THE FEDERAL BUDGET: How to Get Spending Under Control
by Scott A. Hodge and Geoffrey Freeman.
Government Ownership and Management of Assets
Washington's political and bureaucratic institutions have proven to be poor stewards of the nation's assets. The long-term maintenance of government assets will always receive secondary treatment because of the short-term incentives that motivate Washington politicians to fund new programs or pork-barrel projects. The only way to alleviate the burden to taxpayers of these long-term liabilities is to privatize many of the government's assets. Privatization is also the only way to infuse these enterprises with the capital they need to perform efficiently well into the [21st] century.
The [Clinton] Administration's five-year effort to "reinvent" the federal government has failed. Not only has federal spending increased by $258 billion since the start of the Clinton Administration, but Congress continues to fund hundreds of programs that are often duplicative, obsolete, mismanaged, or blatant aid to special interests such as huge corporations. As a result, federal programs are vulnerable to high amounts of waste, fraud, and abuse. In fact, a 1995 GAO report put a $350 billion price tag on the waste and fraud that investigators had discovered.
Duplication and program overlap in the federal government are widespread. For example:
Job training. Taxpayers spend $20 billion per year for 165 job-training programs that are administered by 15 different federal agencies. Moreover, the GAO has found that most federal agencies are unable to determine the effectiveness of their programs.
Economic development. There are 342 economic development programs managed by 13 agencies, and little or no coordination.
Juvenile programs. Ten departments, three independent agencies, one federal commission, one presidential council, and one quasi-official agency administer 131 juvenile programs at a cost of $4 billion per year.
Education. The federal education bureaucracy involves more than 788 programs in 40 different federal agencies at a cost of nearly $100 billion each year. An estimated 30 cents of every federal educational dollar is lost in overhead and never makes it to the classroom.
War on drugs. At least 70 programs across 57 different departments and agencies receive over $16 billion a year to fight illegal drug use. Among the most blatant examples of government waste and mismanagement, however, are the 19 drug "intelligence centers" dispersed among 10 departments; much of the information generated by these centers is off-limits to other agencies.
Food safety. HHS and Agriculture are among 16 different agencies that address food safety.
Statistics. Producing and publishing statistical data on the country's economic and social makeup involves 70 different agencies within 12 Cabinet departments.
There is an old adage that the closest thing to immortality is a government program. No amount of "reinventing" can turn institutions that were created to address problems the nation faced 30, 50, or even 100 years ago into agencies capable of meeting the needs of Americans in the 21st century. Examples of obsolete programs and agencies abound:
United States Geological Survey (USGS). Established in 1879 to catalogue the geology of the United States and develop an inventory of its mineral resources, the USGS epitomizes government's inability to retire programs and agencies that have satisfied their original missions. With over 60,000 maps of American lands compiled and issued, and new projects like the Internet-based "Ask a Geologist" underway, the USGS should be privatized or eliminated.
Veterans Affairs (VA) Home Loan Guarantee Program. This loan program was designed to encourage lenders to provide money to World War I and World War II veterans at more favorable terms. Today, the VA spends nearly $50 million per year to fund this program despite the fact that there is a strong secondary mortgage market which can and does provide financing for home building and buying at reasonable rates.
Rural Utilities Service (RUS). The RUS fulfilled its mission to bring electric and telephone service to rural America by the mid-1950s, yet the program continues at considerable expense to taxpayers. At a cost of $695 million in FY 1997, the RUS is expanding its mission by searching for new technologies that can be subsidized and offered to rural households.
Tennessee Valley Authority (TVA). The TVA currently receives $70 million per year in taxpayer support for non-power activities--subsidies it can do without. These activities include both economic development and an Environmental Research Center; in testimony before the House Appropriations Committee, however, TVA officials themselves admitted that neither function is essential. Moreover, Members of Congress have ridiculed the TVA repeatedly for avoiding steps to downsize and move toward a more efficient use of its resources.
Power Marketing Administrations (PMAs). Customers of PMAs have enjoyed hidden taxpayer subsidies because these government-owned utilities have been able to borrow from the federal treasury at below-market interest rates and take as long as 50 years to pay back the loans. At a cost of $241 million in FY 1997, and after nearly half a century of such subsidies, it is time for Congress to consider fully privatizing the PMAs. The GAO has stated that "privatization would benefit both consumers and the electric industry."
Strategic Petroleum Reserve (SPR). Funded at $207.5 million in FY 1997, the SPR has become an expensive yet obsolete vestige of the regulated oil markets that existed before the advent of deregulation in 1981 under President Ronald Reagan. The Congressional Research Service concludes that when SPR oil was sold during the Gulf War (the only time emergency sales had been authorized since creation of the program), "the SPR drawdown did not appear to be needed to help settle markets."
Lack of management accountability
As the bureaucracy has continued to grow larger and more complex, waste, fraud, and abuse have prospered. In 1995, the GAO reported that the waste and fraud investigators had uncovered cost $350 billion, and it cautioned that hundreds of billions of dollars more could be wasted in the future if the government did not change the way it did business and managed its programs. Specific examples include:
The National Park Service spent nearly $600,000 per home to construct rental housing for employees in Yosemite National Park. According to agency auditors, comparable private single-family homes near Yosemite range in value from $102,000 to $250,000.
More than 25 percent, or $4.4 billion worth, of Earned Income Tax Credit (EITC) claims are in "error."
Recent estimates put fraud and overpayments in the Medicare system at 14 percent of federal payments, or $23 billion each year.
The IRS spent $4 billion in recent years trying to upgrade its computer system, which led to an inability to collect or even identify and categorize delinquent debt and poor service to taxpayers seeking assistance.
When the Mashantucket Pequot Housing Authority in Ledyard, Connecticut, wanted to return $1.5 million in unused federal funds, Department of Housing and Urban Development (HUD) officials reportedly told the authority to use the money on unneeded housing rather than send it back to the Treasury Department. The Housing Authority eventually used the funds to subsidize construction of $428,000 homes for "over-income tribal members."
Each year, the U.S. government funds hundreds of programs that largely benefit businesses and private industries which could, and should, finance these activities without taxpayer assistance. In FY 1998, appropriations for such corporate welfare totaled approximately $40 billion. For example:
The Advanced Technology Program (ATP) spends $200 million per year funding commercial research and development projects. Its largest beneficiaries (either individual recipients or partners in joint ventures) include America's largest corporations. According to an MSNBC study of data provided by the ATP, the top 10 ATP recipients are:
1. IBM $111,279,738 2. General Motors $82,134,245 3. General Electric $75,449,636 4. Ford Motor $66,457,718 5. Sun Microsystems $50,113,692 6. Texas Instruments, Inc. $45,545,315 7. Sarnoff Corporation $38,270,692 8. United Technologies Corporation $37,173,594 9. National Center for Manufacturing Sciences $37,011,925 10. Philips Electronics $36,518,489The Next Generation Internet Initiative proposed by [president Clinton] would create a more reliable, secure, affordable, and rapid Internet by showering $300 million on a high-tech industry that has these same goals and does not need taxpayer assistance. In fact, Intel, Microsoft, and other high-technology companies announced in January 1998 that they will soon introduce technology allowing for speedier access to Internet sites. As is typical of such corporate welfare programs, Americans will pay for such federally subsidized Internet research twice--as taxpayers and as consumers.
The National Rail Passenger Service Corporation (Amtrak) primarily serves middle-class riders (75 percent of its passengers have annual incomes of more than $40,000) and a significant number of business travelers. In 1997, Amtrak's more than $860 million in federal dollars amounted to a $47 subsidy for every passenger, regardless of income.
Community Development Block Grants (CDBG) cost roughly $4.5 billion each year. The CDBG program is intended to help local governments fund an array of community renewal projects, such as housing rehabilitation, street maintenance, and economic development. The CBO has estimated that roughly $510 million per year of this funding benefits local businesses and industries directly.
The head of the GAO reported in 1995 that audits of federal agencies had "identified hundreds of billions of dollars in accounting errors--mistakes and omissions that can render information provided to managers and the Congress virtually useless." Most federal agencies continue to suffer from severe financial management problems. For example:
Rural Business Cooperative Service (RBCS). Although the RBCS currently holds over $1.4 billion in outstanding loans, Congress--disregarding inspector general (IG) complaints of inadequate reporting and monitoring procedures--has increased the program's funding. As a result, loans given for ineligible purposes, including funds used to renovate such things as a tavern and brewery, have gone unquestioned.
Agriculture Credit Insurance Fund (ACIF). The ACIF was created to provide housing and farm credit to individuals who were unable to qualify for credit from private sources or from the federally sponsored Farm Credit Administration. The GAO reports that from 1989 to mid-1995, the ACIF made $448 million in new loans and loan guarantees to borrowers who already had defaulted on previous loans. Not surprisingly, 42 percent of these borrowers were in default as of mid-1995.
Low-Income Housing. HUD currently spends more than $19 billion annually in rent subsidies to house low-income people. Because of poor financial data, an IG report noted that HUD pays out at least $538 million per year in excess subsidies.
And the list goes on and on. Read the entire report!
Then read Money Down the Drain.
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