Sunday, July 5, 2009

Financial squeeze

Most Enterprise Risk Management/Business Continuity practitioners never see an organization's financials.

That's too bad.

We all can see the financial straits organizations find themselves due to the current financial debacle, bailout not withstanding.

Back when airlines were grounded following the coordinated attacks on the World Trade Center towers, the Pentagon, and the aborted-by-passengers attempt on the White House, most airlines suffered a substantial hit, one that had them going to the government for a handout.

Not Southwest.

Southwest apparently has a reserve and a plan that let it weather that specific hiccup in cash flow. The current government handouts to banks - some of which did not want a handout - and AIG didn't make its way directly down to the airlines and this time I understand Southwest is concerned about its bank accounts. There's a limit even for forward-thinking organizations such as Southwest.

I've considered the ripple effect in previous blog entries, and this is "more of the same, but different."

This time I'm looking at government.

Not just the federal government, but local governments - cities, counties, taxing districts, states.

My state, despite a homestead exemption and no state income tax, has some pretty stiff property millage rates. We pay more for less in Florida than we did near Washington DC.

When I went down to file for the $25,000 homestead exemption, the topic of "Wow, that's a high rate" came up. The very civil servant said the she expected tax valuations to drop - logical since the bottom fell out of the housing market - but, she noted somewhat sadly (she, too, owns property in the county) that the millage rate probably would increase to make up the difference. If I paid $2 on an assessed value of $2,000, I might soon be paying $1.50 on an assessed value of $1,000. Multiply that by the thousands of assessed value for the property and even with a homestead exemption, the taxpayer is stuck with a big bill.

While most states have, as Florida has, a "rainy day" fund, most smaller government bodies either have none or a small one. Similar to being prepared for a Category 2 hurricane and being hit with a Category 4 storm.

Things undoubtedly will get worse for property owners (and renters, too) in the near future.

More and more people will be forced out of their homes by the tax collector. As these homes become, and remain, vacant - even discounted, they will further drag down the market while failing to produce any tax revenue - local taxes will have to be raised, even with cuts in staff (does anyone at the top ever volunteer for a pay cut?) there is a certain level of service that must be sustained by the governments and someone, read "the remaining few taxpayers," will have to foot the bill.

The "American Dream" is becoming the "American Nightmare" for many folks just trying to get started. At the other end of the age scale, seniors on fixed incomes, perhaps with only Social Security to fund their basic requirements (do I pay for food or Medicare or rent this month?) also watch as their dreams of a rocking chair or time with a grandchild fade away.

I don't believe in beating a dead horse - although I certainly would like to beat a few of the fat cats who precipitated today's financial disaster - but there are lessons to be learned by individuals, corporations, and governments. One of those lessons is not to over-extend financially.

That lesson applies equally to individuals, organizations, and governments.

Organizations are finding that people simply cannot afford to buy the product, even if the product would normally be considered a necessity (e.g., health care).

Governments must be made to understand the camel, in the form of the taxpayer, can only support so much straw before its back is broken. Government executives also need to start budget cutting measures with their often-inflated wages. (Yes, I know, "captains of industry" make much more than their government counterparts, but there are tradeoffs.)

It's time very senior management stopped behaving like the king with his new invisible clothes and started inviting risk management practitioners and others to "tell it like it is" - to listen and then act on the information.

It's too late for this catastrophe, but perhaps if anyone learns the lessons, it can be avoided in the future.

John Glenn, MBCI, SRP
Enterprise Risk Management/Business Continuity practitioner
Ft. Lauderdale FL
Planner @

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