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Grandfather State & Local Government
Spending Report

(updated Sept. 2011)
by Michael Hodges - email
- a chapter of the Grandfather Economic Reports -


? ? While most eyes are riveted on Washington,
who is watching their own backyard
? ?


RAPID EXPANSION OF STATE & LOCAL GOVERNMENTS

Employing More Workers Than Any Other Sector of the National Economy

with Spending Growth Faster than the General Economy
now spending
$2.1 Trillion, $6,869 per man, woman and child
or $27,476 per family of 4 - and 18% of the total economy

with an Excess of 12.4 million Government Employees
because the number of employees continues to increase
faster than the national population

who are receiving
44% HIGHER Employee Compensation,
Job Security and Inflation Protection
than in the Private Sector

If current spending had been at the 1947 ratio of 6% of national income
it would have been $1.4 Trillion less - - equivalent to $4,545 excess per person

Few citizen recognize the massive growth of state & local governments. If they think government growth is only at the federal level - - they think wrongly.

Most people know today's working people 'carry on their backs' more seniors than any prior generation - - with little expected in return.

This report shows each citizen also carries 3 times more state & local government employees 'on their backs', and govt. employees continue to increase faster than the general population - with higher earnings, benefits, and job security than the private sector - with less education quality in return. A double-whammy!!! Little wonder private sector family values & incomes suffer - - from what they could and should be.

This report is a part of the series of Grandfather Economic Reports, of certain negative economic conditions facing families and their children, compared to prior generations. Included also on this page is a section on Privatization of government services.

Quick Links: Number Employees Trend, Employees per 100 Citizens, Spending % National Income, Govt. Compensation vs. Private Sector, Spending per Capita, Taxes, Debt, Comments, Actions


QUESTION #1: Must young families and their children carry on their backs a larger proportionate number of state and local government employees than in my generation? The excess is 12.5 million employees - because their numbers increased faster than the general population.
12 million extra state & local government employeesThe left chart shows the number of state & local government employees growing faster than the population at large - a chart few have seen:

The upper rising curve (red) represents the actual number of government employees during the past 6 decades, rising from 3.3 million employees in 1946 to 19.6 million employees today - a 494% increase, while the national population increased just 117%.

The lower (dashed-green) plot shows the number of employees would have grown only to 7.2 million by today had they not grown faster than the general population increase of 117% in that period.

There is a 12.4 million difference between the two plots. (the quantity should have been 7.3 million employees instead of 19.7 million)

This means: if the number of state & local government employees had not grown faster than the increase in the general population, there would be 12,386,000 fewer such employees today.

If said employees had increased their productivity said increase should have been at a rate less than general population growth.

Headcount should have increased slower than the 118% population growth over the past 64 years, if there were efficiency in government. But, state & local government head-counts increased 490%.

Even with zero efficiency increases, a 63% headcount reduction would be required to eliminate the excess.

The difference between actual head-counts and what they should have been is an excess of 12.4 Million employees - - a quantity more than the total population of many of our states.

For the past 30 years nationwide inflation-adjusted median family real incomes and rates of saving have suffered - according to the Grandfather Family Income Report.

During this same period, the number of state & local government employees increased double the rate of the population - - and, according to a Bureau of Labor Statistics study, the total compensation of the average state & local government workers increased at a faster pace than did private sector employees. Why was this allowed?

When you hear politicians brag about new job creation, you should ask how many are full-time private sector jobs with better pay and benefits than government workers receive - - and how many jobs were additions to state & local governments. See if they know the answer - - and if they do, watch how they answer when you ask: "WHY?"

"In the public (government) sector we routinely have five people doing the work of one. It's a simple fact. Are we over-governed in the United States? We are wildly, bizarrely, sickeningly, ludicrously over-governed." - by Tom Peters, also a consultant to former Vice President.


EVERY CITIZEN MUST CARRY 3 TIMES MORE GOVT. EMPLOYEES THAN BEFORE

number state & local govt. employees per 100 citizens: 1946 vs. todayOne more look at the graphic from the summary page - - so it sinks in.

This chart compares the number of state & local government employees per 100 citizens in the total population. Look how much faster government employees increased than did the general population.

In 1946, there were 2.3 state & local government employees per 100 citizens.

Today citizens must carry 6.5 government employees per 100 citizens - 183% more - a new record high.

That's a load per citizen 2.8 times higher than before - - and, all those 4.2 extra government workers often have better job security with more time off, and more lucrative pensions, insurance and cost of living protection - - benefits not available to many citizens.

It should be noted that these charts actually understate the situation given the fact many functions previously performed by state/local employees in 1946-7 are now contracted out (such as trash collection, street repairs, planning, etc.).

If today's state & local government employees were more efficient than in 1946, then today's head-count ratio should have been less than 2.3 per 100 - but today it is higher - 3 times higher. This implies state & local government bloat and inefficiency, compared to the past.

QUESTION: If we had quality education and low crime rates when we had 2 government employees per 100 citizens, why the heck should we need three times as many today.

Another Question: In prior decades local trash was collected by city employees. No longer. Trash is now mostly collected by private carriers, with the most cities only processing billing. Again, why do we have more city and local government employees per capita than then?

Again. City and local government employees used to take care of most street repairs. No longer. Most is now contracted-out to private sector firms, with government employees only 'playing' paper managers. So, again, why more government employees per capita than before?

These are a few examples of work no longer performed by government employees, as many government employee jobs changed from workers to overhead paper-pushing employees.

Bottom-line > there are 12.2 million excess state & local government employees, nation-wide - - indicating huge inefficiencies.

How do we justify this for our young generation?

QUESTION # 2: Must our children face an economy where state & local government spending now eats nearly 3 times more of the economic pie than before, resulting in a smaller share for the private sector and standard of living enhancements?

Excess spending equates to 12% of the total U.S. economy - - or $1.05 Trillion, or about $3,534 per person, or $14,136 per avg. family of 4.

We should not only expect that federal spending as a share of the economy be not larger than it was when we grandparents were young (instead of being larger per the Federal Government Spending Report), but that the state and local government sector also be down-sized from its current 17% ratio to national income closer to the 6% ratio of 1947.
growth of state & local government share of the economyThe pie charts at the left represent the economic pie of our nation in 1947 vs. today, showing a break-down of its components: federal spending (red) vs. state & local government spending (yellow) vs. the remaining private sector (blue).

The yellow slice of the pie represents the share of the economy consumed by state & local government spending. See how it grows in size from the left chart to the right one?

In 1947 the yellow slice, state & local government spending, consumed 6% of the economy. Today it consumes 18% of the economy - a 3 times larger share than before !!

That's means today state & local government spending consumes a 3 times larger share of the total economic pie than before.

Note how much smaller is today's blue slice of the pie, compared to 1947. That's the shrinking private sector, meaning the part of our economy NOT dependent on government spending - dropping to a 49% share of today's economy from a 78% share before.

It shrank in relative size 29 points, due to expansion of both the federal government spending share (red slice) AND expansion of the state & local spending share (yellow slice).

This means state & local government spending consumes an extra 12% of our economy, compared to 1947 - - reducing the share of the economy remaining to the private sector (blue slice of the pie chart). That 12% extra (some call it excess) in today's dollars equates to $1.4 trillion excess spending - equivalent to an excess $4,408 per person, or $17,632 per avg. family of 4.

(note: this data is from the Bureau of Economic Analysis and, per their methodology, does not include additional state & local government spending of grants-in-aid transferred from the federal government)

These charts show since 1947, 29% of the entire economy has been transferred from the free-market private sector (blue color), due to the combination of federal AND state & local government spending. Some label this a 'march of socialization.'

REGULATORY COST IMPACTS NOT INCLUDED

Additionally, the above chart showing about 18% of the economy represented by state & local government spending understates the impact, as it does not include regulatory compliance costs mandated to the private sector by these government entities. The Regulation Cost Compliance Report shows $343 billion, or an additional 4% of the economy, is represented by the cost to the private sector of complying with state & local regulatory mandates - - bringing total state & local government cost impact to 22% of the entire economy - - and these regulatory costs are not accounted for in government budgetary mechanisms, or in impact backup statements.

All those extra 12.4 million state & local government employees (4.3 extra per 100 citizens) are not sitting still - - many are dreaming up and issuing new regulations which they mandate on the private sector which must bare both the cost of paying taxes to cover those extra government employees PLUS bare the cost of complying with their regulations. (note: no attempt is here made to differentiate between 'good and bad' regulations, just the cost of same and lack of accounting & control thereof).

QUESTION # 3: Why must families of private sector workers pay taxes from their lower incomes to support significantly higher wages, benefits and job security for state & local government employees than they receive?


STATE & LOCAL GOVERNMENT EMPLOYEES RECEIVE

44% higher compensation than paid in the private sector

31% HIGHER WAGES,  60% HIGHER BENEFITS + MORE JOB SECURITY
than PRIVATE SECTOR EMPLOYEES

A. Higher Compensation: State & Local government employees receive 44% higher employee compensation than does the private sector.

June 2011 news release >  EMPLOYER COSTS FOR EMPLOYEE COMPENSATION - according to the Bureau of Labor Statistics, Dept. of Labor > JUNE 2011 Private industry employers spent an average of $28.13 per hour worked for employee compensation in June 2011, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $19.81 per hour worked and accounted for 70.4 percent of these costs, while benefits averaged $8.32 and accounted for the remaining 29.6 percent. Total compensation costs for state and local government workers averaged $40.40 per hour worked in June 2011. http://www.bls.gov/news.release/ecec.nr0.htm

B. Higher Wages: State & Local government employees receive higher wages than does the private sector.

wages state & local gov. employees vs. private sectorLeft is a data graphic for 2004 from The National Compensation Survey of Occupational Wages in the United States, published by U.S. Department of Labor Bureau of Labor Statistics in September 2004 stated >

"Average hourly earnings in private industry were $16.98, compared with $22.22 in State and local government (31% higher).

Following is a breakdown of several categories > Average hourly earnings among white-collar occupations in private industry were $21.12, compared with $25.09 in State and local government. Among white-collar major occupational groups, workers in professional specialty and technical occupations earned $29.80 an hour in State and local government, while their private industry counter- parts earned $27.73. Average hourly earnings of workers in administrative support occupations were $13.69 in the private sector and $14.17 in State and local government."  (http://www.bls.gov/ncs/ocs/sp/ncbl0658.pdf)

Reported June 2008, according to the federal Bureau of Labor Statistics, Public-sector service employees (including many blue-collar jobs) averaged $16.72 an hour in salary, 69% more compared to $9.87 for private-sector employees. http://money.cnn.com/2008/06/02/pf/retirement/vallejo.moneymag/index.htm?section=money_latest

Here's a SHOCKER to some >
Pay for City of Vallejo (California) - annually new-hires > firefighters is
$80,603.74 - $97,974.66
(experience: "Any combination of education and experience equivalent to graduation from high school."). Warehouse Specialist: $48,818.02 - $59,338.66. Accounting Technician: $59,473.44 - $72,290.61. Drafting Technician: $53,875.54 - $65,486.51  (experience required: "some technical drafting experience is desirable." Meanwhile in May 2008 the city filed for bankruptcy.  Average pay existing beat-walking police officer $122,000 before overtime; fireman $130,000.  Police and firemen may retire at age 50 with 90% of prior pay. data sources 2/2008 on new-hire pay >
http://agency.governmentjobs.com/vallejo/default.cfm?action=viewclassspec&ClassSpecID=62567&Agency=1108&ViewOnly=Yes
http://agency.governmentjobs.com/vallejo/default.cfm?action=viewclassspec&ClassSpecID=62654&Agency=1108&ViewOnly=Yes

C. Higher Benefits:
State & Local government employees mostly have superior medical, prescription and dental insurance benefits, at lower premium costs to themselves, than nearly all persons in the private sector. It is often found that city employees receive medical insurance AND prescription drug benefits AND dental benefits, yet pay only 1-2% of the premium costs - - with local taxpayers picking up the other 98-99%. Not only is such a low employee payment mostly unheard in the private sector, but today senior citizens find their Medicare covers but 60% of medical expenses and they must pay 100% of any medi-gap insurance - - AND they must pay 100% of their prescription drug and dental expenses. Additionally, in general state & local government employee medical and pension obligations are guaranteed by taxes on local residents - - whereas nobody guarantees private sector medical and pension obligations.

'States pay more for public retirees too. According to the Employee Benefit Research Institute (EBRI), the average public-plan retiree got $16,188 a year in 2003, far more than the $7,200 their private company counterparts could expect. All in all, EBRI concludes, state and local government wage and salary costs are 40% higher than the private sector's; its employee benefit costs are 60% higher. According to the U.S. Census Bureau, major public pension plans paid out $78.5 billion in the 12 months ended Sept. 30, 2000. By the comparable period in 2004, that had grown to $117.8 billion, a 50% climb in five years.' "Sinkhole", Business Week June 2005 - http://www.businessweek.com/magazine/content/05_24/b3937081.htm

C. Inflation Protection: Generally state & local government employee wages and benefits are protected from inflation, whereas most private sector employees have no such inflation protection.


Question: Why should government employees receive better wages and medical insurance coverage (at lower premium costs to themselves than the taxpayers who are paying for their coverage?

Were you surprised with the above report showing state & local government employees earning more than those in the private sector? How about federal government employees? The Federal Government Spending Report chapter shows the following > >

Federal Government Employees Earn Twice as much
as the Average Private Sector Employee

“The closest thing to a lifetime sinecure in America is a federal government job, and now it turns out that it’s also a very lucrative way to make a living.  New data from the U.S. Bureau of Economic Analysis confirm that the average federal civilian worker earns $106,579 a year in total compensation, or twice the $53,289 in wages and benefits for the typical private worker. This federal pay premium costs taxpayers big bucks because Uncle Sam’s annual payroll is now $200 billion a year. No wonder that, with a per capita income of $46,782 a year, Washington, D.C. is the fourth richest among the nation’s 360 metropolitan areas… The Cato Institute’s Chris Edwards…finds that in 1950 the average federal bureaucrat received $1.19 for every dollar that a private employee earned. By 1990 that ratio had risen to $1.51 and is now $2. In 2005 federal wages rose 5.8% compared to 3.3% in the private sector.” Wall Street Journal 15 August 2006. Additionally, government workers realize significantly more job security than private sector workers.

So, let's again ask that QUESTION: Why should government employees earn significantly more than those in the private sector?


federal vs. state & local government spending per man, woman and childHere's the Per Person Cost for State & Local Government Spending
- which continues to climb

You may have seen this chart elsewhere in the Grandfather Government Spending Report

It is repeated here because it includes the per capita national average for spending by state & local governments - the chart bar at the right - at $6,869 per person. This equates to $27,476 for a family of four.

- and that does not count federal spending per person, the middle bar in the chart.

Much of this spending is covered by a combination of state income taxes, sales taxes, excise taxes, property taxes (tenants also pay for property taxes as a portion of their rents), and many, many taxes hidden in the cost of goods & services families purchase - - and some federal transfers.

If today's state & local govt. spending ratio were equivalent to the 1947 generation (at 6% of national income instead of today's 18%), then the per capita spending by state & local governments would be $1,899 instead of the $6,389 shown in the chart. That excess today amounts to $4,605 per person, or $18,420 per avg. family of 4. That's $1.4 Trillion excess spending by state & local government, compared to prior spending ratio.

If families could pay $1.4 trillion less state & local government taxes by supporting the prior spending rates, would that increase their living standards and saving rates AND reduce their need for debt? Of course !!

How do we justify this extra drain per family drain for state & local government? The author could not find any justification, since education quality is less today than before and less than foreign nations, crime rates are higher, the percentage of families without 2 parents is higher, real median family incomes are not climbing long-term as in the past, and household debt ratios are climbing while personal savings rates are falling.

Another thing we know is that this rapid expansion of state & local government has partly 'justified' itself by loading more regulations on the backs of citizens.

state & local taxes percent national incomeTHE TAX TAKE FROM THE ECONOMY BY STATE & LOCAL GOVERNMENTS

The chart at the left shows the percentage of the economy consumed by state & local government taxes.

This is the sum of property taxes, state personal & corporate income taxes, sales taxes and other tax-charges (revenues from federal grants are excluded).

If state & local taxes had not increased faster than the size of the economy in the past 50 years then the right bar on this chart would be the same height as the left bar.

But the chart clearly shows that whereas taxes were 5.9% of the economy (left bar), they are now 16.8% of the economy (right bar).

This means this 'tax take' has increased 284% faster than the economy.

This reduced the effective share remaining to the private sector, and reduced the share of family income power, compared to prior generations.

This 16.8% is made up of 3.9% property taxes, 3.9% sales taxes, 2.6% individual state income taxes, 0.5% corporate income tax, and 4.2% other. This does not include revenue from the federal govt.

(for those interested in seeing the total tax-take, including federal taxes, see the Tax Report - showing the average citizen now works 5 months per year to pay all taxes, compared to 1.4 months in prior generations.)

In 2005, according to the U.S. Census Bureau (http://www.census.gov/govs/www/statetax.html), state tax collections (not counting rapidly increasing local city and county taxes) increased by an average of 9.7 percent across the country, which translated into $57 billion more in state coffers. On average, states charged each of their residents $2,192 ($8,768 per family of four), mostly from income and sales taxes.

Few comprehend the significant drain on families by the fact state & local government spending and taxation have chewed up more and more of our economy, rendering same less free and efficient - and more socialized and government-dependent - than for prior generations.

There is an apparent generational gap of major proportions.

DEBT of state & local governments = $2.4 trillion, or $7,792 per capita

state-local-govt-debt.gif (5215 bytes)According to the America's Total Debt Report and the Debt Summary Table Report, combined debt of state & local governments was $2.4 Trillion. This equates to about $7,792 per man, woman and child. Data source: Federal Reserve - web site: http://www.bog.frb.fed.us/releases/Z1_/current/

In addition to the above debt, state & local governments have an estimated minimum un-funded liability for pensions and medical of $2.73 trillion.. http://www.bloomberg.com/apps/news?pid=20601087&sid=a6fTHIHgTnqs&refer=home

This brings total debt to $5.1 trillion, actual and un-funded.

For additional debt data, see the Federal Government Debt Report.

and, the Debt Summary Table

The increase in the relative size of state & local government is explained not by increases in public services but by the soaring compensation of public employees (and their headcount)

The relationship between spending on public assistance and economic growth is strongly negative. The chief culprit was government employee compensation, which grew much faster than private sector wages in almost every state. The excess pay to public employees, the equivalent of a major income transfer program, has sharply inhibited growth. Data show that spending on education has some positive though diminishing effects on student learning when the money is spent for actual instruction, but administrative expenditures, which have been growing in relative importance, tend to have negative effects on learning. Source: Richard Vedder, "Economic Impact of Government Spending: A 50-State Analysis," NCPA Policy Report No. 178, National Center for Policy Analysis.


COMMENTS

  1. The greater the portion of our economy consumed by government at all levels, the smaller the Private Sector and the smaller the future economic opportunities are for my grandchildren.
  2. As reported in the Tax Report and according to Economy.com, since 1995 property taxes nationwide have jumped 48%, that’s 30% higher than inflation.
  3. Government employees have salary and benefit packages better than many in the private sector, plus protection from inflation. Ballooning state/local payrolls also create tremendous pension loads to be funded by our grandchildren. And, since many such pensions are outside the social security system, increased relative pressure is applied to that system by increased employment that should be in the private sector instead of in the public sector - see the Grandfather Social Security Report.
  4. Regulatory compliance costs imposed on the private sector by state & local governments. Regulatory compliance costs are not taken into account in the above pie chart but are covered in the Grandfather Regulation Report, which shows the additional cost burden per man, woman and child of $800. It stands to reason that the greater number of government employees the more the capacity to generate regulatory burdens on the 'free-market' private sector - - effectively further reducing its share of the economy and its capacity to generate family income improvement and positive balances of payment as shown in the Grandfather Foreign Trade Report.
  5. The increases in excess headcount and spending cannot be justified by education performance, since the Grandfather Education Report shows less education quality, despite record (inflation-adjusted) per student spending increases. Additionally, the Education Report shows the large increase in the quantity of non-teaching employees per student compared to prior generations - - no measurable quality improvements to show for it.
  6. Shouldn't state & local government budgets be required to include targets to reduce spending as a share of the economy? None do. Why Not?
  7. And, the lack of productivity and efficiency of state & local government seems to call into question the thought of some at the federal level to transfer functions and spending to lower levels of government. That's not controlling national government spending. Is it?
  8. Lastly - - The Voting Report shows a 36-year decline of voter participation in national elections. Although I do not know the participation rate in state & local elections, during the declining national voting trend state & local government has expanded quite nicely. Obviously citizens need to take strong action in their own 'back yards,' and JUST SAY NO to state & local budgets that do not reduce spending & headcount ratios.

AN EXAMPLE OF ONE STATE:

This State and Local Government Report page includes nation-wide data. To get a 'feel' for how a similar treatment would appear for just one state, as an example, see the Florida Government Spending Report with its own long-term trend pictures of spending and headcount ratios - quite dramatic, and similar to the nation-wide findings. By showing this specific state it is hoped others will take a similar look at other states, using the format of the Florida report. The author would like to hear from those who have made similar studies of other states, to exchange information - email Michael Hodges.

RECOMMENDED ACTIONS - - PRIVATIZE

There are numerous studies proving that privatization of state and local government can realize tremendous savings and efficiencies. From studies of Lawrence Reed of the Mackinac Center for Public Policy to the Imprimis of October 1997 - - Governments must say "We are no longer going to perform this work with our own workforce." States are privatizing utilities, prison management, data processing, foster care and others. Counties and cities and schools are privatizing fire protection, police protection, waste-water treatment, street lighting, tree trimming, snow removal, hospitals, custodial and jails." And, "government must be most careful with the savings realized, less they be squandered on some other dubious government enterprise." The best thing is to prove the mettle, but passing back all savings to citizens via tax cuts. (author). A few examples from 'Imprimis':

  1. Indianapolis - Mayor Steve Goldsmith has put up almost everything the city does on the list for privatization, including 60 services not previously competitively bid. He says, "A funny thing happens when public employees have to compete - they discover they really don't need so many supervisor categories and breaks." "It was extremely difficult to resolve citizen complaints and get the bureaucracy to move on anything. Once a service is privatized, accountability is almost instantaneous. If performance suffers, the city can quickly cancel the contract. Because of this city officials are really empowered."
  2. Flint - Mayor Woodrow Stanley experienced 32% savings in privatization. He said, "If I were some weak-kneed kind of namby-pamby politician, I wouldn't have touched this privatization issue with a 10-foot pole. Political leaders who aren't willing to take risks don't deserve to be in office." Considering the privatization option is nothing less than good stewardship. It prompts officials to open their minds and think about government services in ways they never pondered before. It forces them to find out the real free-market price, and need.
  3. Head count growth - state & local government should be required to achieve equal to or better productivity than the local private sector, such that its spending ratio to gross state product declines instead of increases, and that the number of its employees increases at a smaller rate than the population.
  4. Compensation - state & local government should be required to assure that their employees do not receive wages higher than the local private sector, nor receive medical insurance, dental insurance, and prescription drug insurance of a better quality or at a cost to employees less than in the local private sector, nor pension costs better than the private sector. A significant down-sizing of compensation is called for.
  5. And - considering the overwhelming evidence of poor education quality, including polling data, public school boards should privatize operations.

- For a sample planning format for establishing action targets, See the Grandfather Action Plan Report. -

BOTTOM LINE: Attention should be given to run-away state & local government spending, and its increased consumption of the economic pie of our young generation, compared to prior generations. If long-term family incomes, savings, values and living standards are to be improved, these spending and headcount ratios must be brought back into line with historic norms.

In the end, the real losers are our youth - - - from childhood to adulthood.

SHOULD WE DO SOMETHING
ABOUT
EXCESSIVE STATE & LOCAL GOVERNMENT
GROWTH ?

The action required is clear !

Increase the private sector share of the economy by reducing government's share !


Recommended related reports:

Total Federal + State/Local Govt. Spending - - America's Total Debt Report - - Family Income - - Social Security
Regulation Cost - - Federal Government Spending - - Inflation
and Education Productivity

Exchange information with Michael Hodges by e-mail


Return to HOME Page of the Grandfather Economic Report, and select another subject of your interest from the collection of mini-picture reports documenting economic threats to families and their children, compared to prior generations.

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Copyright 1997-2011 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address (URL) is included and full credit given to the Grandfather Economic Report and the author, Michael Hodges. Notice appreciated via email.