Hush, money

Scot Meader, manager of Missoula County’s fair and fairgrounds resigned today. Hopefully, this will stem the tide of complaints being leveled against him: alleged drunken groping, unethical and deceptive behavior, and a lack of being honest, ethical and forthright.

But, while Meader is going to cease representing the fair he will continue to receive his salary for the next year. $71,776 seems like a lot of money in Missoula, moreso when you’re being paid not to continue doing bad things.

Seems like in bad economic times that the County Commissioners should stand up to the weasel. Commissioner Bill Carey said he doesn’t “know for sure how we got to this point”. Well here’s a clue – you didn’t nip this thing in the bud when the original sexual harassment claim was filed. Now, you’re making us all pay for your efforts at trying to sweep this under the rug.

Sorry, but I think Meader should pay the County if he wants us to keep quiet about his unprofessional behavior. If he wants a job anywhere near Missoula then wouldn’t it be in his best interests to not be dragged through the arena of public scrutiny?

Something wrong?

There was an extraordinary hearing today at the bipartisan commission established to examine the causes of the current financial crisis. Jamie Dimon, CEO of JPMorgan Chase and commonly acknowledged as one of America’s most powerful and outspoken bankers, said this:

Regulators simply didn’t have the visibility, tools or authority to protect the stability of the financial system as a whole.”

Why not?

And the second to follow?

Back in October I wondered if Sterling Savings Bank would be the first bank in Missoula to go under. Well, that story seems to drag on and on (see updates at the end of that post).

Now, it seems as if a Montana chartered community bank, Treasure State Bank, is on the same path. On December 29th they announced they would agree to a regulator contract to maintain a Tier 1 leverage capital ratio of 12%. The average for all FDIC insured commercial banks in Montana as of September 30, 2009 was 10.43%.

As the Missoula Independent reports, the “consent order,” aims to address losses to the bank resulting from loans gone bad. Basically, the have to set aside a chunk more cash to cover the dodgy loans that they made in the past. And since Treasure State Bank is relatively young bank, founded in January 2007, they don’t have those reserves.

So, they went out to raise some more capital. Perhaps the problem is that investors don’t think Treasure State is such a good deal. The bank had to extend the stock offering another month.

Back in July, you’ll remember Treasure State Bank had the second worst Troubled Asset Ratio of the banks in Missoula (after Stirling Savings Bank). Now admittedly that Troubled Asset Ratio was a little bit better by September (down to 49%, from 54%), but of the 38 banks the FDIC has closed since Sept. 30, 32 had a troubled asset ratio of greater than 100.

Oh, and you’ve got to wonder why they needed a new President and CEO back in October? Maybe because a few days earlier the bank had announced they had lost $74,000 in the previous quarter. In the year to Sept 30, they’d managed to lose over a $1 million.   Not bad for a bank with less than 20 employees!

How is, exactly, that a bank loses money when they borrow from you and I at exceedingly low rates (our savings accounts) and lend that money to folks to buy cars and stuff at a much higher rate? Yep, management probably made some bad decisions, so management had to go.

Now, who is supervising the management? On the Board of Directors of Treasure State Bank, you’ll find:

Howard C. Chandler, a neurosurgeon
Mark S. Hawkins, president of InterWest Health
Stanley Earl Jenne, formerly Chair of Accounting at UM
Raymond Joseph Round, director of Davidson Investment Advisors
Mark C. Staples, an attorney based in Helena
William R. Weaver, a real estate developer
James A. Salisbury, the new CEO

If Treasure State is your bank, or if your business is relying on a loan from Treasure State, now might be a good time to get to know these folks.

If you’re an investor, then this graph tells your story:

Treasure State Bank currently trades on the Over the Counter Bulletin Board (OTCBB) under the ticker symbol “TRSU”.

Merry Something to You

A small holiday wish from Devo to you.

Punish the workers

It is a sad day in Missoula when a local employer lays off 417 jobs. It is even sadder that it was management who caused, through bad decisions, the operation to close down. But, nearly everyone in the pulp and paper industry knew that it was only a matter of time before Smurfit-Stone shuttered the Frenchtown mill.

Why is that? Nearly a year ago Smurfit-Stone Container filed for Chapter 11 Bankruptcy. At the time, chairman and CEO Patrick J. Moore said, “Our financial performance has not reflected the full potential of our earnings power due to higher cost operations and burdensome debt levels dating back to the original formation of the company.”

Did you notice that bit about burdensome debt levels? At one stage, Smurfit-Stone Container was leveraged to the extent of 70 percent of capital. Hardly wise management, but instead this was celebrated back in 1989 (the go-go 80’s) as an ambitious company batting above its average on the way towards becoming a global behemoth.

In March 1989 Stone paid $2.2 billion in cash and securities for Consolidated-Bathurst Inc. (CB), Canada’s fifth largest pulp-and-paper company. The purchase made Stone Container the world’s second largest producer of pulp, paper, and paperboard; a major player in newsprint; and gave Stone Container a foothold in the European market through CB’s Europa Carton subsidiary and U.K. plants. Investors even back then worried about the $3 billion debt, but management thought it was easy enought to sell-off some of the non-core assets. The deal, though, was financed by banks and eventually they called in their obligations. The debt nearly caused Stone Container to collapse in 1993 when the debt had risen to nearly $5 billion.

Still the company continued on its spending binge, all with the aim of becoming what they are now – North America’s largest manufacturer of paperboard packaging. In 2000, it purchased St. Laurent Paperboard Inc. of Montreal for about $1 billion in cash and stock. In 2002, it paid $375 million for the MeadWestvaco Corporation’s Stevenson, Ala., mill and the seven plants and 82,000 timberland acres that supply it. It was still splurging as of 2008.

Ever since then, through mergers, reorganizations, fire sales of assets, broad redefinitions of strategy and assorted restructuring programs the debt load has constantly dragged the company down. As of of Sept. 30, 2008, the company was still $5.6 billion in debt with only $7.5 billion in assets.

What about the Missoula mill? Well in a gentle farewell to workers, Smurfit president Steve Klinger said on Monday that the Frenchtown mill was a high-cost facility that did not provide adequate returns over the long term for the company.

Really? Because in 2008 a strategic review that the company conducted with outside experts determined that its mill system was very cost-competitive, with about two-thirds of its plants in the top half of the cost profile. This was after they’d already closed a 180,000-ton linerboard machine in Montana. So, either they already knew that Frenchtown was one of the dogs, or they just couldn’t be bothered to fix it.

I dunno. Maybe the workers could see what was coming and were just hoping things would work out fine. But, I can’t help but think that the company hasn’t been completely honest with the crew. I guess it is hard for management to admit they’ve been screwing up for over 20 years. Patrick Moore and the bosses in St. Louis, however, will all keep their jobs. And, to put the icing on the cake, Smurfit-Stone may pay out up to $47 million in bonuses to executives and other employees in 2009. I don’t think any of the folks in Frenchtown will be getting them.

The Power of the Rich and Famous

Private property rights are big news in the courts these days.   Many will know of the landmark Supreme Court 2005 decision in Kelo v. New London. It started a backlash of legislative action across the country to stop the perceived excesses of government seizure of property.

But, it didn’t ‘t stop there. Continued legal judgments are re-writing the relationship between government and property owner. The Supreme Court is now hearing arguments in Stop the Beach Renourishment Inc. v. Florida Department of Environmental Protection, the New York Appeals Court has ruled in Goldstein v. New York State Urban Development Corporation, and in In re Parminder Kaur v. New York State Urban Development Corp. (The federal courts in these sorts of cases have shown much deference to the determinations of state courts.)

Each of these cases raises the issue of who gets to decide what happens to a piece of private property. Is it the landowner? Or the government who needs the property for some greater public use (typically for the construction of highways, power lines, and other public utilities)? Or, is it the rich and famous who can utilize government to achieve their private profit?

The Supreme Court case concerns the ability of the state to protect natural resources and promote public recreation. (Sound familiar, as in the Mitchell Slough case recently settled by the Montana Supreme Court? Yep.) In Florida, the state government restores and protects beaches from erosion by dumping lots of sand in the water. This creates new beach and the question before the SCOTUS is who owns that sand.

The first NY case concerns the $4.9 billion Atlantic Yards Arena & Redevelopment Project and whether the city can seize private property for the development of a new stadium for the Nets basketball team. The question was whether the use of eminent domain by the city was correctly for public benefit. Like Kelo v. New London, appellates argued that economic development in blighted areas was beneficial to the public since it cleans up unsanitary and unsafe urban conditions as well as maximizing economic use of the land. But, who determines what is in the public’s best interest?

The second NY case concerns Columbia University’s wish to build a new $6.3 billion campus and have New York city seize privately-owned portions of the 17-acre swath of Manhattan’s upper west side. (Former-Missoulian Daniel Nairn has a brief discussion of this case at the excellent Discovering Urbanism blog).Here, the court ruled that the development was not a public use because Columbia is a private institution. Further, the “blighted” designation of the properties was made by a consultant for Columbia, further muddying the case that it was for public benefit.

While I think the Florida case is somewhat obvious (just because the state dumped some sand in the water doesn’t create more public land), the others each demonstrate the dangers of public-private partnerships. When you mix in private profit (typically through real-estate development) with improvement of the public condition, it is not clear for whom the government is most acting. While the taking of private property is allowed under the Fifth Amendment to the United States Constitution, it cannot be done without just compensation and must be done with a clear sense of it being done for public use.

It becomes very hard to argue with a business project that also includes some sort of educational, cultural, recreational, community, municipal, public service or other civic facility. Certainly, the small homeowner in the ‘blighted’ area is going to have a hard time incorporating this. But, if you call in your buddies on the Economic Development Corporation, those folks in the Downtown Association, and the friends in the Chamber of Commerce, then many a city council or commission is going to see things your way. As was seen in the case in NY, when you deal with $5 or 6 billion project, involving the Mayor, affordable housing advocates, and a pro-sports team (as is the case in New York), strong indeed is the political pressure on government decision making.

Think this couldn’t happen in Montana? Title 7, Chapter 15, Part 42 and 43 of the Montana Codes Annotated (M.C.A.) authorizes municipalities to “acquire by condemnation, as provided in Title 70, chapter 30, any interest in real property that it considers necessary for urban renewal“. The municipality has to make a finding that a blighted area exists that is “conducive to ill health, transmission of disease, infant mortality, juvenile delinquency, and crime, that substantially impairs or arrests the sound growth of the city or its environs, that retards the provision of housing accommodations, or that constitutes an economic or social liability or is detrimental or constitutes a menace to the public health, safety, welfare, and morals in its present condition and use“.

Well, such a declaration was, for example, made for the River Road neighborhood in Missoula. Guess who made that determination? The Missoula Redevelopment Agency. And, guess who’s on the board of MRA? Hal Fraser of First Security Bank; Dan Kemmis of the University of Montana; Nancy Moe, attorney; Rosalie Cates of Montana Community Development Corporation; and Karl Englund, attorney. Sounds like a bunch of Good Ol’ Boys & Girls to me.

And, yes, they’ve handed out public funds to benefit private development. I wonder if they’re friends with the Rich and Famous?

Cut ’em out?!

The Montana University system seems to be facing a budget crisis. Not as bad as California, where the universities are raising tuition by 32 per cent, but enough that all employees, professors and staff, are seeing a wages freeze.

So, it must be time for some bold ideas – either cut some significant costs or find a new source of revenue. How about we close down one or more of the campuses?

There are four campuses of Montana State University – Bozeman, Billings, Havre, and Great Falls. Likewise, there are four campuses of the University of Missoula – Missoula, Dillon, Butte, and Helena. Then we can toss in three community colleges – Flathead, Miles City, and Dawson. Add seven tribal colleges and three religious colleges (Carroll, Rocky Mountain College, and the College of Great Falls). Do we really need all 21 of these campuses? Can we afford them?

Let’s take MSU-Northern and UM-Western, for example. I understand that in many a year they are run at a loss, subsidized at the expense of the major campuses in Bozeman and Missoula. They’ve had a spotty record of attracting students, so raising tuition would be likely to drive some of the better students to the main campuses.

Whereas tuition and fees at UM-Missoula is $2590.25 per semester in 2009 (in-state, undergraduate), tuition at UM-Western is $1,837.45. At MSU-Bozeman the cost is $2,683.85 and at MSU-Northern it is $2,194.78. Quite the bargain, compared to the California cost of about $4,150 per semester, going up to around $5,150 next fall.

Why do we keep these branch campuses? Certainly it is more affordable for students, both local and from out-of-town, to live in Havre or Dillon. They can continue to work at their family’s business or farm. And some students prefer the education at these smaller, more intimate campuses. But, maybe they should pay extra for the luxury of smaller class sizes and greater access to their professors?

There is, of course, a political reality that says if you want support for state colleges and universities from legislators from SW and N Montana that you need to have colleges and universities in their part of the state. But, it is becoming more and more apparent that legislators from outside of Missoula, Bozeman, Great Falls, Helena and Butte would much rather not fund the university system.

Maybe it’s time for Montana to privatize some of these campuses, like Michigan and other states are considering? As I’ve previously pointed out, the State of Montana contributes close to the lowest of any state to the cost of a resident’s college education. So, we’re already close to having privatized our colleges & universities! If students still want to study in far-flung locales, then they should pay to do so?

Lost in all of this discussion is the underlying purpose of state colleges and universities. It is not so much about educational benefit to the individual students, but rather an investment in the wisdom and learning of the state as a whole. If we want educated folks living among us, running our state and making it a better place for all of us, then we should expect to help contribute to that social good. And if the less-populated parts of the state are important to us, and we need to generate knowledge and understanding in those regions, then we should invest there, too. That means greater state support of universities, not less.

The current budget crisis shouldn’t be balanced on the backs of our future (the students), nor the world-class scholars who bring their expertise to the state (the professors). Instead the cause of the crisis should be considered head-on.