Paul Soglin: Waxing America

Wisconsin Manufacturers & Commerce: What Will It Take?

WMC: What WIll It Take?

 

The Partnership for Wisconsin

The Partnership for Wisconsin is a collaborate effort of business, labor, professional, and academic leaders committed to a sound Wisconsin economy. The Partnership is a non-profit organization whose members share a common value, namely the importance of education for the growth, security and happiness of the individual, the family, and society.    The participants share a common belief that a highly educated and trained workforce is a critical element in making Wisconsin a better place to live, work and play.

The Partnership for Wisconsin acknowledges the benefits to the individual and society of an education.

A safe and healthy community is one that provides economic security and ensures economic opportunity for all of its members. Studies show that education is indispensable if individuals and their families are to fully realize the benefits of their labor.

Male college graduates earn well over $60,000 a year from the age of 35 to 60. High school graduates in the same age range earn under $40,000. The differential for women is similar. Women college graduates will earn over $40,000 a year while female high school graduates earn about $23,000 a year.

Society also benefits form the earning power of education.  Depending upon race and gender, the additional taxes paid by a college graduate compared to a high school graduate is between $200,000 and $400,000 in the course of a lifetime.

The benefits are not as stark, but still significant, if a high school drop out  were to finish school, or if a high school graduate were to have just one or two full years of higher education.

For example the public benefit of a high school education is $209,000. That amount represents the combination of greater taxes and reduced cost to the public of a high school graduate as opposed to a high school drop out.

From society’s perspective, it always pays to invest in education.

Add to this, the demands of Wisconsin business and industry for what one major employer who described his highest priority as a “need for an intelligent workforce.” Employers need workers who can contribute productively and intellectually.

The Partnership for Wisconsin recognizes that to provide for a sound education system there must be a fair and equitable system of taxation. In encouraging public support for education, the Partnership is committed to a Wisconsin taxation plan that not only adequately funds education, job training, and workforce development at all levels, but fairly distributes the cost among all of the parties who benefit.

The Partnership for Wisconsin recognizes that adequate investment in human capital and infrastructure are critical to stimulating private investment. For that reason, we are committed to encouraging a dialogue between the public and private sectors to set an agenda that acknowledges the many direct and indirect benefits that come from such strategies.

As its first commitment, the Partnership will focus on:

• Ensuring adequate financing of public education in all districts throughout the state of Wisconsin.
• UW System education. Financing adequate so that:
  • no in-state student has to pay more than % of their tuition
  • out of state tuition is not more than 100% of the cost of educating the student
  • Faculty salaries at the Madison campus are commensurate with other Big ten Schools
  • UW system Schools are (needs elaboration from academicians)…..
• A workforce development program through the VATC System  (more detail needed)….
• A tax structure that will most likely require an increase of existing taxes, the expansion of the tax base, and or the adoption of new taxes in order to adequately finance….(identification of educational and workforce development needs) 

The Partnership feels that our state must not only have an educated workforce but that we have an enlightened citizenry that understands the externalities and the consequences, or lack of consequences, from not giving full consideration to appropriate investment in human capacity as well as the learning environment.

For that reason the Partnership for Wisconsin is committed to supporting programs that are designed to provide economic opportunity to all Wisconsinites. A healthy state economy is predicated on strategy that encompasses all areas of the state, urban, rural, and suburban.

The Partnership, from time to time, may support the work of others or engage in its own research and policy development in areas related to education, workforce development, or which support the individual’s ability to further their education and training.  This may also include the examination of collaborations with employers, both for profit and non-profit, that are in need of an ever expanding educated workforce.

The Partnership recognizes that many factors enter into the decisions of investors to locate businesses in a community. Reputable studies show that public safety, efficient transportation systems – both public and private, a sound environment, cultural and recreational opportunities, along with fair taxation and a friendly attitude towards economic development are all critical elements that affect decision making.  For that reason the Partnership for Wisconsin, will convene workshops and forums throughout the state to discuss how to improve the economic climate.

Particular attention will be paid to how the international economic environment impacts Wisconsin business and the need to create sustainable industries that can compete in an economy that will afford greater opportunity to businesses that are ‘green.’

Dr. Martin Luther King Jr., noted for his leadership in the civil rights movement could have found an alternative career as a leader in the quality movement when he said “All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.”  The Partnership for Wisconsin joins in Dr King’s sentiment and is committed to urging both business and labor to collaborate to the greatest degree possible in providing fair and decent wages and benefits, working conditions and hours, and at the same time appreciating the contribution to improvement that every employee can make.

While the Partnership will not become involved in disputes between employers and organized labor, it will urge that resolution of differences be made with an eye to the long term consequences as well as the short terms needs of both parties.

Wisconsin has a long tradition of utilizing the research capabilities of its universities for the advancement in health, science, nutrition, safety, technology, culture, societal organization, and a greater understanding of the human condition. For that reason the Partnership for Wisconsin is committed to supporting research and academic freedom in all of our institutions of higher learning.

 

author's note: This is a draft written six months ago and now available on another web site. Over the past year I met with many Wisconsin business leaders. They were unhappy with Wisconsin Manufacturers and Commerce (WMC). They felt that WMC should be ignored and that a new organization established in our state. Based on what they were saying and my discussions with labor and academic leaders, I drafted a plan for the Partnership for Wisconsin.

 

I will post next week its origin  and why it relates to our state's economy.

Madison School Referendum

On next Tuesday's ballot there is a referendum for Madison Metropolitan School District residents to vote on supporting public education.

As one Wisconsin business leader put it when discussing the challenges of global competition which includes everything from taxation to environmental regulation, "What I need is an intelligent workforce."

We invest every day. Some investments turn out better than others.

There is really no wiser and prudent investment than the education of our children.

An educated child makes more money and pays taxes. An uneducated child is in need of public support for housing, healthcare, and food. An educated child is less likely to go to prison and more likely to support charities. An uneducated child is more likely to become a parent at a young age and is likely to have greater health problems.

An educated child, obviously, is more likely to go on to college and be even more successful. An uneducated child is more likely to raise children who will also be uneducated.

The cost of less than $60 per household is a small cost for the benefits we will all accrue when this referendum passes next week.

Where Does WMC, Where Does WMC Watch, Go From Here?

When I posted Wisconsin Manufacturers & Commerce Downsizes for Elections and Image noting that the reduced presence of WMC in this fall's elections could be the result of a number of factors, Xoff pointed out that:

WMC, with its image taking a battering, decides to run a token amount of positive advertising and quietly give its big bucks to one of the other right-wing groups that's running untruthful negative ads against Dems all across the state. No requirement to report it, since it's not PAC money, and WMC lets someone else take the heat. Can I prove it? No. But it's plausible, given how much money WMC was raising and how little it appears to have spent directly.

Absolutely correct.

My guess is that WMC and WMC-sourced funds are down significantly this year. However, even if the they did not  redirect political funds into groups like the Club for Growth in this election cycle, the extreme right wing forces will do so in the spring 2009 Supreme Court race.

There are a number of scenarios:

• Money will continue to pour into WMC from US Chamber of Commerce backed sources and WMC will buy the ads.
• Money will pour into WMC from US Chamber sources and WMC will pass the money on to the Club for Growth, and other fronts.
• Money will pour into the Club for Growth and its clones directly from the US Chamber of Commerce, completely by-passing WMC.

All of these scenarios can have different outcomes in that some will be less effective than others.

All of these scenarios are designed to do the same thing - advance a right wing agenda utilizing a Willie Horton media campaign, for the purpose of undermining public education and eliminating reasonable government regulation that protects consumers and the environment.

The studies due after next Tuesday that look at the purchase of television time by these reactionary groups may give us some clue as to which tactic they are pursuing.

In any case, WMC Watch has much to do. Not only will we continue to monitor WMC's election activities, but we willl continue to expose its anti-environmental record, its anti-education record, its distortions about the nature of taxation in Wisconsin, and its plans for the 2010 gubernatorial election.

Inappropriate: "School Districts Were Told of Investment Risks"

Five Wisconsin school districts, (Risky Wisconsin School District Investments - We Need To Know More ) are suing the Royal Bank of Canada (RBC) and the financial advisers that led them into a series of investments, some with borrowed money, that resulted in losses amounting to $200 million.

The Milwaukee Journal Sentinel reports,  School districts were told of investments’ risks, firm says that in their defense the investment advisers state:

We made full disclosure of the merits and the risks associated with these transactions, and we were never guarantors in any fashion of the performance of those investments

The article goes on to note that

...(the)suit alleges the firms misled five Wisconsin school districts — Kenosha, Kimberly, Waukesha, West Allis-West Milwaukee and Whitefish Bay — in their $200 million investment into complex financial products called collateralized debt obligations, or CDOs...

..The lawsuit accuses Stifel of misleading district officials about the nature of the investments, which they claim they thought were the equivalent of highly rated corporate bonds. Instead, they say they were sold RBC’s “toxic debt.”

From where I sit, which is fourteen years as a mayor, six years as an investment adviser representative, seven years of teaching graduate courses that include public finance and the investment of public monies, and as a board member for two foundations with combined investments of over $100 million, there is no logical or reasonable defense for the RBC and its cohorts.

Even if the school districts had come to the RBC and its associates threatening to burn down the schools unless the advisers arranged the purchase of CDOs, the sale should never have been made.

Any investment adviser, no matter how open the disclosure, no matter how frank the discussion, should have known that they were not dealing with people who understood the transactions by virtue of the inherent risk involved.

Simply put, the investment did not meet the test of appropriateness for the client.

It is unconscionable for any investment adviser to arrange this transaction under the circumstances described for any unit of government.

What Steve Nass Does Not Say

In this morning's Wisconsin State Journal there are interviews with the two candidates for the  Assembly in District 31. The Democrat is Frank Urban, a thoughtful political novice with an understanding of government with a commitment to health care reform and education.

His opponent is Steve Nass, the right wing incumbent who is best known for his continued attacks on the University of Wisconsin System. For some reason Nass wants to drive down the quality of education in Wisconsin.

Nass makes himself out to be a populist looking out for the average family here in Wisconsin. Nothing could be further from the truth.

Nass boasts about his proposal to limit tuition for UW students as though he is sensitive to their pocketbooks. What he does not say is that every budget year he leads the charge to limit state spending for our UW System. He does not mention that Wisconsin now ranks next to last in maintaining public support for its state university system. Only Michigan is worse over the past five years.

Nass wants sate government to back off on its commitment to pubic education. He notes that 40% of the state budget goes to public education.

What he does not say is that of all revenues collected by the state, the amount that goes for public education is in line with other states.

Nass wants to maintain spending controls of local school districts. He claims this is in the interest of the middle class taxpayer.

What Nass does not say is that he voted for every tax reduction for the rich and the corporations which resulted in shifting costs to the middle income homeowner.

What Nass does not say is that by making our state tax system fair, we can have money to fund public schools and not put on the residential property tax.

Investing Public Funds - Regulation and Education Is Needed

Yesterday I commented on the the significant losses incurred by several Wisconsin school districts when they took public money, some from the taxpayers and some borrowed, and lost over $150 million in high risk financial ventures, Risky Wisconsin School District Investments.

I am sure that most of the school board members and the respective staffs of the districts involved are bright people and probably do not deserve the agony they are presently experiencing in return for their efforts at public service.

They screwed up and the damage is extensive, which points to the need for a combination of regulation and education to make sure this does not happen again.

First , every elected official in the state needs some sort of training in these matters. School boards, city council members, village presidents and county supervisors need a short course on the risks of managing public investments. The training can come from a number of sources. Professional associations, the State Treasurer, the State of Wisconsin Investment Board, and the various associations of public officials can take on this responsibility. Some are already doing it, but obviously it is not going far enough.

Secondly, we need stiff regulation and punishment for brokerage houses and investment firms that sell these kinds of risky investment vehicles to government bodies. While it is impossible to outlaw and identify every type of investment that creates this risk, certainly a well crafted statute can describe the consequences, require disclosures, and provide penalties.

There is too much at stake and this happens too often for it to be ignored any longer.

Clerealy the elected and appointed school officals must take responsibility but this os one of those situations where blame does not rectify the problem and bring the funds back to the scool distrcits.  It is the taxpayers, the students and the employess who need the protection, especailly when the public officals are not up to the task.

The Government Finance Officers Association (GFOA) has many valuable Recommended Practices  that cover this subject. Here are two:

• Use of Derivatives by State and Local Governments for Cash Operating andReserve Portfolios (1994 and 2002)  ...   The Government Finance Officers Association (GFOA) urges state and local government finance officers to exercise extreme caution in the use of derivatives and to consider their use only when they have developed a sufficient understanding of the products and the expertise to manage them...

 

•  Market Risk (Volatility) Ratings (1995)  State and local governments have long relied on credit ratings as an independent analytical source to gauge the credit risk of an investment option. However, credit risk analysis alone is not sufficient to safeguard against the assumption of other risk components, including market, interest rate, and liquidity risks...
  GFOA encourages state and local governments to augment information they receive from brokers, dealers, or advisors with independent research when conducting due diligence of potential investments. Information sources include historical trading ranges, trend and volume data, brokerage firm research, cash flow and present value analysis, andcredit ratings and research.
  

   

   

Risky Wisconsin School District Investments - We Need To Know More

I found this in searching Wisconsin news this morning. Wisconsin Schools Sue Royal Bank Over Losses, Post Reports

Five Wisconsin school districts sued Royal Bank of Canada and a local brokerage over $200 million in credit derivatives that have lost about three-quarters of their value, the National Post reported.

The districts claim that they were assured by Royal Bank, Canada's biggest lender by assets, and the Stifel Nicolaus & Co. brokerage that the investments were safe even though the sellers knew they weren't, the Post said today, citing the lawsuit.

The districts claim they were encouraged by government legislation to set up investment funds to pay for salaries and pensions, making them targets for firms to sell them products that wouldn't have been acceptable previously under stricter rules, the newspaper reported.

There is a lot of information missing to get a clear picture of what is going on but the story is very disturbing.

After the bankruptcy in Orange County, California in the 1990's, the  mistakes made by a rogue trader working for the Wisconsin Investment Board using derivatives to speculate in the Mexican peso, and the recent municipal failures in Florida tied to similar risky investments, if this story is true the investment decisions were inexcusable.

Some basic rules:

• No government should be investing operating and capital funds in any instrument where there's a risk of losing capital.
• The quickest way to incur loses is to take naked positions in derivatives without owning the underlying instrument, and that should only be in balanced portfolios with a long term horizon.
• There should be no government legislation that encourages such investment strategies even in pension funds. No sound minded person would take such a risky position in their own 403B or 401K or IRA.
• What legislation are they talking about?

It will be interesting to see if the Wisconsin press picks up on this and we get more details.

Is this our Wisconsin or is there a Wisconsin in Canada?

update: 12:30pm. This is nuts. Thanks to Julie for sending the link to the Milwaukee Journal Sentinel story that I missed.

A few more observations:

• There is no amount of legislation that governs public bodies that is going to solve this problem. There are too many creative ways to speculate that no law controlling the type of investment can stop this from happening.  There are systems and management safeguards that can be implemented, but to be effective, they must be followed. This is an area where the elected officials and staff simply do not know that they need to ask the correct questions.
• There should be strict and absolute liability on the part of the all of the investment advisors.  Anyone who spoke to the school staff and the members of the board of education should be required to have tattooed on their foreheads:

DO NOT LISTEN TO ME. No matter what I say, you stand to risk losing all of the money you invest and you may incur losses in the hundreds of millions of dollars. Do not listen to me - everything I say is motivated by enormous commissions and I would not put my mother's retirement funds in this kind of risky investment.

• The school boards in question, Kenosha, Kimberly, Waukesha, West Allis-West Milwaukee and Whitefish Bay, needed sound advice in a time where they needed to solve a long range fiscal problem created by inadequate funding of education in Wisconsin.
• Call me for advice (It may or may not be free). If you are a Wisconsin government unsure about your investments, the first thing I will do is have you read:

Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County. The Largest Municipal Failure in U.S. History by Philippe Jorion written ten years ago. For $45 you can save a lot of money, so you do not have to repeat history.

If you need more help, we can talk.

I Have More Foreign Policy Experience than Sarah Palin

With John McCain pushing Sarah Palin's experience in international matters and foreign policy,  McCain touts Palin on foreign affairs, I figured it was not too late to get in on the fun.

I served as mayor of Madison, Wisconsin, 1973-79 and 1989-1997:

• In 1978 I traveled to Japan for Hiroshima Day where I addressed one thousand delegates at a peace conference. The US and Japan have enjoyed peace continuously since then.
• The 1975 trip to Cuba was instrumental in  the first exchange of a sports team between the United States and Cuba, when the Cuban volleyball team subsequently toured the US. The well mannered host team proceeded to lose all nine games.
• That first of the three Cuban trips was given the green light by the State Department in an effort to speed along a successful US-Cuban anti-hijacking treaty. After our visit there were no more hijackings.
• My 1976 trip to Israel coincided with the historic visit of Egyptian President Anwar Sadat. I graciously agreed to vacate my Jerusalem hotel room and get out of town to make way for Sadat's entourage, thus furthering the efforts for a Middle East peace.
• We went to Germany, drove on the Autobahn at outrageous speeds and offended no one.
• We went to France twice. In 1982 we caused an incident which resulted in a pheasant being struck by a Frenchman's vehicle at 160 kilometer an hour vehicle, blowing out the windshield. Peace was maintained.
• In 1998 we again toured France and Italy where I authoritatively pronounced, "There are no sharks in the Mediterranean."  The French overlooked the faus pax and we were allowed to stay. We further avoided international incidents by never speaking English in public and passing the entire family off as Spaniards. I was most convincing answering all questions with "si' not "yes" or "oui."

We know that a Governor's supervision of the National Guard is no more foreign policy than a mayor's heading the local police department:

• In 1973 Police Chief David Couper and I stifled an internal insurrection, peacefully.
• In 1989 we handled a major demonstration by anti-choice demonstrators without incident.
• Numerous times, (except the year 1996 when I let Alderman Verveer talk me into changing strategy for the Mifflin Street Block Party), utilizing my own experiences in the streets, I developed tactics with the police and fire departments that resulted in peaceful block parties and Halloweens.

The day Sarah Palin can deal with the fall or spring revelry of a population of students five times the size of her home town in a peaceful manner with minimal arrests and property damage, she can carry my laptop and gas mask.

The McCain Palin Legacy

An examination of the speeches of both Republican candidates, John McCain and Sarah Palin, as well as their actions in public office, indicates a dismal record when it comes to the economy. While both admitted in the most cursory manner that fixing the economy and the need to create viable jobs is a high priority for the next administration, neither admitted their culpability:

• Both supported the war in Iraq.
• Both know that deficit spending is ruining the economy but lack a plan to fund that war, which is wrecking havoc with America employers and workers.
• Both are responsible for the inflation, the new highs in unemployment, and the speculation that drove up the price of oil.
• Both are long time supporters of tax cuts for the rich, the very wealthy, which only exacerbates the growing national debt. It is a record debt.
• Palin and McCain were silent during their most recent terms in public office on the pirating and exploitation of the U.S. Defense budget by private contractors who ripped off the American people of billions of dollars while our servicemen and servicewomen went unprotected in their Humvees.  Can you say ,"Blackwater, or Halliburton?"This is inexcusable for Palin who governs portions of the United States only 50 miles from Russia.

The Republicans have a plan for all of this.

In the next two months we will see swiftboating of Barack Obama that will make the attack launched against Senator Kerry look like a bathtub flotilla.