Long ago I disclosed that I dabbled in game theory from time to time. An application of those broad concepts are found in Public Choice Theory. Here is a salient snippet:
Public choice theory is often used to explain how political decision-making results in outcomes that conflict with the preferences of the general public. For example, many advocacy group and pork barrel projects are not the desire of the overall democracy. However, it makes sense for politicians to support these projects. It may make them feel powerful and important. It can also benefit them financially by opening the door to future wealth as lobbyists. The project may be of interest to the politician’s local constituency, increasing district votes or campaign contributions. The politician pays little or no cost to gain these benefits, as he is spending public money. Special-interest lobbyists are also behaving rationally. They can gain government favors worth millions or billions for relatively small investments. They face a risk of losing out to their competitors if they don’t seek these favors. The taxpayer is also behaving rationally. The cost of defeating any one government give-away is very high, while the benefits to the individual taxpayer are very small. Each citizen pays only a few pennies or a few dollars for any given government favor, while the costs of ending that favor would be many times higher. Everyone involved has rational incentives to do exactly what they’re doing, even though the desire of the general constituency is opposite. Costs are diffused, while benefits are concentrated. The voices of vocal minorities with much to gain are heard over those of indifferent majorities with little to individually lose.
While good government tends to be a pure public good for the mass of voters, there may be many advocacy groups that have strong incentives for lobbying the government to implement specific policies that would benefit them, potentially at the expense of the general public. For example, lobbying by the sugar manufacturers might result in an inefficient subsidy for the production of sugar, either direct or by protectionist measures. The costs of such inefficient policies are dispersed over all citizens, and therefore unnoticeable to each individual. On the other hand, the benefits are shared by a small special-interest group with a strong incentive to perpetuate the policy by further lobbying. Due to rational ignorance, the vast majority of voters will be unaware of the effort; in fact, although voters may be aware of special-interest lobbying efforts, this may merely select for policies which are even harder to evaluate by the general public, rather than improving their overall efficiency. Even if the public were able to evaluate policy proposals effectively, they would find it infeasible to engage in collective action in order to defend their diffuse interest. Therefore, theorists expect that numerous special interests will be able to successfully lobby for various inefficient policies. In public choice theory, such scenarios of inefficient government policies are referred to as government failure — a term akin to market failure from earlier theoretical welfare economics.
The slightly misleading part is the use of “Dwindling” which implies the City actually has a reserve at all when the fact of the matter is the reserve has been gone for well over a year with accompanying deficit, fueled by out of control spending, parked on a loan with The First that the City made without any statutory authority. But it is worse than all that because Mayor Fillingame, who has steadfastly denied the City had any financial problems to begin with, remains in deep denial:
Mayor Les Fillingame said he doesn’t think Guel’s findings are troubling.
If the City of Bay St Louis only looked at revenues and continued to allow General Fund salaries to be paid by the Water and Sewer Department here is a graphic representation of the new $60/month minimum billing broken down by current unfunded liabilities.
Last Thursday evening the Bay St Louis City Council held a recessed meeting that was devoted almost entirely to the troubled state of the City’s finances. Audit report excerpts were read, sweeping proclamations regarding accountants being meek were declared and into nonsalient side subjects was the discussion frequently steered. And yet through it all the public still managed to learn a few things. I thought Geoff Belcher did a great job with his recap of the meeting for the Seacoast Echo so it is there we start:
Kolf said one of the reasons the city’s mandated audit is being held up is because the auditor is concerned that the utility rates aren’t high enough to pay everything and are a “going concern.”
If the city fails to raise rates, he said, that could make the bank trustees in charge of the bond nervous and they could legally require the city to pay the funds back immediately.
Falgout countered that the auditor is concerned about far more than the city’s utility budget.
So we getting this folks, we have the City Clerk blaming the Going Concern opinion on just the Utility Fund while the Auditor’s are telling the City Council they are concerned with the entirety of the City’s dismal financial situation. Kolf used that misconception in an attempt to strong arm the City Council into adopting the Mayor’s Utility rate hike, a proposal that according to Councilman Joey Boudin the council saw for the first time just before the start of the recessed meeting.
But there is more because the finger wagging from Clerk Kolf and City Attorney Rafferty was just beginning:
City attorney Donald Rafferty told the council he felt the proper thing to do would be to announce to the bank trustees that the city likely not be able to make the first payment on the refinanced bond.
Last night, the $9/month water and sewer rate increase proposed by Mayor Les Fillingame failed to gain the support of four of the City Councilmen. Councilmen Doug Seal, Lonnie Falgout, Mike Favre and Joey Boudin all voted no on the Mayor’s proposal.
City Clerk David Kolf addressed the outstanding FY 2013 audit, specifically the proposed going concern opinion on the City’s FY 2013 Financial Statements, which Kolf blamed solely on the Utility Fund as he attempted to use the proposed going concern opinion to justify the Mayor’s rate hike. Kolf was countered by Councilman Falgout, who indicated the Auditors’ proposed opinion, per his discussion that day with Auditor Jennifer Bell, was derived from the overall poor financial condition of the City.
Falgout, explaining his no vote on the rate hike, wants to undertake a comprehensive review of the City’s finances as he indicated the latest financial reports show that several revenue sources in the City’s general fund, including sales tax collections, continue to decline year over year.
Four hours into a marathon Bay St Louis City Council meeting that lasted almost five hours, City Clerk David Kolf disclosed to the City Council that the municipal auditors have been in discussion with City officials regarding the issuance of a going concern opinion on the September 30, 2013 City of Bay St Louis financial statements that are included as part of the annual Single Audit of the City’s finances and compliance with applicable laws and regulations. The single audit report for the City is due on June 30, 2014, a due date which Kolf admitted would not be met as the auditors are still waiting on the Administration to provide the firm with crucial information needed in order to complete the report, a complete list of which was provided to the Mayor on May 6, 2013 when Auditor Jennifer Bell presented the audit firm’s preliminary findings to the City Council.
Mayor Fillingame, who has previously steadfastly maintained the city’s finances were solid, made no public comments on the City’s dire financial situation to the Council before Slabbed’s deadline for publication instead relying on Clerk Kolf to explain the auditor’s proposed opinion. Kolf blamed the City’s Utility fund for the financial problems leading to the rare proposed audit opinion, which essentially means the City’s solvency is doubtful absent a bankruptcy filing within one year of the date of the opinion.
Douglas Handshoe, a CPA that is publisher of the Slabbed New Media website explains:
I have a part two coming on Muckraking Job Security plus I hear heated words were exchanged last week at the Bay St Louis City Council between certain interested citizens in the presence of the Sun Herald reporting duo assigned there to.
Man o man is it raining cats and dawgs but the summertime heat is on down here in Soggy Bottom. All that and more on tap.