Government Waste Continues

Earlier this week, I noted that some Inspectors General provide insufficient oversight of federal government activities. They should be more aggressive in uncovering waste and abuse in federal agencies.  

Nonetheless, many Inspectors General issue helpful reports that alert Congress and the public to wrongdoing. Here is a sampling of recent reports showing the widespread mishandling of federal tax dollars:

  • Internal Revenue Service (IRS): Tax fraud by incarcerated individuals amounted to $1 billion in 2012, growing from $166 million in 2007. One inmate defrauded the government of $4 million over a 10-year period.
  • Department of Homeland Security (DHS): The Inspector General for DHS issued a new report highlighting 68 ways that the agency has wasted tax dollars. The list includes a $1.5 billion cost overrun for construction of the agency’s new headquarters, FEMA’s botched handling of relief for Hurricanes Katrina and Isaac, DHS employees claiming unearned overtime, and insufficient oversight of DHS’s procurement processes.
  • Housing and Urban Development (HUD): According to HUD’s Inspector General, New York City misspent $183 million it received from the federal government to rebuild hospitals following Hurricane Sandy. The city used the funds for employee pay and benefits, which were not allowable grant expenses.
  • Drug Enforcement Agency (DEA): Over the course of 20 years, the DEA allowed an individual running a Ponzi scheme to conduct onsite investment training for employees. The trainer, Kenneth McLeod, used the seminars to solicit clients for his bond investment fund, which promised risk-free returns of 8 to 10 percent. More than half of McLeod’s 130 investors came from the DEA. The Inspector General cites DEA for numerous oversight lapses including failing to verify McLeod’s credentials.

Even with the recent politicization of some Inspector General reports, the reports can be useful to illuminate waste, mismanagement, and fraud within the federal government.

‘Justice’ à la Venezuelan

This week a Venezuelan judge indicted opposition leader María Corina Machado on flimsy charges of conspiracy to kill President Nicolás Maduro. If found guilty, she could spend up to 16 years in prison. Can she expect a fair trial from the Venezuelan judiciary?

Not at all, according to the findings of an investigation led by three Venezuelan lawyers and published in a new book, El TSJ al Servicio de la Revolución (“The Supreme Court at the Service of the Revolution”). According to their research, since 2005 Venezuela’s justice system has issued 45,474 sentences, but not once has it ruled against the government.

Machado’s fate thus depends entirely on the whims of Maduro and his entourage. The precedent of Leopoldo López, another opposition leader who has been jailed since February on charges of arson and conspiracy, does not bode well for Machado. 

CBS News Highlights Cato Study on Grand Juries

Here is a link to, “A Grand Facade: How the Grand Jury Was Captured by Government.”

Excerpt:

The prosecutor calls the shots and dominates the entire grand jury process. The prosecutor decides what matters will be investigated, what subpoenas will issue, which witnesses will testify, which witnesses will receive “immunity,” and what charges will be included in each indictment.

Because defense counsel are barred from the grand jury room and because there is no judge overseeing the process, the grand jurors naturally defer to the prosecutor since he is the most knowledgeable official on the scene. That overbearing presence explains the old saw that a competent prosecutor can “get a grand jury to indict a ham sandwich” if he is really determined to do so.

And the reverse also holds true: If a prosecutor does not want an indictment, he can secure that outcome if he is really determined to do so.

Making War on User Fees

The Highway Trust Fund hasn’t worked, says a new report from the Eno Transportation Foundation, so Congress should consider getting rid of it and funding all transportation out of general funds. In other words, the transportation system is breaking down because it has become too politicized, so we should solve the problem by making transportation even more political.

Eno (which was founded by William Phelps Eno, who is known as the “father of traffic safety”) claims this report is the result of 18 months of work by its policy experts. Despite all that work, the report’s conclusions would only make matters worse.

“The user pay principle works in theory,” says the report, “but has not worked in practice, at least as applied to federal transportation funding in the United States to date.” Actually, it worked great as long as Congress respected that principle, which it did from roughly 1956 through 1982. It only started to break down when Congress began diverting funds from highways to other programs. Then it really broke down when Congress, in its infinite wisdom, decided to spend more from the Trust Fund than it was earning from user fees. (It made the decision to spend a fixed amount each year regardless of revenues in 1998, but spending only actually exceeded revenues starting around 2008.)

Some argue that such breakdowns in the user-fee principle are inevitable when politicians get involved. This suggests that the government should get out of the way and let user fees work again. But Eno ignores that idea, and simply dismisses user fees altogether.

Eno suggests Congress has three options:

  1. Adjust spending to revenues, either by raising gas taxes or reducing spending.
  2. Fund some things out of gas taxes and some things out of general funds (which is more-or-less the status quo).
  3. Get rid of the Highway Trust Fund and just fund all transportation out of general funds.

“Any of these ideas would represent a dramatic improvement over the existing system,” says Eno, which isn’t true since the second idea is, pretty much, the existing system. But “based on our analysis, solution 3 is at least worth exploring.”

Champions at Making Promises

The White House has applauded Portland, Ore., and 15 other local governments as “climate action champions” for promising to reduce greenhouse gas emissions. Perhaps the White House should have waited to see whether any of the communities managed to meet their goals before patting them on the back.

Portland’s “modest” goal is to reduce the city and Multnomah County emissions by 80 percent from 1990 levels by 2050. Planners claim that, as of 2010, the city and county had reduced emissions by 6 percent from 1990 levels. However, this claim is full of hot air as all of the reductions are due to causes beyond planners’ control.

Almost two-thirds of the reduction was in the industrial sector, and virtually all of that was due to the closure in 2000 of an aluminum plant that once employed 520 people. The closure of that plant hasn’t led anyone to use less aluminum, so all it did was move emissions elsewhere.

Another 22 percent of the reduction was in residential emissions, and that was due solely to 2010’s “anomalously mild winter” and below-average summer temperatures, as 2009 emissions were greater than those in 1990. Only 7 percent of the reduction was in the transportation sector, for which Portland is famous. But all of that reduction was due to the recession, not the city’s climate plan, as transport-related emissions grew through 2005 and the city didn’t record a reduction until 2009. 

Portland doesn’t have many more large factories that it can put out of business to achieve its climate goals. Nor can the city count on a continued economic depression to keep people from driving or an anomalously mild climate to keep people from turning on their heat or air conditioning.

The lesson here is that cities and counties are the wrong level to try to reduce emissions of something like greenhouse gases. This is a lesson we should have learned already based on our experience with toxic pollutants such as carbon monoxide and nitrogen oxides.

Mississippi Copies Misguided Energy Subsidies

The federal government has a long history of “green energy” failures. Many states have also foolishly subsidized green energy, including Mississippi.

KiOR biofuels launched several years ago with much fanfare. The company was supposed to turn wood chips into liquid hydrocarbons for use as fuel and promised to revolutionize the energy industry. Its chief investor, Vinod Khosla, described KiOR’s refinery as “an amazing facility.”

The company benefited from a federal biofuel requirement that mandated refiners use 16 billion gallons of biofuels annually by 2022. It then sought out state subsidies. The company decided to locate in Mississippi after the state offered a $75 million, no-interest loan. In exchange, the company promised to create 1,000 jobs by December 2015.

Yet the company had financial problems that were apparent from the start. Operating costs  ran $5 to $10 a gallon. The Washington Post reports that court papers estimated KiOR’s revenue at just $2.25 million but losses of $629.3 million.  

Production issues also plagued the facility. The system that fed wood chips into the plant frequently malfunctioned. The process converted less than 40 percent of its inputs into gasoline or diesel, leading to higher costs.

The problems were too much for the company to overcome. It filed bankruptcy in November and  still owes Mississippi $69.5 million.

This loan is just one of the many types of energy subsidies that Mississippi provides to green energy companies. The state exempts some green energy manufacturers from taxes. It has provided grants and loans to multiple companies.

Tax Money Down the Drain

There are many types of federal government waste. Perhaps the most glaring is spending on projects that simply do not work. The money is spent, but taxpayers receive no benefit.

From the Washington Post:

Social Security officials have acknowledged that the agency spent nearly $300 million on a computer project that doesn’t work. The agency, however, is trying to revive it. The program is supposed to help workers process and manage claims for disability benefits.

Six years ago, the agency embarked on an aggressive plan to replace outdated computer systems overwhelmed by a growing flood of disability claims. But the project has been racked by delays and mismanagement, according to an internal report the agency commissioned.

As a wild guess, let’s say that skilled computer techs cost $150,000 a year in wages and benefits. Apparently then, about 333 of them have been paid for six years, yet have made little or no progress on this mishandled Social Security project.

Here’s a much larger taxpayer black hole, also reported in the Washington Post this week:

One of the first casualties was the Crusader artillery program, which was canceled after the Pentagon spent more than $2 billion on it. Then there was the Comanche helicopter debacle, which got the ax after $8 billion. More than twice that amount had been sunk into the Army’s Future Combat System, but that program got killed, too.

In all, between 2001 and 2011 the Defense Department spent $46 billion on at least a dozen programs—including a new version of the president’s helicopter—that never became operational, according to an analysis by the Center for Strategic and Budgetary Assessments.

Any organization will go down some wrong paths when it comes to advanced technologies, but $46 billion is a remarkable amount to have sunk into dead-end projects. Let’s say that engineers, machinists, managers, and other workers at defense firms earn an average of $200,000 a year. The $46 billion lost would be like having a small city of 23,000 such high-skill people beavering away for a decade on projects that all end up in the trash bin. I’m not an expert on procurement, but I do know that is a lot of human talent for the government to waste.