Sunday, January 15, 2012

Free Enterprise Run Amok

What do the Costa Concordia and the Deepwater Horizon have in common?  

This week the cruise ship Costa Concordia ran aground in a well-traveled corridor of the Mediterranean Sea.  The top-heavy ship capsized and the search continues for lives lost.  Apparently the captain fled.  In 2010, the Deepwater Horizon spewed millions of gallons of oil into the Gulf of Mexico, destroying all life for hundreds of miles and damaging sensitive gulf coastlines and estuaries.  They are one and the same story.

The Costa is owned by Carnival Cruise Lines, an American company carrying mostly American passengers but Europeans as well.    The CEO, Mickey Arison, is the richest man in Florida, worth many billions.  Though American owned and embarking from American ports, Carnival flies the flag of Liberia.  Liberia does not inspect the ships, regulate safety or environmental standards or collect taxes.  For a fee to the Liberian government, the license is given.  Meanwhile, Liberians focus on the aftermath of their long bloody civil war, not what Carnival Cruise ships are doing.  (Note:  Cruise Law News rates Princess and Royal Caribbean worse than Carnival.)

In exchange for the $35 billion paid by American passengers to Carnival each year, Carnival pays 1.1% in taxes.  When a fire broke out aboard the Carnival Splendor in 2010, the US Navy and Coast Guard swooped in to put out the fire and bring food and medical supplies to the ship.  Estimated cost? About $4 million.  Add up the costs to maintain ports they use (notice that none of these cruise ships sail from one US port to another, which would require some level of inspections), other rescues and assistance to distressed cruise ships, the environmental degradation from fuel spills and sewage freely dumped into the oceans and in port and other costs to all of us.
That nasty raw sewage which cruise lines can freely dump - completely untreated - just twelve miles from shore.  Yes, just twelve miles from that lovely beach you may be sitting on in Florida, or the marshes of South Carolina, or the oyster beds of Alabama.  Nasty, stinking feces from several thousands of passengers eating incredible amounts of food around the clock on hundreds of cruise ships each day.  

"Blackwater" is sewage, waste water from urinals and toilets, and waste from medical facilities.  Gross stuff.  It contains pathogens, viruses including norovirus (when an outbreak on the ship occurs), bacteria, and intestinal parasites. According to Friends of the Earth, a cruise ship on a one week voyage is estimated to generate 210,000 gallons (or 5 large swimming pools) of human sewage. (Source)
A cruise ship also generates 1 million gallons (33 more swimming pools) of gray water (water from sinks, baths, showers, laundry, and galleys).  Cruise ships also generate large volumes of oily bilge water, sewage sludge, garbage and hazardous wastes.
Workers on cruise ships come from the world's poorest countries and work 80 and 90 hour weeks.  Sometimes they go months without paychecks.  Crews are hired with no requirements for training, certification or experience beyond what the company itself imposes.  No wonder the Costa's captain fled ship first, allowing his giant floating hotel and passengers to fend for themselves.  

But regulations and taxes are bad.  So say some in Washington and elsewhere.  Carnival is a terrific example of how unregulated businesses free of tax burdens can operate.  It's a beautiful free enterprise world where more than half of all international ships (not just cruise ships) are registered in Liberia, Panama, the Marshall Islands or even Mongolia and avoid safety, labor and environmental oversight.

As for the Deepwater Horizon, oil rigs are treated like vessels on the open sea.  The Horizon was registered in the Marshall Islands.  When it exploded and continued to pump millions of gallons of crude into the Gulf of Mexico, wiping out whole species and creating a dead sea for thousands of miles, the Marshall Islands, a tiny island group in the South Pacific, did not assume responsibility.  Though owned by Transocean, the Horizon was operated by BP.  BP's ownership reads like a who's who of American and British tycoons.  But BP could operate under Marshall Island rules, rules that minimized staffing and safety requirements, compromised the chain of command putting oil experts ahead of maritime expertise.
"The loss of life at the Macondo site on April 20, 2010, and the subsequent pollution of the Gulf of Mexico through the summer of 2010 were the result of poor risk management, last?minute changes to plans, failure to observe and respond to critical indicators, inadequate well control response, and insufficient emergency bridge response training," the Bureau of Ocean Energy Management concludes.
The joint panel found that "a central cause of the blowout was failure of a cement barrier" that was supposed to seal the well. Halliburton was responsible for mixing and testing the cement. The report says BP made a series of decisions that saved money but increased risk and might have contributed to the cement's failure.
The report's conclusions highlighting numerous failures to observe safety practices and communicate effectively in the dangerous deepwater well drilling operation echoed findings from earlier inquiries, including one by a presidential commission. (Source)
As I listen to the current crop of Presidential candidates extolling the virtues of free enterprise and the evils of regulation and taxation, I am reminded of the Deepwater Horizon.  And now of the Costa Concordia.  Unlike them, I am unable to place my confidence in unregulated profiteers without oversight or obligations.

My mother taught me that the one who made the mess should have to clean it up.  That ought to be true in business too.

Wednesday, January 4, 2012

Meet Low Taxes, Small Government

For those who dream of a Utopia where taxes are low and government puny, I know just the place.  In fact, it's the county where I've worked and volunteered for the past 30 years.

Welcome to Josephine County, Oregon!

Josephine County in southern Oregon has 83,000 people, 41% of whom live in the city of Grants Pass.  Those in the city limits pay for city services.  The 59% in the rural areas have low taxes and meager county services.  Voters in the county haven't fallen for a Democrat since FDR. 

The state of Oregon is a low tax state overall, ranking 40th of the 50 states in overall tax burden.  There are no sales taxes and property taxes are kept low by a ballot measure passed by voters 20 years ago.

But each county has a different situation and rural Josephine County's property taxes (the primary funding source for local government) are the second lowest in the state at just under $6.00 per $1000 of assessed value (about half of actual value).  Of that $6, just 77 cents goes to support county government.  And none dare speak of raising county taxes.  Each year, Josephine County collects $4.5 million in property taxes.  Oh, forgot to mention that over $1 million of that is dedicated to a jail bond passed several years ago.  Make that $3.5 million to run the county.  There are other special funds, flow-through dollars from state and federal agencies, but the county's total budget is still dangerously low.   Voters in the county expect timber revenue from federal lands to pay for their services but those dried up after aggressive logging in the 1980s.

The county government is responsible for many services.  Among the most prominent are:

Sheriff's Department
County Jail
Courts and District Attorney's Office
Health Department
Mental Health Department
Public Libraries
Two Small Airports
This is a beautiful county for those who love limited government.  I don't think it could be any more limited.  Here's how some of these services are currently faring:
Sheriff's Department:  After voters soundly defeated a sheriff's levy in 2007, most deputies were laid off and no one was on duty until 5:00 pm.  That meant zero law enforcement response during the school day.   For the 50,000 people living outside the city of Grants Pass, there is no other law enforcement.  Fortunately, a couple of short-term transfers from the federal government restored 24-hour patrols temporarily but they're on the chopping block again. (I have a particularly disturbing personal account of what law enforcement cuts meant, but read on, it's coming.)

County Jail:  Oregonians have passed ballot measures for mandatory sentences on all sorts of crimes.  The jails ended up having to release anyone not covered by those patchwork statutes almost immediately after arrest.  Because case law restricts staff:prisoner ratios, most law enforcement dollars rested here.

County Health Department:  All county support for important health services ended.  Only those functions mandated and supported from the state were offered.  In a county with high poverty, difficulty attracting sufficient physicians, high drug abuse and many needs, our dedicated health professionals had to turn most people away.

Mental Health Department:  For years, the county contributed nothing to mental health services, forcing therapists to restrict services to those with Medicaid eligibility (including children).  Then the County terminated its mental health services entirely, leaving a private non-profit organization to take it over.  This was not legal and court action followed. 

Public Libraries:  The county shuttered all four public libraries in 2008.  Fortunately a group of determined citizens raised enough money to open the main library 24 hours/week and the branch libraries from 9-12 hours/week.   Compare this to the 60 or so hours per week many libraries are available.  Funding is tenuous year to year.

Parks:  Some of the most beautiful parks anywhere are located in Josephine County.  Unfortunately, maintenance and needed upgrades to these facilities remain unfunded.  The parks are vital to the local economy but receive no general fund support and some are deteriorating.

Limited government is alive and well in Josephine County.  If not for handouts from the federal and state governments, the county would have already gone into bankruptcy.  So who needs government anyway?  My story then.
Two years ago, an employee (we'll call her Mary) called me in the wee hours of the morning.  She said she and her children would no longer be showing up to school.  Mary was an excellent employee, well skilled and with delightful children.  She was well connected with the community and had nieces and nephews at my school as well. Mary then proceeded to relate the following story to me. 

Mary and her brother and some of the kids were at her parents' home the night before.   There was a neighborhood dispute over an access road.  Mary's brother was building a fence to prevent the neighbors from driving across the lawn.  The neighbor came out yelling and threatening to kill him.  His sons followed and all were armed.  Mary ran to the house and called 911.  She asked for a deputy to prevent the bloodshed she could see coming.  The dispatcher asked if anyone had been shot yet.  "No, not yet."  The dispatcher apologized and said she couldn't spare a deputy unless a shooting had already happened.

The neighbor put his gun to her brother's head.  Seeing this and realizing no help was coming, Mary's father shot the neighbor.  Mary called 911 again and was told a deputy could be there in 45 minutes.  Meanwhile, she got her father, brother and kids into the house and barred the doors and windows.  They waited and waited and finally the deputies arrived.

Mary and her family asked the deputies to stay and protect them while they removed their belongings and left the house.  They knew it would be unsafe to stay there without police protection.  They were told the deputies could not stay and they were on their own.  The police did not plan to press charges against the father.  They fled in their vehicles with very few possessions and left town in the middle of the night, telling no one (except the police) where they were going.  
You want limited government, vigilante justice and low taxes?  I know just the place.

Monday, January 2, 2012

About that Oil Self-sufficiency

I was shocked to read that America's biggest export in 2011 was oil.  Exporting oil?  Wait, aren't we developing domestic oil reserves to reduce our dependency on foreign oil?  I think I missed something here.

 In 1973, the Alaskan Oil Pipeline was opposed by environmentalists and native peoples.  It was finally approved by Congress with the assurance Alaskan oil would only flow for Domestic uses.  That ban was lifted in 1995 and Alaskan crude flowed to Asia.  (In 2000, President Clinton restored the ban.)  In 1989, the Exxon Valdez hit a reef and spilled over a half million barrels of oil into the Pacific Ocean.   In 2010, British Petroleum created a massive oil spill offshore in the Gulf of Mexico, spilling 5 million barrels that decimated wildlife and destroyed beaches and southern livelihoods.  In 2006, another British Petroleum catastrophic oil spill in pristine Prudhoe Bay.

All the while, we've thought these catastrophes were the price we had to pay to become energy independent.  We thought we were drilling and extracting our domestic reserves to supply our industry and our towns and families.  We also thought that subsidies to the oil companies were necessary to make it profitable to explore and drill new wells, both on land and offshore.

Here's a summary of the most expensive current subsidies exclusively for oil companies (Source):
$1 billion/year                      Expensing up to 25% of sales
$1 billion/year                      Expensing exploration and development costs
$3.5 billion/year                   Section 1603 grants
$3 billion/year                      Ethanol credit (45c/gallon to add to gasoline)
*note: another source cited the ethanol credit at $5 billion/year. 
$300 million/year                 Energy Manufacturing tax credits
$500 million/year                 Expensing 50% of cost to refine fuel
$500 million/year                 Exceptions for energy-related partnerships
$300 million/year                 Other miscellaneous benefits

$10.1 billion/year                 Total tax and other subsidies to oil industry

$10 billion to develop and process fuel for Americans.  But the oil companies profited further from exporting $88 billion worth of American oil, subsidized by American taxpayers.  And we still imported $277 billion from the Middle East, South America and elsewhere.  (Source) So why export if Americans need the oil?  Because Asians were willing to pay more.  The oil companies extract a public resource and treat it like a private commodity.

Earlier this year, a Democratic bill in the Senate to reduce oil company subsidies by a paltry $2 billion/year was soundly defeated.  Why?  Because we need to encourage oil companies to drill our domestic supplies.  Drill, baby, drill.