Administration Lacks Business Acumen to Solve Business Problems

The current administration would have you believe that the only way to fix the the pension issue is to cut, cut, cut.   No company has ever survived by only cutting expenses in the long term. New revenue streams without raising taxes are needed.  Apparently, this so-called ‘business savvy’ Administration and General Assembly do not understand that basic business premise.

The previous administration under Governor Beshear has already tried cutting benefits, shifting to 401K’s and other cost cutting measures.  They have not worked, because the problem is “cash inflow” not “cost”.  Every entrepreneur knows that ‘cash is king’.

Why is the Governor and the current House and Senate leadership not even willing to consider new consumption-based revenue streams that they always claim they want to support?  Even if the revenue projections from these other revenue sources, (like expanded gambling, medical marijuana and much greater hemp production), is only 10% correct, any amount of additional dollar revenue is still more than “zero”, which is what we are getting from it now.  And any business person will tell that this exactly what you want, because it is “recurring” revenue.  (Again, this is no increase in income or property taxes.)

In business; reducing costs can increase profitability in the short-term, but only if the sales price and the number of sales remains constant.  If those sales and number of sales decreases, you are right back where you started with no new revenue to pay your expenses.  And that makes any potential gains from those cost-cutting measures a net loss.  You have to increase your market share and find new market opportunities.

Here is a classic example of that from an article from Investopedia:

“Consider a hypothetical company that increases annual revenue from $1 million to $2.2 million by increasing its sales staff from five to 15 people with an average salary of $100,000 each. The additional $1.2 million in revenue only results in $200,000 additional net profit and actually reduces profit margin by almost 20%. The company has to address the question of whether the lower profit margin is acceptable in return for the absolute dollar increase in profits, as the lower margin may not offer a sufficient financial cushion to insure the company’s continued viability. The company may have additional dollars in the bank, but it may be in a less healthy or less secure financial condition.”

Again, I have outlined several new revenue streams that we can do, if our leaders stop being ideological, and actually start thinking like business people.  This GOP led administration is not thinking like a business person, and has no true idea how to save or turnaround a company that is struggling.

Instead this administration is obfuscating the issue by making you believe that cutting costs will make up the difference in the lack of revenue.  They are hiding behind arcane and obscure actuarial terms like Level Funding vs Level Percentage of Increasing Payroll Amortization of the UAAL.  While GASB and FASB do allow for this accounting practice, it is not standard business practice.  (Yes, if they want to argue arcane accounting principles, so can I.)  BTW, Level Funding is just a very confusing way to say “self-funding”.  Meaning, in this case, the burden shifts to fund the unfunded pension money by “stealing from Peter to pay Paul”.  (I will have a separate post soon on why that is a really bad idea, as it sacrifices our future.)

We need new revenue streams, new and innovative ideas, (like using the new revenue streams and a Revenue Bond over 30 years to fund the unfunded liability), and we need new leadership to champion this.

 

 

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