Tag: federal spending

The States Are Already Getting Bailed Out

In today’s Wall Street Journal, Sen. Jim DeMint (R-SC) and Rep. Kevin Brady (R-TX) advise the states to get their fiscal houses in order instead of holding out hope for a bailout from federal taxpayers. That’s sound advice. However, the states already effectively get bailed out by federal taxpayers each and every year.

The first chart shows that the federal government has accounted for over a third of total state spending in recent years. The increase can be attributed to federal “stimulus” spending. The federal government’s share will retreat as the economy (hopefully) continues to strengthen and federal policymakers limit spending increases in the face of mounting debt. However, getting the federal government’s share of total state spending back to, say, 30 percent would be nothing to celebrate.

The post-stimulus decrease in Washington’s generosity to the states has state and local officials—and the special interests that ultimately benefit from the Beltway-to-State money laundering operation—concerned. Reporters typically relay these concerns to the public without adding any historical context. The following chart provides that context, and it indicates that the concern shouldn’t be that the states won’t be getting as much money; rather, the concern should be that the states have become dangerously reliant on federal money.

So here’s another suggestion for state and local officials. If you want to spend more money than Washington will give you, go out and tell your taxpayers that you want to increase their taxes to pay for it.

[See this Cato essay for more on why the federal government should cut aid to the states.]

New Paper Argues for Immediate, Practical Cuts in Military Spending

A new report published today by the Project on Defense Alternatives  argues for $17-$20 billion in immediate savings to the Fiscal Year 2013 defense budget. I co-authored the report along with Benjamin Friedman of Cato, and PDA’s Carl Conetta, Charles Knight, and Ethan Rosenkranz. Those savings come from 18 line items—personnel, weapons systems, and programs—that could be implemented quickly. Adjustments to U.S. national security strategy are not a prerequisite for these options, which are relatively low-hanging fruit.

The 2013 defense authorization bill will move to the House floor this week. Many members are expected to offer amendments, some allowing savings in the defense budget. During the debates that are about to ensue„ it is important to keep in mind just how large the defense budget has become. As our paper notes, the national defense base budget constitutes 52 percent of discretionary spending, separate from the war account. Since 2000, it has risen by 90 percent in nominal terms and 42 percent in real terms. If Washington is serious about addressing the nation’s massive fiscal challenge, many programs will have to be cut or reformed. The Pentagon should not be expected to bear all of the costs; other departments and agencies will also have to contribute. But there has not yet been a significant decline in the Pentagon’s base budget, contrary to what some have claimed.

The Budget Control Act (BCA) of 2011 places an initial discretionary spending cap on National Defense for 2013 at $546 billion. Both President Obama’s request, and the House Republican’s budget exceed the BCA caps. In addition, the BCA requires $110 billion in spending cuts in January 2013 via sequestration, half of which need to come from DoD. Neither the White House nor Congress plans for that to occur; both sides hope to amend the law and achieve equal deficit reductions by other means. As it currently stands, though they disagree on how. Republicans want to cut other spending, Democrats to raise taxes. The options outlined in our paper could facilitate these negotiations, by revealing savings in the DoD budget that will not damage our national security.

The savings options in the report focus on reducing or curtailing:

  •  Assets and capabilities that mismatch or substantially exceed current and emerging military challenges;
  • Assets and capabilities for which more cost-effective alternatives exist;
  • Investments that are tied to the past, reflecting bureaucratic inertia or individual’s service interests, rather than current collective defense needs;
  • Acquisition programs that exhibit serious, persistent cost overruns, while failing to deliver  promised capability, and
  • Acquisition programs that are based on immature or unproven technologies.

Further savings are possible if we rethink our strategy, missions, and national security commitments. Ben Friedman and I have long argued this point. Until then, the options presented in “Defense Sense” are limited in scope in an effort to pave the way toward responsibly balancing national security ends, ways, and means.

Although I encourage everyone to look at the report, here are just five of the 18 cuts that policymakers should immediately consider:

  • Military personnel in Europe: Remove additional 10,000 military personnel by end of FY 2013; save $100 million in FY 2013 and $188 million per year once complete
  • Active-component military personnel: Reduce end-strength by an additional 10,000 personnel; save $400 million in FY 2013 and $860 million recurring annual savings once complete
  • Missile Defense: Focus on procurement and end-stage development on systems with proven, reliable, cost-effective capability (see report for details); save $2.5 billion in FY 2013
  • F-35 Joint Strike Fighter: Cancel USMC variant; buy equivalent numbers F/A-18 E/F; save $1.8 billion in FY 2013
  • Littoral Combat Ship (LCS): End procurement at 10 and seek alternative; save $2 billion in FY 2013

Cross-posted from the Skeptics at the National Interest.

Ex-Im Reauthorization Vote Expected Tomorrow

House legislators have reached a “compromise” deal to reauthorize the Export-Import Bank of the United States until 2014 and at an increased funding level ($120 billion, with a possible increase to $140 billion). The compromise builds on a bill crafted by Rep. Eric Cantor (R-VA) I blogged about in March, but seems to largely be a win for the pro-bank folks judging by the increased funding levels, with the “compromise” part being not much more than pathetic sops to those concerned about the bank’s mission, if not its very existence.

Inside U.S. Trade [$] has more details:

House Republican and Democratic leaders late last week announced that they had a reached a compromise deal to reauthorize the Export-Import Bank through fiscal year 2014 and immediately raise its lending cap to $120 billion, with the possibility of further increases to $140 billion during that period if default rates are kept low and other conditions are met. The House expects to consider the bill on Wednesday (May 9) under suspension of rules, a House GOP aide said.

The bill contains a longer reauthorization, and a higher lending cap, than what was included in an initial draft bill floated by Rep. Eric Cantor (R-VA) in March. That draft bill would have renewed the bank’s charter only through June 2013, and would have raised the lending cap to $113 billion, up from the current level of $100 billion.

At the same time, the compromise bill reflects some of the demands of Cantor and other Republicans who are wary of reauthorizing the activities of a bank they say puts taxpayer money at risk and distorts the free market.

For instance, it conditions further increases in the lending cap, to $140 billion for fiscal year 2014, on the bank maintaining a default rate on outstanding loans that is below two percent and submitting other required reports. It also includes language from Cantor’s draft instructing the president to enter into negotiations with other countries to substantially reduce official export financing in general and for aircraft in particular, with the goal of ultimately eliminating such financing altogether.

Under suspension of rules, which is a procedure typically reserved for non-controversial legislation, debate is limited to 40 minutes and the bill must garner a two-thirds majority to pass.

The article goes on to describe all of the ostensible brakes that the Republican leadership have insisted placing on Ex-Im, but they really amount to the usual Washington ways of pretending they are implementing real reform: calls for the bank to issue business plans, address GAO concerns, be more transparent, etc. Nothing, unfortunately, about changing the accounting rules under which the bank operates let alone setting a path to winding down the bank altogether.

In short, the “compromise” is just fiddling while Washington is awash in red ink, and the federal government encroaches more and more into what should be private markets.

Sometimes, Governments Lie (6th Anniversary Ed.)

(This blog post first appeared at Cato@Liberty following the release of the 2006 Medicare and Social Security trustees’ reports. I repost it, with updated links and “exhaustion dates” because sadly nothing else has changed.)

Sometimes, Governments Lie

Year after year, federal officials speak of the Social Security and Medicare trust funds as if they were real.  Yesterday Today, the government announced that the Social Security trust fund will be exhausted in 2040 2033 and that the Medicare hospital insurance trust fund will be exhausted in 2018 2024— projections that the media dutifully reported.

But those dates are meaningless, because there are no assets for these “trust funds” to exhaust.  The Bush administration wrote in its FY2007 budget proposal:

These balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. These funds…are not assets…that can be drawn down in the future to fund benefits…When trust fund holdings are redeemed to pay benefits, Treasury will have to finance the expenditure in the same way as any other Federal expenditure: out of current receipts, by borrowing from the public, or by reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits.

This is similar to language in the Clinton administration’s FY2000 budget, which noted that the size of the trust fund “does not…have any impact on the Government’s ability to pay benefits” (emphasis added).

I offer the following proposition:

If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying.

If that’s the case, then these annual trustees reports constitute an institutionalized, ritualistic lie.  Also ritualistic is the media’s uncritical repetition of the lie.

General Services Administration: Let the Taxpayers Eat Cake

The head of the General Services Administration, which is the federal government’s procurement and property manager, has resigned in the wake of a report from the agency’s inspector general that uncovered extravagant spending at a GSA “training conference” in Las Vegas.

Here’s the Washington Post’s summary of festivities:

Among the “excessive, wasteful and in some cases impermissible” spending the inspector general documented: $5,600 for three semi-private catered in-room parties and $44 per person daily breakfasts; $75,000 for a “team-building” exercise — the goal was to build a bicycle; $146,000 on catered food and drinks; and $6,325 on commemorative coins in velvet boxes to reward all participants for their work on stimulus projects. The $31,208 “networking” reception featured a $19-per-person artisanal cheese display and $7,000 of sushi. At the conference’s closing-night dinner, employees received “yearbooks” with their pictures, at a cost of $8,130.

Politicians from both sides of the aisle have been quick to express their outrage. In particular, Republicans are anxious to paint the affair as emblematic of the Obama administration’s fiscal profligacy. Perhaps it is. However, the scandalous abuse of taxpayer money by the GSA isn’t a partisan issue. First, Martha Johnson is the second GSA chief to resign in the last four years. George W. Bush’s GSA chief Lurita Doan resigned in 2008 after a “tumultuous tenure in which she was accused of trying to award work to a friend and misusing her authority for political ends.” Second, bureaucrats have been wasting taxpayer money on conferences for years under the watch of both parties. For example, Sen. Tom Coburn (R-OK) released a report in 2008 that found that federal agencies had spent over $2 billion on conferences from 2000-2006.

As the politicians trip over one another to make empty promises to end such abuses, keep in mind that Bureaucrats Gone Wild is what you’re going to get when you give human beings the ability to spend gobs of other people’s money. The only sure way to stop government employees from wasting money is to stop giving them money in the first place, which means getting rid of the agencies that employ them. For the GSA, that means downsizing the federal government and thus reducing the need for its procurement and property services.