Flint emergency manager’s report to state says city still in financial emergency

FLINT, MI –Emergency managerDarnell Earley says progress has been made in the year since he was appointed to help fix the citys finances, but Flint remains in an ongoing financial emergency.

Significant work has been accomplished to stabilize the financial situation of the city of Flint, Earley wrote in an Oct. 8 letter to state TreasurerKevin Clinton. The whole organization has been restructured to reflect a smaller, leaner government operation.

I acknowledge that substantial progress has been made, however, the city is still experiencing an ongoing financial emergency. Resolution of the financial emergency will not be complete without providing a basic framework for, and implementation of, an objective model for the organization to follow.

Part of what Earley sees as the framework was expected to be presented to the City Council Monday, Oct. 13.

Earley said the citys finance director will propose two draft ordinances for council committees — one to spell out the process for developing and updating a strategic plan and another for the development and adoption of biennial budgets and three-year financial forecasts.

Financial Director Jerry Ambrose in an Oct. 10 letter asked the council to approve bothordinances to establish the new strategic planning and budgetary processes.

Earlier this year, the council adopted a strategic plan for the city, which included a vision, mission and goals for the next five years.

The strategic plan covers areas such as governance and administration, police, fire and public works and lists key objectives for various goals as well as whether the city has started, completed or is in progress of achieving each of the goals.

Aldermen approve $18M operating budget for FY ’14-’15

Starkville aldermen concluded a months-long budgetary process Tuesday by passing the citys financial operating parameters in a 4-3 vote Tuesday.

Since March, most city department heads promised the three-person Starkville Audit and Budget Committee, comprised of Aldermen Scott Maynard, Lisa Wynn and Roy A. Perkins, they would produce budgets relatively level from their current Fiscal Year 2013-2014 levels.

The Dispatch used a Sept. 11 budget worksheet to compare individual departments line items after the board approved the document without any changes Tuesday.

Many departments are relatively flat, but human resources, building department-code enforcement and offices of the city planner and mayor all saw their individual funding streams increase at least $48,000 from the current years budgeted amounts.

Also, the citys primary debt service fund increased $196,345 for the upcoming fiscal year, which starts Oct. 1. Starkville is forecasted to make roughly $1.41 million in principal and interest payments for various projects, including an estimated $541,525 for construction of its new administrative building.

Potential payments for Cadence Bank, which could cost the city an estimated $1.55 million to acquire the structure for Starkville Police Department purposes, are not yet budgeted as a deal is not solidified.

Starkville is forecasted to collect about $4 million in ad valorem revenues alone in the upcoming fiscal year, a figure staff told aldermen this week was budgeted at 90.7 percent of the actual expected amount. Adding intergovernmental revenues, including licenses, forfeits, services and other miscellaneous line items, total predicted revenues increase to $18.19 million. Intergovernmental revenues also include numerous grants for fire and police services, a $200,000 brownfield grant and portions of the 7 percent sales tax and 2 percent food and beverage tax.

Comparatively, the city budgeted revenues at $17.29 million, $18.83 million and $18.43 million for FYs 2011-2012, 2012-2013 and 2013-2014, respectively, while reporting its total activity for those years at $16.13 million and $17.34 million for the first two time periods. The proposed budget The Dispatch received from the city was prepared Sept. 11. As of that date, the town received $15.14 million in general revenues for the current fiscal year.

Starkville Police Department will receive the highest budget increase as the FY 2014-2015 budget shows an additional $128,522 for line items including personnel services, supplies, contractual services and debt payments. Its total departmental budget, not including administration and outliers, such as individual line items for training and animal control, is budgeted at $3.98 million.

Its personnel services, which include salaries and contributions to insurance and retirement, increase from about $2.9 million to $3.3 million. Specifically, wage payments are budgeted to increase from $1.68 million to $1.85 million.

The police departments supplies line item increases by about $9,000, but its gasoline and oil budget within supplies remains budgeted flat at $150,000. A line item for uniforms increases from $25,800 to $35,800 in the upcoming fiscal year after the current year-to-date total shows it went over at $35,936.90.

SPDs administrative budget, which is specifically for the department heads salary its associated city personnel contributions, decreases from $103,072 to $95,710 in FY 2014-2015. The document shows that the city is almost $12,500 over that line item for the current year as of Sept. 11.

The mayors office is the second-highest budgeted increase for FY 2014-2015, as it forecasted to receive an additional $98,807 in the upcoming financial year. Approximately $321,025 is set aside for the office, while $228,218 was budgeted this current fiscal year. The budget worksheet obtained by The Dispatch shows its total line item went over budget by about $12,000 this fiscal year.

About $152,000 is budgeted for Mayor Parker Wisemans and Chief Administrative Officer Taylor Adams salaries, but the departments total personnel services combines to a budgeted $237,125, which is about $43,000 more than last years amount.

It is believed Adams salary transfer — he was city clerk in the last fiscal year — led to the spike in the mayors offices salary figures and a significant decrease for the city clerks total budget cost.

Contractual services for Wisemans office will more than double next fiscal year, jumping from about $35,000 to $76,300. An additional $4,000 is provided for the mayors travel budget, while $11,000 was added for the CAOs travel budget, a line item previously left blank. The departments administrative assistant is also budgeted for $3,000 in travel, another line item that was nil before the upcoming fiscal year.

The FY 2014-2015 budget worksheet completed Sept. 11 show the mayors travel budget went over about $6,000 this fiscal year from its budgeted $7,000 line item. The year-to-date total showed $13,085.11 was spent.

Starkvilles human resources office has the third-highest increase in regular departmental funding as personnel administration is budgeted to receive about $65,000 more than it did in the current fiscal year. Its total line item increases from $117,467 to $184,725 primarily because of increased salary requirements after aldermen added an assistant personnel director to shadow and assist Randy Boyd.

Other significant departmental increases include:

The city planners office will receive $53,000 extra in funding next year. While personnel services for the department is forecasted to decrease, contractual services are budgeted at $100,050, almost $70,000 higher than the current fiscal year.

Building department and code enforcement line item increases from $218,911 to $266,919 — roughly $48,000 — for FY 2014-2015. Personnel services alone jumps from $191,407 to $239,365, and the budget worksheet shows that line item over budget at $202,833.83 for the current fiscal year.

Other major line items reporting minor increases include figures for Starkville Municipal Court (about $12,000), engineering (about $2,000), fire administration (about $2,000), the fire departments overall operating budget (about $3,000), street department (about $2,000) and animal control (about $2,000).

While most departments remained level or experienced increases in their upcoming budgets, Starkvilles Information Technology department trimmed its budget by $100. The city clerks office, the board of aldermen and Starkvilles line item for other administrative costs had more considerable decreases at about $105,000, $10,000 and $30,000 respectively.

City Clerk Lesa Hardins office is budgeted for a significant decrease in personnel services, as it will drop from $421,164 to $313,500. The departments overall line item for the current fiscal year is $543,214, and the budget worksheets year-to-date total shows it well under that figure at $397,000. Overall, the office is budgeted at $435,600 for the upcoming fiscal year.

Starkvilles capital projects fund also drops significantly in the upcoming financial year, decreasing about $217,000 from $862,654 to $658,000. The city reserves $100,000 for its municipal building fund, $20,000 for Americans with Disabilities Act sidewalk improvements, $300,000 for street projects, $50,000 each for Carver Drive ditch and Russell Street projects and $70,000 for storm drainage in that specific line item.

The citys sanitation department predicts $2.71 million in revenues, of which are mostly fees, for the upcoming year. Its total expected revenues fall $4,000 short of what was predicted for FY 2013-2014, but the year-to-date tally had that figure at $3.16 for FY 2013-2014.

As of Sept. 11, it had collected $2.8 million in fees for the current fiscal year.

Sanitations expenses are expected to increase about $40,000 to $1.96 million in the upcoming fiscal year, primarily due to an additional $40,000 that will be spent on higher quality garbage bag distributions.

Combined water and sewer revenues are budgeted for a decrease from $10.03 million to $9.77 million. Water sales alone are forecasted to drop from $3.2 million to $3.1 million, while sewer sales are expected to increase from $1.9 million to $2 million. Those only constitute a portion of the departments combined revenues, however, which are also derived from tap fees, material sales, wastewater revenues and miscellaneous income.

Year-to-date figures show sewer sales exceeded its current fiscal year forecast by $130,000 as of Sept. 11, while water sales were only about $150,000 shy of hitting its predicted mark.

The water departments general expenses are budgeted about $500,000 shy of FY 2014-2015s $3.82 million level. It will add a $290,608 line item to help purchase automated metering systems, as previously approved by aldermen.

The evolving role of non-profits in philanthropy

1. Government allocation for social welfare has increased over the years, although the utilization of funds has remained low due to procedural difficulties and delays in accessing the resources, corruption and political interference, among other things. Also, while working with a voluntary sector organization, most public sector units under the current CSR (corporate social responsibility) provisions also see it as giving out a service contract that is in contravention of provisions under sections 12(A) and 2(15) of the I-T Act. The voluntary sector organizations are also supposed to pay service tax on the services availed by them, which is a drain on their meagre resources. In spite of these resources, many NGOs have to rely on individual funding.

23000 people now demanding: End cancer drug lottery

A Cancer Focus campaign, backed by this newspaper, now has the support of more than 23,000 people who have signed a pledge calling for patients here to be given equal access to 40 cancer drugs available in England.

The pledge will be delivered to our politicians at Stormont.

Many diagnosed with terminal cancer here have to pay thousands of pounds for private treatment if they want to extend their lives.

Currently, four times more patients in England are able to benefit from new cancer drugs not funded by the NHS than in Northern Ireland. This is thanks to the £200m Cancer Drugs Fund in England.

The decision to create a similar fund here – which would cost an estimated £8m – is a devolved matter and must be approved by the Executive.

The charity believes money could already be available to pay for the drugs through an agreement known as the Pharmaceutical Price Regulation Scheme.

This controls the price of branded drugs sold to the health service and the money returned is used to fund innovative new drugs. In the first quarter of this year, Northern Ireland received a £2.89m rebate through the scheme.

Roisin Foster, Cancer Focus NI chief executive, said: The time has come for decisive action to give much improved access to drugs that can extend patients lives, improve quality of life and ease symptoms. We need more robust acknowledgement by the Executive that there is a major problem in access to specialist cancer drugs, and a plan of remedial action to be announced immediately.

The charity has also urged reform of the individual funding request process. The IFR is the only way a patient here can access unapproved drugs. However, it has been described as unfair as it requires a patients case to be exceptional or rare.

A review is set to begin later this month, but there are concerns over the length of time the whole process is taking.

As we wait for action to be taken, the problem is growing, Ms Foster said.

We are calling on the Health Minister to suspend the clinical exceptionality clause within the IFR process immediately while the review is ongoing to allow more patients access to the drugs they need as soon as possible.

Health Minister Jim Wells said he was fully aware of concerns and he will receive the review report before the end of the year.

‘Do I not also live in the UK and pay tax?’

Vera Saunderson (72), a widow and grandmother from Carrickfergus, was diagnosed with liver cancer in 2012.

In March 2014 her oncologist explained to her that her cancer was incurable. He said there was a drug that could help to extend her life for a number of months, but unfortunately Sorafenib is not available on the NHS and she would have to pay for the drug herself.

Said Vera: “My oncologist confirmed the drug was available through the Cancer Drug Fund in England, and that had I lived there, I would be in a better position to access it. I replied ‘But aren’t I a UK taxpayer? Do I not also live in the UK?’ I couldn’t understand why people in England can benefit from this drug while Northern Ireland patients are denied it.”

Column: Gillick on the athletics ‘transfer window’

David Gillick used the four-week off-season to rest and recuperate

By David Gillick
Former Team Ireland 400m sprinter
Two-time European indoor400m champion

The athletics transfer window is officially open for business. Yes, the athletics transfer window, and it doesnt involve big transfer fees, agents ducking and diving, clubs refusing to speculate, leading to more speculation. Its far simpler than that.

The track-and-field season has finished and now is the time for athletes to reflect, debrief and hopefully in some cases make vital changes.

Athletes generally down tools at this time of year, after a tough long season of travelling around Europe from track to track, hotel to hotel,and never staying long enough in the one place to unpack.

All in all, the season is a long and exhausting one: the early morning cheap red-eye flight on to the next race;or back home for a few days in between competitions, where time is usually spent putting in some valuable training and getting the kit washed;as well as the emotional highs and lows of competition all taketheirtoll.

I for one always looked forward to a good break at the end of the season, the four weeks between mid-September and mid-October.

I would use this time to mainly get as far away from an athletics track as possible. After months spent on planes and living out of bags all I ever wanted to do was stay in the one place for a while.

I would also completely switch off from running. Over the last 11 months I would have been strict on my diet, weighing out my food, eating healthy, staying away from all those sweet things and not having too many late nights out on the beer.

It gets tough maintaining that level of professionalism for such a long period of the year, and for that one month, I let myself have whatever I wanted.

If I fancied a bag of sweets, Id have them, maybe even two just because. If I wanted to head out with the lads for a few (read: loads of) beers, Id do it, maybe do a rollover and hit it again and to be honest Id probably do it all to excess.

There are tough days when you miss friends and familybirthdays, weddings, christenings, engagement parties and other major milestones in your loved ones lives. So you make up for that time on your break, seeing as many people as you can and having a lot of belated celebrations, especially when you live away in a different country.

When you are in training mode, at times you do feel like youre missing out on life, you cocoon yourself away like a monk.

However, the thing I found was that after a few weeks of eating what I wanted, lounging around with a filthy hangover, is that it got boring and Id feel crap about myself.

At that point, I knew:I was ready. I was ready to get stuck back into another demanding 11-month programme and I was hungry to get back in shape and prepare my body for the onslaught of winter 400m training.

This hunger would lead me to ask questions about what I needed to improve on, implement and in some cases change.

I would always want to have everything in place for the year before I started back training. All I needed to do was trust in the people around me and simply run. This involved managing my team: my coach, strength and conditioning coach, physio, nutrition, massage therapist, psychologist and agent.

Throughout the years I have changed every member of my team at different times, and on occasions I would end up going back to them again full circle.

Sometimes people just dont gel, sometimes the programme isnt working, you hit a plateau or simply you need a change.

Its important to push yourself and the team around you, I have found its the only way to learn what really works for you as an athlete.

Two years out from the 2016 Rio Olympics is the ideal time to make changes, if they need to be made, and this should be the athletes decision

Its in this transfer window that this has to happen, and this year its even more crucial. Two years out from the 2016 Rio Olympics is the ideal time to make changes, if they need to be made, and this should be the athletes decision.

No agent waving a big fat cheque making demands. An athlete needs to give themselves time to adapt into a new programme where you may not see results until year two.

In some cases, the simple change of environment can have a great impact and results are evident immediately.

The key thing for an athlete at this stage is to be smart, take your time and really plan ahead.

Athletes, including myself, can make rash decisions based on the negatives and often when you make a decision in the heat of the moment it may not always be the right one.

However, with that in mind, Albert Einstein once said: The definition of insanity is doing the same thing over and over again and expecting different results.

Some countries get more involved with an athletes decision-making process than others. Speaking from my own experience, I made all my own decisions and some worked out well and others didnt.I know of athletes who were told to move coaches if results werent coming and if they didnt, funding was cut.

Sounds harsh but at least there was accountability and they were recognising why certain elements werent working and, ultimately, they are evolving and improving all the time.

In these countries, the UK for example, they had resources and structures in place to provide a successful environment. All the athlete needed to do was apply themselves and turn up. If results didnt come, questions about the surrounding team were raised, improved and implemented.

This is the levelwhich we in Ireland need to aspire to. Good things are happening in Irish athletics: a positive European Championships in Zurich this summer; excellent full-time services at the Irish Institute of Sport and individual funding and performance service quality is still high compared to other European countries.

The next logical step is to provide a full-time coaching structure, which to be fair has already started with a full-time endurance coach; the athletes are still left, to some degree, to make their own decisions regarding coaching and their immediate set up.

We need to become cultural architects, bring in full-time coaches, which will complement our services and eventually provide a high performance environment.

We can then educate assistant coaches, who will learn and develop and in the future become head coaches themselves.

Young athletes will feed and grow in this ecosystem and become future stars; our own talent pipeline. We have good coaches here and I believe we have good athletes that can win medals.

Generally, when an athlete relocates internationally to work with a certain coach, we are losing the influence this has on our next generation of athletes and coaches.

Take rugby for example, the success of home-based Irish players makes pro rugby attainable for so many up and coming players, this then has a knock-oneffect on all the surrounding services; coaches, strength and conditioning and nutrition etc.

You will always have athletes that want to go their own way and that should be accepted, you are never going to please everyone.

This wont happen overnight and will take time to develop. The UK has a strong system in place after being built up over the years. Yes they have the financial support Ireland simply doesnt have, but they employed excellent coaches who over time produced results, paving the way for funding for apprentice coaches to come on board and be mentored. Some of those have now taken on full-time coaching roles – and so the cycle begins again.

All of the above adds to the importance of the break period. I was always glad it was only four weeks as any longer and Id be spending the next four weeks trying to get rid of the gut.

I had my fun and I used the downtime wisely. Its always very important to clear the head and have a blowout.Some athletes will get it right, but a lot will get it wrong and never fulfil their potential, and thats when the blame game commences.

@DavidGillick

Ray Rice scandal boosts domestic violence awareness

The attention given to the Ray Rice domestic violence scandal has prompted more victims to seek services, overloading a system that turns down more than 170,000 requests for shelter each year.

When a video of the former Baltimore Ravens’ running back’s actions — knocking his then fiancee and now wife unconscious — was leaked to media last month, it created a firestorm of people sharing their stories of abuse on Twitter with the hashtags #WhyIStayed and #WhyILeft.

“It’s created a huge public dialogue the likes I’ve never seen in 40 years,” said Kim Gandy, president and CEO of the National Network to End Domestic Violence. “So many people are not just revealing that they’ve been victims, but their friends and family are revealing it. That’s just been tremendous because that will make a tremendous difference.”

The sharing appears to have given people in abusive relationships the courage to reach out. Calls to the national hotline increased 85 percent in September from the previous month.

The response is highlighting a problem Gandy and other domestic violence advocates have known about for years: Funding losses and stagnant federal appropriations have left many shelters, especially rural ones, unable to meet the need.

Although shelters across the nation provided 7.7 million shelter nights for domestic violence victims and their families in 2012, there were about 174,450 unmet requests for shelter, according to the Federal Family and Youth Services Bureau.

Patchwork funding

Nancy Neylon describes funding for domestic violence as a patchwork quilt.

As executive director of the Ohio Domestic Violence Network, Neylon interacts with Ohio’s domestic violence shelters, whose funding comes from a $17 fee tacked onto marriage licenses and a $32 fee on filings of annulments, divorces and dissolutions in the counties where they are located.

“For some counties, they only get $10,000, and that doesn’t even buy an advocate (for a year),” Neylon said.

Most other funds come through charitable giving and competitive grants for federal funds. Gandy said funding often comes down to who writes the best grant application, not who has the most need or provides the best services. And groups with the best applications tend to be larger agencies that spend money to hire a grant writer, she added.

“The whole system needs an overhaul in a big way,” Gandy said.

The Ohio Attorney General’s Office has two funds for agencies that serve victims, which includes domestic violence agencies. The funding stream has been steady, about $5.7 million, but recipient amounts have varied.

Another steady funding stream comes from the Family Violence Prevention and Services Act. Funding amounts for states are based on overall population; states determine how to award the money. In Ohio, funds are competitive, require a local match and are capped at $50,000.

Whereas those two funding sources have been stagnant, funding through the Office on Violence Against Women has declined about 12 percent from 2011 to 2012 and another 5 percent in 2013. Recipients are typically coalitions or metropolitan agencies such as the YWCA of Cincinnati, which received one grant in 2013 and two in 2011.

Revenue, services take a hit

While most federal grant funding remained stagnant, Gandy said, other resources, such as community foundations, took a hit during the Great Recession.

When the stock market crashed, it decreased agencies ability to give as much because investment earnings determine the amount available to give.

The recession also made individual donors more cautious because they were unsure whether their jobs would still be around next week, she added.

“There are some places where (funding) came back, but there are some places that are in the hole. Level funding isn’t going to get them out,” Gandy said.

Each September, in preparation for Domestic Violence Awareness Month in October, Gandy’s group conducts a one-day census of domestic violence agencies across the nation. On Sept. 17, 2013, agencies reported they were unable to meet a combined 9,641 requests for services.

Of those unmet requests, 60 percent were for housing. Financial assistance and legal representation were the other primary services shelters reported they could not meet that day.

Funding was cited for the reason women were turned away: 27 percent reported loss of government funding, 20 percent reported not enough staff and 30 percent reported cuts from either private or individual funding sources.

According to tax filings, Transitions funding in 2012 was 10 percent less than in 2010 and funding from grants and contributions was 12 percent less.

The agency was hit with a 20 percent decrease in funds administered through the Ohio Attorney General’s Office for agencies that serve victims for fiscal year 2011. The agency, however, has since recovered those lost funds and the appropriation for fiscal 2015 announced this week is 4 percent more than the agency received in 2010.

Dorothy Thomas, a court advocate with Transitions, said that, this year, the agency received an additional grant from the state, so this coming year should be fairly financially secure, but donations are always welcome and needed.

“That’s what has helped us this last year because it’s been a struggle,” she said.

When budgets get slashed, whether through lack of funding or a dip in community donations, Thomas said that, in agencies such as Transitions, the staff often bears the brunt of the cuts. And with less staff, fewer services are available.

Thomas said the Transitions staff, of which there are six people and two work part time, have come up with ideas to reach out to teenagers on domestic violence issues, but projects like that can’t start yet because money has to go toward taking care of the building.

The two grants will cover salaries, Thomas said, but donations are needed to provide additional services to the community and to those staying in the shelter. The agency needs cleaning supplies, toilet paper, paper towels and monetary donations.

Donations can be sent to PO Box 156, Zanesville, OH, or people can call 740-454-3213 to make other arrangements.

The Rice effect

Gandy last week penned a blog for The Hill addressing Congress, saying that, often, the answer to #WhyIStayed was because the shelter was full.

She wants legislators to dedicate more resources and drive the Twitter conversation toward #HowIHelped.

She raised concerns that federal appropriations for Family Violence Prevention and Services Act funds this year are $40 million below the $175 million authorization.

Gandy said the key to getting legislators to listen is for victims to continue sharing their stories.

“You can’t do this 40 years without being an optimist,” Gandy said of what the long-term effect of the Rice incident may be. “I have to believe the public discussion, the realization of the need … will have an impact on (officials) making decision on who and what and when to fund services.”

The publicity is at least spreading awareness and prompted the NFL to plan for education and prevention, an area often cut by struggling domestic violence agencies, Neylon said.

The NFL also gave money to help boost staffing for the national hotline, and Gandy’s group has called on teams to wear purple — the signature color for domestic violence awareness — throughout this month.

Neylon hopes the NFL will continue its interest and embrace domestic violence prevention as a message its players carry to fans, young and old.

“I’m hoping for that kind of social change. That will have even more significant change to me than funding,” Neylon said. “Only time will tell.”

jison@gannett.com

Twitter: @JonaIson

Domestic violence cases filed

NSA Finally Releases Keith Alexander’s Financial Disclosure Documents …

If Vice contributor Jason Leopold isnt careful, hell kill us all. Back in August, Leopold requested Keith Alexanders financial statements — something required of certain government officials by the Ethical Government Act (EGA) of 1978. The CIA and Office of the Director of National Intelligence both complied. Keith Alexander, via the NSAs refusal to turn over the documents, is the lone holdout.

The NSA claimed Alexanders financial statements were exempted from public disclosure by the National Security Agency Act of 1959. But the EGA overrides the NSA Act, unless the president himself has issued a waiver making Alexander exempt from these stipulations. President Obama hasnt, although the NSAs lawyer — Shadey Brown — implied that he had, by extension stating that releasing the information would compromise the national interest, ie, threaten national security, which is the only way to receive this presidential waiver.

Alexander has been given no such waiver. As a result of Leopolds lawsuit, the NSA has released Alexanders documents and will be turning over incoming NSA head Michael Rogers as well. All in the interest of transparency. See how open we are! the NSA shouts as it is sued into compliance. Forced transparency isnt really transparency, and these government agencies should really stop using that word in this highly misleading way.

The documents forced out of the NSAs hands are apparently linked to national security interests, so its only a matter of time before terrorist attacks on Americans become as common as 4th Amendment violations and FOIA lawsuits.

Whats contained in Alexanders financial statements are several investments in little-known tech firms. Both James Clapper and Undersecretary of Defense for Intelligence Michael Vickers have looked over Alexanders investments and declared them to be completely free of conflicts of interest, but a look at some of Alexanders investments doesnt necessarily justify these unequivocal statements.

Alexander invested as much as $15,000 in: Pericom Semiconductor, a company that has designed technology for the closed-circuit television and video surveillance markets; RF Micro Devices designs, which manufactures high-performance radio frequency technology that is also used for surveillance; and Synchronoss Technologies, a cloud storage firm that provides a cloud platform to mobile phone carriers (the NSA has been accused of hacking into cloud storage providers).

In addition, RF Micro Devices secured nearly $13 million in RD contracts from the US government between 2004 and 2010, with most of that money coming from the Defense Department. And while Pericom doesnt seem to have any direct contracts with the government, its products are (or were) used by Harris Corporation, the manufacturer of Stingray cell tower spoofers.

Then theres this:

Alexander also held shares in Datascension, Inc., a data gathering and research company. The Securities and Exchange Commission suspended trading in Datascension last August due to a lack of current and accurate information about the company. (Datascension was linked to telemarketing calls that apparently prompted one person in a complaint forum to remark the company is trying to gain personal information.)

Alexander backs a bad company — something that is probably just an indication that not even the most well-connected win every bet. With Alexanders initial investment appearing years before the company got smacked down by the SEC, this looks like not much more than somewhere the former NSA chief lost money.

Whats included here may be slightly on the shady side, but Alexanders disclosures dont definitely point to wrongdoing. In fact, his financial disclosure sheets are nearly completely blank — either a sign of clean living, or a case of conspicuousness in absence.

The most surprising thing isnt Alexanders investments. Its the fact that the NSA played hardball to protect nearly nothing of interest. Or perhaps it isnt surprising, considering the agency seems to believe it cannot release anything, no matter how minute, without somehow compromising its mission and the nations security. Of course, considering how much has been disclosed without its permission, and the subsequent failure of the worlds terrorists to turn the US into their personal playground, we know these phrases are largely empty and signify little more than the NSAs persistent allegiance to darkness and secrecy, even as it spouts (always) belated lip service to transparency.

State’s financial picture dims

The state could run a budget deficit this year of more than a half-billion dollars, and things only look worse the following year, as Arizonas sluggish economy produces lower-than-expected tax revenue.

Revenue projections provided Tuesday to the Legislatures Finance Advisory Committee show the state will end this budget year with a $520 million deficit and up to $1 billion deficit in the coming fiscal 2016.

The projections can be summed up in two words: reality check, said Rep. John Kavanagh, R-Fountain Hills and chairman of the House Appropriations Committee. We are in for an extremely rough year.

I think were going to have to pull out the old tool kit.

That includes mostly budget cuts, he said, as tax increases are off the table.

RELATED: Governor candidates light on details to overcome budget shortfall

Those figures reflect an increase in funding for the K-12 school system, as the state Supreme Court has ruled is required to account for inflation costs. Even if state lawmakers delay a court order to raise base funding for schools, the deficit next year will be $667 million, more than the balance in the states rainy-day fund.

Budget projections do not include money for any new programs, only funding for enrollment growth in certain areas such as schools, prisons and health care.

The state Constitution requires lawmakers to produce a balanced budget, so the committees conclusions set the stage for tough decisions by the new Legislature and governor when they convene in mid-January.

Tuesdays report pointed to sluggish economic growth and slumping tax collections as the main reasons for the grim budget outlook. The Legislatures current budget assumed revenue would grow by 5.3 percent; after three months, growth has hit only 3 percent.

ALLHANDS: Is it time to talk the T word?

Further complicating the states financial picture is the phase-in of $226 million in corporate tax cuts approved by the Legislature in 2011. Those cuts are slated to begin in July and are projected to cost the state $100 million in revenue in the first year.

One member of the advisory committee cautioned lawmakers about the corporate tax credit for donations to private-school tuition programs. The popular credit is allowed to grow 20 percent a year.

Georganna Meyer, a former state Department of Revenue official and now a private consultant, said the credit is bleeding corporate income-tax collections.

There needs to be a cap put on this, she said. Its crazy.

Lawmakers also have to wrestle with how to address the Supreme Court ruling to increase school funding. The Arizona Supreme Court ruled a year ago that the state shorted public schools during the Great Recession by not fully covering inflation costs.

The court sent the case back to Maricopa County Superior Court Judge Katherine Cooper to work out payment details. Cooper in August issued a judgment requiring the state to boost funding to public and charter K-12 schools to catch schools up to where they should be under a voter-approved funding formula.

On Tuesday, the lower-court judge, who is handling negotiations over how to settle the payments to the state, rejected a request from lawmakers to put a hold on her ruling that base funding for the schools must increase this year.

The amount in additional funding is $336 million, up from the previous estimate of $317 million.

Peter Gentala, attorney for the Republican majority in the House of Representatives, said the higher figure set by the advisory committee makes the case for delaying the payments even more pressing.

That kind of judgment would cause a massive disruption to the states budget, Gentala said.

Sen. Don Shooter, chairman of the Senate Appropriations Committee, said he is skeptical about projections from some members of the committee that the economy is starting to perk up. Job growth has been dismal, and tax collections are sagging.

Youre always saying Itll be better next year, Shooter said. I feel like the (New York) Mets. … Im skeptical of any kind of turnaround in the next four years.

Republic reporter Alia Beard Rau contributed to this article.

ON THE BEAT

Mary Jo Pitzl covers state government, with an emphasis on state agencies and legislative policies. During the general election, shell cover statewide races, money in politics and key legislative races.

How to reach her

maryjo.pitzl@arizonarepublic.com

Phone: 602-444-8963

Twitter: @maryjpitzl

MARCHAND: Stepping up financial accountability

Recently the state released final ratings for the year for academic and financial accountability for all independent school districts and charters. As most know, the academic ratings, which in recent years have been simplified to “Met Standard” or “Improvement Required,” are based primarily on the performance of students on the state’s STAAR exam. Financial accountability is based on a survey of 20 financial indicators included in the state’s Financial Integrity Rating System for Texas (FIRST) instrument that evaluates things such as such as operating expenditures for instruction, tax collection rates, student-teacher ratios and long-term debt.

For the past several years Pineywoods Community Academy (PCA) has “Met Standard” in academics at both the elementary and secondary campus as well as for the school as a whole and has achieved a “Superior” financial accountability rating. Unfortunately, charters as a whole haven’t fared as well when compared to their independent school district counterparts. For 2013-2014, 18 percent of charter schools earned an academic “Improvement Required” rating, while only 7 percent of school districts earned this lower rating. In terms of financial accountability, only 1.1 percent of districts earned a “Substandard” rating, while an astounding 20.3 percent of charters did not meet state financial standards.

As a charter superintendent, I am a solid supporter of the charter movement in Texas, but the facts are what they are. If charters want to increase in stature and gain credibility as a viable public education option, they must show that they can perform as well as independent school districts on the state’s accountability measures. Clearly the fact that a fifth of all charters failed the state’s financial accountability measure is unacceptable in anyone’s book.

A quick glance at the details gives insight into why the financial ratings for many charters didn’t pass muster. Many charters scoring “Substandard” scored poorly in the area of internal financial controls, especially in terms of defaulting on debt, a high percentage of liabilities compared to assets, and data quality issues. In addition, a handful of charters failed to submit their school’s required internal auditor’s report to the state by the deadline date.

While there may be many reasons for these failures on the part of charters, there is a way to correct these problems, and it’s been the practice at PCA for years. The solution is strong financial oversight that starts with the charter board. At PCA, we are fortunate to have a diverse group of board members who take this responsibility very seriously. Expenses are scrutinized, budgets are created that are realistic and conservative, and auditor recommendations are implemented willingly. The fact that PCA is able to build a $4 million addition and still comfortably meet current obligations is a testament to this board’s dedication to financial excellence and accountability for public funds.

Financial excellence in any organization requires strong oversight, a willingness to question expenses, and an understanding that public funds are a precious commodity that must be treated with the utmost care. My appreciation goes out to our PCA board and our hard working business office staff and their dedication to financial excellence!

Bruce Marchand is the director of Pineywoods Community Academy in Lufkin. His email address is bmarchand@pineywoodsacademy.org.

The Skinny on Corporate Inversions

Issues raquo; Tax Reform

The Skinny on Corporate Inversions

SOURCE: iStockphoto

Over the past 10 years, 47 US corporations have changed their legal residence through corporate inversions.

By Alexandra Thornton | September 25, 2014

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Corporate financial accounting and taxation are complex subjects. For this reason, many people tune out when issues that involve corporate tax practices rise to the level of public debate. Unfortunately, many legislators shy away from these issues for similar reasons. But while corporate taxation can be mind-bogglingly complex, nontax experts can learn enough to join the debate.

Recently, the debate has focused on the increasing number of corporate inversions.

What is a corporate inversion?

A corporate inversion occurs when a US multinational company renounces its US citizenship by combining with a smaller company in a foreign country where, typically, the corporate tax rate is lower and other tax rules are favorable. A multinational company is a company that is registered and has operations in more than one nation but that identifies one of them as its home. The foreign company becomes the legal parent company of the multinational operations, even though the US company may continue to function as the parent for management purposes. In fact, the US company’s operations, as well as the location of its employees, may not change at all.

The United States taxes the worldwide earnings of its legal residents. After inversions, however, the nation can no longer impose taxes on most of the non-US earnings of multinational corporations. So while some corporate inversions may be based on sound nontax business reasons, nearly all of them, through adept tax planning, enable US multinational companies to avoid paying substantial amounts of US tax–both on income they earned before the inversion and on income they will earn in the future.

This drain on US tax revenue, combined with the rising number of corporate inversions, is concerning policymakers. According to the Congressional Research Service, over the past 10 years, 47 US corporations have changed their legal residence through corporate inversions. There have been 12 corporate inversions since 2011 alone, with at least 10 more waiting in the wings.

Reasons corporations give for doing inversions
To remain competitive

Companies that do inversions say such action allows them to remain competitive. However, profits of US companies are at an all-time high, and they are increasing. At the same time, corporate revenues are declining as a percentage of the total US tax revenue collected, from about one-third of total revenues in the 1950s to about one-tenth today. While this is partly due to the more than $100 billion in corporate tax breaks found in the US tax code, it is also because US multinationals are highly skilled at using the tax code to avoid taxes on their foreign incomes. In fact, multinationals’ profitability is confirmed when their tax returns are viewed in conjunction with their general accounting books; investors and corporate executives use these books to measure firms’ performance. Ironically, at least one rating service has pointed out that inversions can actually harm corporations’ credit ratings, due to the large amounts of debt the corporations acquire to fund inversion deals, as well as the practice of using funds in deferred earnings accounts to buy back company shares and make dividend payments. Corporations should instead focus on longer-term strategies and risks.

For lower tax rates

Many corporations say that the US corporate tax rate is too high and that inversions allow them to take advantage of lower tax rates in other countries. But US corporations actually pay taxes at an effective rate well below the 35 percent statutory corporate rate–as low as 13 percent to 17 percent for those that are profitable. In fact, one tax expert points out that US multinationals are for this reason actually the envy of many foreign-based multinationals. However, many of the special breaks in the tax code are only available to certain industries or for certain assets. Therefore, some companies have low effective tax rates, while others pay closer to the statutory rate. Because multinational companies have tax avoidance options not available to strictly domestic companies, many domestic companies face a disadvantage when competing against them. While policymakers on both sides of the political aisle say that the US statutory tax rate should be reduced, they also say that any rate reduction must be accompanied by the reduction or elimination of the special tax exceptions many companies enjoy. Stronger measures to prevent tax avoidance, including tax avoidance by US multinational companies, are also needed.

To avoid tax on foreign earnings

Inverting US companies say that other countries only tax income earned within their own boundaries. In general, the United States taxes the worldwide income of its citizens, including corporations, while nearly all of its trading partners only tax income earned within their territories. But the US tax system is not purely a worldwide system, and most territorial tax systems are not purely domestic.

While it is true that the United States taxes the worldwide income of US-based corporations, those same corporations are allowed to defer paying US tax on profits earned overseas until they reinvest those profits back in the US company. This deferral constitutes an enormous exception to the worldwide taxation principle, and US multinationals hold a total of more than $1 trillion in their tax-deferred foreign earnings accounts. Moreover, when that income is reinvested in the US company, the US tax is reduced by any foreign tax already paid on it. Thus, there is no double taxation.

At the same time, while virtually all of the United States’ major trading partners have so-called territorial tax systems, these systems have strong provisions to prevent domestic companies from shifting income on their books to foreign subsidiaries they control in order to avoid tax–especially foreign subsidiaries in very-low-tax havens. This is particularly easy to do with income from intangible assets, such as patents and digital-based products, which are highly mobile. For this reason, the United Kingdom is in the process of phasing in a 10 percent tax on the patent-related income of UK companies. This tax will even apply to income earned by a foreign company the UK company controls. These anti-base-erosion provisions make the corporate tax burden in some territorial countries higher than the US corporate tax burden.

Tax advantages of corporate inversions

Multinational companies have many tax avoidance tactics at their disposal even before an inversion. Once a multinational does an inversion, however, options for avoiding US taxes increase significantly. These options overlap, but it is important to look at them separately in order to understand the extent of their tax benefits.

Multinationals may never pay US tax on the deferred earnings outstanding at the time of an inversion

As mentioned above, the United States taxes businesses’ worldwide incomes, but US multinational companies are allowed to defer paying US tax on their foreign earnings until they reinvest them in the US company. However, deferred earnings not yet repatriated at the time of an inversion will likely never be subject to US tax, so long as the multinational has astute tax advisors. Inversions are structured to accomplish this and, in fact, open up new options to use the untaxed deferred earnings without triggering US tax. The savings that come from eliminating tax on deferred earnings may make a change in domicile worth it for some companies, since many US multinationals hold billions of dollars in their deferred accounts. And the faster US multinationals can shift income out of the country before an inversion, the better. This may explain the rapid increase in inversions: Companies are hoping to move before the government places further restrictions on inversions and their underlying tax breaks.

The ability of US multinationals to use corporate inversions to avoid US tax on deferred earnings is particularly troublesome because it seems likely that some portion is earned through the benefit of US companies’ operations and investments–and, by extension, the government’s legal system, research and transportation infrastructure, and educated workforce. Many of the tax code provisions designed to prevent US-based companies from shifting profits to their foreign subsidiaries are not strong enough to combat aggressive tax planning by these companies. Furthermore, some 40 percent of US companies’ pretax foreign profits are booked in five of the so-called tax haven countries, where it seems unlikely they could have generated such substantial profits. While it is difficult to prove how much of these profits come from the United States, it is important to tighten current tax rules around profit shifting and inversions.

Former US parent companies can use the outstanding deferred earnings without paying US tax on them

Normally, if deferred earnings are used to benefit a US company–before or after an inversion–US tax law deems this a distribution of dividends from the foreign company to the US company, meaning that the US company is taxed. Therefore, if the new foreign parent makes loans to the former US parent or allows it to use the deferred earnings as assets to secure a loan, the Internal Revenue Service, or IRS, likely would deem these transactions distributions of the deferred earnings. Nevertheless, after the inversion, it may be possible to use the deferred earnings to benefit the US company without triggering US tax. This can be accomplished in a number of ways through a separate foreign company the US company does not control. Through these highly complex transactions, deferred earnings may effectively be loaned to the former parent company. The former parent could also use them to buy back the shares the new foreign parent originally purchased to accomplish the inversion.

US taxpayers subsidize multinational corporations’ worldwide growth

Now a subsidiary of the foreign parent company, the US company can obtain loans in the United States or elsewhere to finance the foreign operations of the multinational group. The interest payments are deductible against US income. Before the inversion, the foreign profits generated by the US company’s loans would have been booked as deferred. They potentially could have been taxed later, upon their reinvestment in the United States; but after the inversion, foreign profits from those investments are no longer subject to US tax because the US company is no longer the legal parent of the multinational group. Instead, the legal tax home of the multinational company is now located in another country, presumably one with a territorial tax system.

The practice of leveraging US corporations to finance foreign operations is called “earnings stripping” because it strips otherwise taxable income from the US company, shifting it to foreign affiliates. The US tax code places restrictions on US companies when they incur too much debt to finance foreign operations, but the rules are not strong enough and do not address all the ways this type of tax avoidance can be achieved, especially after an inversion. The ability of US multinationals to reduce their US taxes through interest deductions contributes substantially to US companies’ ability to lower their taxes, and the IRS has had mixed success challenging this practice in the courts. Because earnings stripping is more financially rewarding after an inversion, as explained above, it is a key driver of corporate inversions.

US taxes cannot be imposed on future foreign profits

The multinational company, now a legal resident of a foreign country and possibly controlling companies that are completely out of the United States’ reach, can now expand internationally without worrying that the United States will tax new profits from international operations–unless, of course, the profits are actually earned in the United States.

What should the United States do?

With corporate inversions on the rise and many potential deals supposedly on the table, the pressure to address the loss of tax revenue is mounting. It is widely agreed that the best approach to the corporate inversion problem is to address it in legislation and, ideally, in the context of comprehensive tax reform. But many policymakers now believe the problem of revenue loss is too urgent to wait for major reform. According to Stephen Shay, former deputy assistant secretary for international tax affairs in the Department of the Treasury, failure to address corporate inversions now may make future tax reform more difficult, as the business community will be increasingly divided between those that have benefited from inversions and those that have not.

Recognizing the urgency to prevent further loss of federal revenues, the Treasury Department recently acted to address the corporate inversion problem.

Treasury Department

In a July 28, 2014, article published in a leading tax journal, former Deputy Assistant Secretary Shay made the case for regulatory action by the Treasury Department to address corporate inversions. He indicated that regulatory action is particularly appropriate when a material portion of the US corporate tax base is at risk, and he described several regulatory options available to the Treasury. Others have since agreed that regulatory approaches are appropriate.

On September 22, 2014, the Treasury released a public notice to announce that it is taking administrative action to substantially reduce the economic benefits companies gain from inverting and to make inversions more difficult to accomplish. The guidance clarifies existing provisions in the law to prevent several of the complex transactions by which US multinational companies access deferred earnings without triggering US tax–such as maneuvers tax experts call “hopscotch” loans and “de-controlling” a controlled foreign corporation. It also strengthens Section 7874 of the Internal Revenue Code, or IRC, the tax code provision that restricts a corporation’s ability to change its legal residence, by expressly forbidding several tactics companies use to avoid the 7874 restrictions. These tactics are known to tax experts as using a “cash box,” paying out “skinny down” dividends, and doing a “spinversion.”

The Treasury guidance applies to corporate inversions that close on or after September 22, 2014. Significantly, the notice did not include any new restrictions on earnings stripping, but Treasury officials made it clear that more administrative action could be forthcoming.

They also made it clear that, even with the guidance provided, legislation is still needed to solve the corporate inversion problem. This is due to limitations on the Treasury’s authority to act outside the scope of existing legislation.

Congress

Members of Congress have proposed legislation to address corporate inversions. These proposals are contained in separate bills and in larger budget and tax reform measures. The goal of most of them is not to completely stop inversions but rather to discourage those undertaken mainly for tax avoidance purposes without independent economic rationales. The proposed legislation takes different approaches. The first would directly amend the current tax code provision on inversions, IRC Section 7874. These bills, S. 2360 and HR 4679, would require that the shareholders of the original US parent company own less than 50 percent of the combined entity before the US company could renounce its US domicile. Section 7874 currently only requires that US shareholders own less than 80 percent of the combined company, and it is likely that Treasury felt it did not have the authority to change this percentage. The US company also would still be considered a US citizen if the management and control of the new entity remained in the United States.

Another legislative approach, S. 2786, would tighten current tax code provisions that companies use to shift income out of the United States and into foreign jurisdictions with low taxes. It would particularly tighten the provision that limits the use of debt by a US multinational to finance foreign operations. Reducing the value of these provisions would reduce multinationals’ motivation to change their legal residence for tax purposes. Alternatively, S. 2704 would end federal contracts for companies that invert.

A fourth approach, recently introduced as S. 2895 and HR 5549 by Sen. Sherrod Brown (D-OH) and Rep. Lloyd Doggett (D-TX), respectively, would require unrepatriated earnings to be included in income by any US company seeking an inversion.

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