Three years ago Kiva took on a major customer and asked its bank to check him out. Kiva's bank consulted with the customer's bank, which gave the customer a clean bill of health. Soon after, the customer, who had, in fact, supplied his bank with false financial information, declared bankruptcy, leaving Kiva with $180,000 in unpaid bills -- and its second straight yearly operating loss.
Two years ago one of Kiva's trucks, stopped at a light, was rear-ended by a truck belonging to a small trucking company in California. As it turned out, the California company had been defrauded by its insurance broker, which had apparently gone so far as to issue insurance using letterhead stolen from a major insurance company. Thus, the California company was not insured. Kiva spent $22,000 replacing its damaged tractor and trailer -- and another $20,000 renting a rig to replace it (another cost it was told, incorrectly, would be covered by insurance). Kiva has already spent $28,000 on attorneys' fees in an effort to recover those expenses and expenses incurred from workers' compensation claims. (Kiva's workers' compensation premiums will rise for the next three years.) The California company has since declared bankruptcy, the "insurance broker" has likely fled the country, and the accident has cost Kiva close to $100,000.
Kiva's two operating losses have reverberated through the business. When the company sought financing for its new plant in South Carolina, the bank insisted on better numbers in the form of a more thorough -- and more expensive -- report by Kiva's certified public accountant, David Frome. Frome says that the bank wanted monthly financial reports, rather than the customary quarterly or semiannual report. It also sought a "review" by the CPA, rather than a less stringent "compilation." Adding insult to injury, the bank asked for financial projections four years into the future. "Those are impossible to predict with any accuracy," says Ruth Stafford. Kiva had been doing business with that same bank for eight years, yet arranging financing for the South Carolina plant took five months and reams of documentation.
Regulation: Bureaucracy at Its Best
You can barely make a move in Kiva's building without running into something touched by the government. The Occupational Safety and Health Administration inspects equipment, the Department of Commerce reviews shipping records, the Environmental Protection Agency regulates chemicals, and the Department of Transportation oversees the labels on packaging. Perhaps not coincidentally, Kiva's corporate taxes have risen sharply in recent years, health-care costs are up 150% in 5 years, and the state sales tax has doubled in the past 14 years. Property taxes are up 200% in 10 years. Nine years ago Kiva bought a 10,000 square foot building. The tax on that property then was $3,200. Today it's $10,000.
Asked why she thinks taxes have gone up, Ruth Stafford replies: "They reflect the inefficiencies of our government and our litigious society. The rising costs of insurance and health care reflect to some extent the cost of regulation, theft, and loss. Those are all hidden costs to the manufacturer and to the consumer." Stafford believes that a principal drive among lawyers is to "perpetuate themselves," and she says the evidence for that is in the rules they write and rewrite -- necessitating constant reinterpretation by those very same lawyers. In Kiva's case the most striking evidence of that condition existed in a small mountain of dirt, which until recently rose behind the company's building. That dirt, which came out of a nearby 30-foot-wide hole, had been there for nearly four years, awaiting disposal.
It was four years ago that the Staffords removed two underground fuel storage tanks. When they were removed, one tank was discovered to be leaking from the top -- not the bottom. In other words, the only time it leaked was when the tank was full. Kiva's attorney on the case, Christopher Wooten, labels the amount that leaked "very small." Tom Stafford says it was likely no more than 25 gallons. That didn't matter.
The site was declared hazardous by Arizona's Environmental Protection Agency. All the contaminated soil had to be removed. The hole was dug five feet deeper and five feet wider. "They excavated what they believed to be the entire quantity of contaminated soil and stockpiled it on Kiva's property," says Wooten. The Staffords were left with a big hole in the ground, which for three years was left unfilled, creating a worse potential liability for Kiva than the soil, all 250 cubic yards of it.
"It was a case of bureaucracy at its best," says Ron Stafford wryly. He notes that three sets of government lawyers got involved in the case, and each time Kiva found an attorney in the government astute enough to understand it, he left. Technicians tested the soil three separate times -- as time elapsed between each set of lawyers, with a subsequent presumption that the fuel had leaked that much deeper into the ground.
Finally in January 1995 the Staffords were allowed to fill the hole back in. But what remained was 250 cubic yards of soil "contaminated" with some 25 gallons of diesel fuel. Ron says, "We got an estimate of $80,000 to have it hauled away." He proposed an alternative: move the dirt to the Staffords' ranch, mix it with manure, and spread it out in the sun to dry. Stafford was told that would release various contaminants -- and require five separate permits. Stafford estimates that by the time the dirt was disposed of the total cost was "easily $100,000."
