that his charge is patently false, and yet he continues to make it. The question for Governor Romney is this: what would you have done with the retiree health care that might have been impacted without this intervention? The exact terms for Chrysler? From Elizabeth Warren’s report.
As part of New Chrysler‟s purchase of Old Chrysler‟s assets, New Chrysler entered into
an agreement with the United Auto Workers (UAW) regarding the funding of the UAW Retiree
Medical Benefit Trust (the UAW Trust).New Chrysler agreed to fund the UAW Trust with a $4.6 billion unsecured note and a 55 percent ownership stake in New Chrysler. The UAW Trust, subject to approval of the UAW, has the right to select one independent director and no other governance rights.
No other governance rights! The accusation by Mitt Romney, and the willingness to play so fast and loose with the truth, ought to be vigorously challenged by President Obama and those who supported the intervention.
General Motors has just regained the designation as the number one auto maker in the world, which they had lost to Toyota. GM regained the designation in 2011, selling 9.025 million units. Lets look at the GM stats for worldwide sales.
2008- 8,282,803
2009- 6,459,053 (-22%)
2010- 8,476,192 (+31%)
2011- 9,025,000 (+6.4%)
Chrysler has shown similar progress. Worldwide sales:
2008- 1,893,068
2009- 959,070 (-49.3%)
2010- 1,578,488 (+64.5%)
2011- 1,850,000 (+17.2%)
Both Chrysler and GM, as well as Ford, have shown strong profits in 2011, and costs per unit produced have been reduced, meaning the break even point for both Chrysler and GM has been substantially improved. In 2010 GM earned $4.7 billion after losing $21 billion a year earlier, and posted record profits for 2011. And labor has agreed to pay reductions, especially for new workers. Pension adjustments, and other modifications to worker packages, have helped the Big Three to come back and actually begin to increase domestic employment in this sector.
A lot of video, with car czar Steve Rattner on Morning Joe, and GM CEO Dan Akerson talking about the US auto industry, and the successful industrial policy employed by the Obama Administration to save millions of jobs, and to save the crown jewel of America’s domestic manufacturing sector.
The Massachusetts Taxpayers Foundation, headed by Michael Widmer, has released an analysis of the impacts of the newly enacted municipal health care bill. I had a chance to talk about it this week on WCAP, and it is in the news as results are now coming in from communities that have actually enacted the legislation.
Widmer, who was a strong advocate for the changes, has analyzed results from participating communities, which show results that will lead to savings that will exceed the original estimate of $100 million. From the Massachusetts Taxpayers Foundation Press Release:
As of February 1, at least 91 communities (Table 1) and school districts had taken steps to adopt the reform law or change their health plans through collective bargaining. Of that group:
Nine municipalities have adopted the law and implemented health plan changes that are
expected to result in $30 million in first-year savings. Six more are expected to finalize
agreements in the next month.
12 communities anticipate first-year savings of $30 million from health plan changes
achieved through the collective bargaining process since January 2011.
38 communities and school districts have voted to adopt the reform law but have not yet
begun formal negotiations.
26 communities and school districts have scheduled votes to adopt the law.
It is clear that the reform law’s first-year savings will soon surpass the $100 million threshold;
the 21 communities that have already achieved $60 million in health plan savings represent only
a fraction of the cities and towns expected to implement the reform.
Widmer calculates based not only on the savings achieved by communities that have adopted the law, but also bases his analysis on the obvious benefits that have accrued to communities that have negotiated collective bargaining agreements after the adoption of the law. Reforming the laws governing municipal health care was not easy, and took longer than it should have. But those driving reform, principally the Mayors of Massachusetts, can now look back and see that the effort was exceedingly worthwhile. And it is not so just for management. As Widmer points out employees are also seeing large cost reductions.
Municipal employees and retirees will receive almost half of the $30 million in savings in the
nine communities that have made plan changes through reform. Employees and retirees will see
$13 million in savings in two ways – reduced premiums and one-time mitigation agreements that
have included Medicare Part B subsidies, premium holidays, and reimbursements for out-ofpocket expenses. Mitigation packages, which will ease the financial impact of plan changes, are
determined during the 30-day negotiating period between management and employees. The total
value cannot exceed 25 percent of a community’s first-year savings from reform, but the
mitigation benefits can be spread over several years.
As we expected the early verdict is in on municipal health care reform, and the real winners are the property taxpayers of Massachusetts. I have attached both the press release and the report from the Massachusetts Taxpayers Foundation. Michael Widmer has done a truly outstanding job on this issue.
Doing the weekly show with Teddy Panos and the crew over at WCAP 980 on the am radio dial. We had a surprise call in during the show, with Senator Scott Brown calling in to talk about the passage of the STOCK Act in the U.S. Senate. Will be doing the show every Friday at about 8:10 a.m.
It seems like an appropriate time to talk about the effective outsourcing of municipal services, which is not only in the news today, but will likely be something that will be on the front burner for some time to come. A good place to start that discussion comes from the White Paper written by Stephen Lisauskas for the Pioneer Institute. Lisauskas has outstanding credentials, and has written a paper that should be read by all those looking to outsource existing municipal services. Lisauskas focuses in on those pesky details which can make or break the results from a decision to outsource. Those details include cost, but are not limited to cost. Lisauskas points out that effective management, and specifically attention to detail, are critically important when making outsourcing decisions. What exactly does that mean, and what does he see as the benefits and drawbacks of outsourcing?
Lisauskas points out a rather obvious benefit, which is the ability to manage and measure “outcomes”, rather than “inputs”. In this day and age the management of “inputs”, has become exceedingly complex and time consuming, as well as expensive. It certainly diverts attention from what any good manager wants, which is to measure and judge “outcomes”.
Outsourcing allows managers to focus on measuring and managing outcomes rather than
on dealing with significant input issues. These input issues are typically complicated and time consuming given the many laws, regulations, collective bargaining provisions and financial challenges under which municipalities operate. As a result, a focus on outcomes – and the public reporting and discussion of these outcomes– is often underemphasized or absent when municipalities provide services using internal resources. Outsourcing improves the likelihood that municipalities can focus on what truly matters to many recipients of public services – are school children being fed appropriately, is trash being removed, are schools clean and safe – rather than focusing their time and effort on planning for and managing the inputs used in service provision.
But not all municipal services are created equally, at least as far as the potential for outsourcing goes. Lisauskas points out that those services where “outcomes” are difficult to quantify are less likely to be successfully outsourced.
Services that are difficult to define and whose outcomes are difficult to quantify are generally difficult to outsource. Seeking private competition for these services could potentially be unproductive or result in higher costs if the work is not properly defined or if outcomes are improperly measured.
The author also offers sound and valuable advice about taking the necessary steps in advance of “outsourcing”. Certainly understanding what it is specifically that you are looking to outsource is critical, and drawing up solid procurement documents that utilize that most fundamental understanding is essential to a successful program.
A well drafted procurement document and contract is critical to a successful outsourcing.
This concentrates risk in discrete events that could be handled in error and, with multiyear contracts, could disadvantage a municipality for some time to come.
You need to have a full understanding of what it is you are procuring, and absolutely need to secure contracts that protect the municipality against potential “gray areas” that could lead to the original cost estimate being wrong on the low side. Lisauskas hits a very, very important point here. The effectiveness of a solid contract, and having a manager that knows the intricate details of that contract, cannot be emphasized enough. Having qualified and experienced legal counsel examining prospective contracts is vitally important, and can save municipalities large amounts of money in the event of disagreements with the vendor. For municipal managers I say do not be penny wise and pound foolish. Make sure your contract is reflective of the municipalities best interest, and do not be afraid to utilize some resources to ensure that the contract achieves that.
In order to help avoid contract issues, as mentioned above, Lisauskas talks about the importance of drawing a tight and detailed procurement document that outlines specifically what services are being sought. But Lisauskas is also interested in making sure that all parties agree, up front, on how the outsourcing success will be measured! What metrics will be utilized to allow the municipal manager to judge vendor performance? From the perspective of the municipality this is another point that cannot be emphasized enough. If this is not addressed in the procurement or in the contract then avenues of disagreement are opened, and disputes between municipality and vendor may ensue.
Bid specifications should define in detail the services being considered for outsourcing to
ensure all parties have a clear understanding of the services involved. This will also help external service providers offer the lowest possible price to the municipality. Uncertainty creates the opportunity for misunderstanding in the future and will cause vendors to offer higher prices to protect them in the event they need to apply more resources to a particular project.Specifications should also include agreed-upon time frames for status updates and performance reviews, a discussion of the performance metrics and the means to be used to measure performance against these standards, and a process to update performance measures and evaluation tools during the contract period.
Lisauskas has written an outstanding “Practitioner’s Guide to Outsourcing”, which I have attached below. He gives an honest evaluation, including the positives and negatives associated with the practice, as well as some tremendously constructive advice for those in municipal management thinking about outsourcing services. I cherry picked some items that I consider to be important, but there is far more to the white paper than what I have written about here. Well worth a read for municipal managers.
Super Bowl match-ups between two evenly matched teams come down to execution at critical times. The Patriots actually played a pretty good defensive game, and I do not believe you can fault the Belichek game plan. The Giants simply made the big play (catch) when they needed it, and the Pats did not. A great player like Wes Welker must make that catch, and a great QB like Tom Brady needed to make a little bit of a better throw. So the game comes down to throws and catches. They made em, we didn’t. Congratulations to the New York Giants.
As expected Mitt Romney won the Nevada caucuses by a wide margin. The win was so expected that we were spared much of the primary/caucus coverage that is now tending to repeat the same points over and over and over…..Romney won with about 47% of the vote (still only 71% reporting), with Newt and Ron Paul battling it out for second place, with Newt at 22.7%, and Paul at 18.6%, with Rick Santorum dead last at 11%. It is a tough, if expected loss for Gingrich, who is really just about out of fuel. If he slips to third in Nevada after all the ballots are counted it will be even worse.
Gingrich had a post caucus press conference that was typical Newt. He blasted Romney, outlined his political strategy to get to the Republican convention in one piece, and said he would be the “frontrunner” by the Texas primary. But for now his political operation appears to be cratering, as his Nevada campaign simply amounted to him being holed up in a Sheldon Adelson hotel for 4 days, with minimal public events. And he now faces two caucuses and a “beauty contest” primary in Missouri next week that are not looking pretty for him.
In Colorado Romney may get himself another big win, leading (PPP Polling) with 40%, to Rick Santorum’s 26%, Newt Gingrich’s 18%, and 12% for Ron Paul. In Minnesota Rick Santorum has a small lead over Mitt Romney, 29% to 27%, with 22% for Gingrich and 19% for Ron Paul. The Missouri beauty contest primary (no delegates selected) has Santorum leading 45%, to 34% for Romney and 13% for Paul. Newt Gingrich is not on that ballot.
This week on WCAP (podcast coming) Ted Panos asked me about Santorum, and I said he was hanging around in the hope (expectation) of a Gingrich meltdown. This may not be the typical Gingrich meltdown, but Santorum may be poised to win two of the three events next week, and finish second in the third contest. Gingrich’s poll numbers are sinking like a stone, and after next week the media focus may well shift over to Santorum as the anti Romney if these poll numbers are accurate. Naturally should Romney sweep all three events it is difficult to see either Newt or Santorum hanging out much longer. But Santorum, fresh off a last place finish in Nevada, may have a (slight) pulse after next weeks contests. And Newt may be DOA. Conservative columnist Jennnifer Rubin over at the Post thinks so, calling Gingrich the “Rasputin” of Republican politics. But wasn’t Rasputin hard to kill? Another big week for the Republicans next week.
Talking with Teddy Panos over at WCAP 980 am about the last FLA Republican debate, the Governor’s State of the State speech, the State of the Union speech, and politics around the Valley. Always have a great time with Ted and the crew at WCAP. Look for me every Friday at 8:10 a.m.
Bill Manzi.com 