Am I Next? California. Killing the Golden Goose. AB 1250

The two greatest threats to our communities, states, and our nation are political corruption and the rise of the self-serving “professional politician.”

Politics is not a “team sport” where you support and root for one side, but a serious business that can affect your life and future. It has been often said that the wisest course of action is to vote, not for your political party and not for activist-led special interests, but for the prudent, common sense, politician who understands that government is not and should not be a self-perpetuating business putting its own existence and needs before the needs of the people they purport to serve.

Here in the formerly golden State of California, we see a perilous precedent develop in California’s legislature with the introduction and promotion of Assembly Bill A.B. 1250 which affects “Counties: Contracts for Personal Services.”

Mostly this bill is designed to prevent counties from contracting services to those best qualified in the private sector in favor of keeping these jobs within the government and staffed by unionized workers whose salaries, perks, medical, and pensions are slowly bankrupting government entities on all levels: local, state, and national.

Proposed Law: AB 1250 would establish standards for the use of personal services contracts by counties, specify contractor disclosure requirements, and identify circumstances under which a county may contract for services. My comments appear in [brackets.]

Specifically, this bill would do the following:

"Prohibit a county from contracting for personal services currently or customarily performed by that county’s employees unless it makes specified findings, and all of the following conditions are met:

  • The board of supervisors demonstrates that the contract will result in cost savings for the duration of the contract, as compared with the county’s actual costs of providing the same services. [Since many of the government's costs are artificially created, it may be impossible to verify the underlying data or methodology of computing such costs.]
  • Contract proposals are not solely based on savings related to lower contractor pay rates or benefits, and contractor wages are at the industry’s level and do not undercut county pay rates. [This provision keeps wages artificially high and at the level of county workers to eliminate any significant cost savings to perform the work in the private sector.]
  • The contract does not displace county employees, as specified, or cause vacant positions to remain unfilled. [This is nonsensical because the goal is cost-savings beneficial to the taxpayers and not a full employment opportunity act for unionized government workers.]
  • Contract savings are large enough to ensure they will not be eliminated by normal cost fluctuations, the amount of savings clearly justifies the size and duration of the agreement, and the potential for future economic risk to the county from rate increases is minimal. [There will always be some form of adjustment that must be made to deal with unforeseen economic circumstances like the shortage of materials, etc.] 
  • The economic advantage of contracting is not outweighed by the public’s interest in having a function performed directly by county government. [The public is not well-served by overpaid and non-productive government workers who are immune from being fired for malfeasance and incompetence.]
  • The contract is with a “firm,” it may be terminated by the county for material breach, it is awarded through a public competitive bid process, and it includes provisions pertaining to the qualifications of the staff that will perform the work. [It is amazing that the qualifications to perform work do not similarly apply to government workers, many of whom are grossly unqualified for the jobs they hold.]"

Of course, the politicians who introduced the legislation saw fit to exempt the City and County of San Francisco from the bill’s provisions and ensure that the legislation does not impact current government services.

Specify that the bill does not apply to contracts for architectural or engineering services, public transit, street sweeping, solid waste hauling, or construction, alteration, demolition, installation, repair, or maintenance work that is considered a public works project.”

For those wishing to read AB 1250 in full and in context, it can be found here.


Am I Next? Upside-Down Business Models, Competition, Predatory Pricing

Efficiency not competition is often the biggest existential threat to companies with an upside-down business model.

The fight for business is about to get incredibly ugly as companies with upside-down business models realize a fundamental fact: efficiencies available to customers reduce the company's revenues, not the company's operating costs. 

Thus in a rush to preserve the income-generating ability of legacy capital assets, you will find companies turning to corrupt politicians to preserve whatever is left of their business and to overlook the confusing and dishonest predatory pricing that is often found in highly-regulated and tariffed industries.

Deception becomes the norm. 

One example can be found at Sparkletts where the initial offer of a free cooler (regular and cold water) has given way to an almost surreptitious rental cost to the customer. In the beginning, the company raised the price to $1 per month and explained it as imputed taxes demanded by "the government." Now, years later, the same cooler is costing the consumers $6 per month, and there is no pretense that this is a government-mandated tax. The same with the strangely-calculated "energy fees" to compensate for higher gasoline costs, but which never seem to shrink as the cost of fuel dramatically decline in an age of declining oil prices. Anything to overcome the fact that water has been commoditized, brands are becoming increasingly irrelevant, and lower-cost options are now becoming more available. 

Of course, just looking at the fees on some utility bills is almost an exercise in futility. Southern California Edison, when challenged over a single line item claimed that the item was a charge in anticipation of higher costs and was not a government-imposed fee.  One such mysterious fee is labeled the "Competition Transition Charge" and is defined as "a non-bypassable charge applicable to all existing and future SCE Bundled Service Customers, all Direct Access Customers, and all Departing Load Customers for recovery of SCE’s transition costs." 

In a second document, here is how the charge is explained...

"Once again, additional generation charges are listed in a column on the right underneath the extra delivery charges. Our example shows only a competition transition charge."

"Below this are your overall energy charges, which also boil down to a single item, franchise fees. The fees and the competition transition charge are just a reflection of the cost of business for your utility. By buying electricity from a utility, you are paying for all maintenance, repairs, special programs, and incentives, not to mention salaries and pensions. When any of those costs go up the utility just spreads the cost across its many thousands of clients, resulting in increased rates."

One might think that the utilities' costs would be bundled into the total cost of energy, but apparently, to avoid scaring the customer with a big number, they break the bill into smaller numbers, each when taken individually does not seem so onerous as the one big number.
So what does this have to do with real competition? Very little since most utilities are operated as monopolies and where the customer is faced with Hobson's choice: Pay the fee, accept the rules or do without. Pretty tough when you are speaking about the hard delivery of water or electricity. Not so much when you have choices of telephone or cable providers. 

it appears that home solar panels, LED lighting, and the increased efficiency of new buildings is taking a cut of their revenues without altering the cost structure. Some of this loss of income can be counterbalanced by the avoidance of CAPEX (Capital Expenditure) in building out additional capacity. You can see the very same thing happening in the water markets where drought-resistant landscaping and drip watering systems are reducing water usage and ultimately revenues. In these instances, efficiency is more damaging than the competition, if there is any in a monopolistic business.

So it is not uncommon to penalize customers for this efficiency with artificial tier-rates. The utility calculates, on some basis, what it believes is the efficient use of its resource and surcharges any overages. Unfortunately, most utilities do not make their revenue and operational statistics available to the public in a usable form so that we can know how much revenue is generated by so-called inefficient use. In some cases, utilities who have long-touted solar power are surcharging customers for administrative costs in attaching their solar installation to the grid. 

The takeaway ...

The takeaway is to look out for upside-down business models based on legacy assets and a revenue base that is being eroded by technological efficiencies on the consumer side like LED lighting and DRIP watering systems. Because the easiest way to compensate for declining revenues -- at least in the short term -- is to automate and to reduce costly personnel.