July 10, 2012 4:30PM

Government Cost‐​Cutting Leads to Cost Overruns

By Chris Edwards

The government can’t seem to do anything right! It can’t even streamline activities to cut costs without creating egregious cost overruns.

Since the late 1980s, the military has gone through a number of BRAC rounds to close excess military facilities. The BRAC process has shown that Congress can pursue spending cuts if only politicians put the effort in to make it happen.

However, the Washington Post’s Walter Pincus describes how the Pentagon has had a hard time saving money even when directed to do so by Congress:

In its latest review of the 2005 BRAC program---the largest and most complex---the GAO found that the estimated cost of $21 billion to implement the program had grown to $35 billion by Sept. 30, 2011.

… Take the consolidation of various National Geospatial-Intelligence Agency (NGA) locations at a new campus at Fort Belvoir, Va. A project that had been projected to cost $1.1 billion grew to a price tag of $2.6 billion.

… Even small BRAC projects experienced giant cost growth. …At Fort Jackson, S.C., for example, the price tag for two projects grew by more than 1,000 percent. One of them, the Single Drill Sergeant School, was supposed to cost $1.8 million. But when the Army determined that its 40-year-old facilities needed new classrooms, headquarters offices and a dining area for 250 additional students, the project’s cost grew to $27.2 million, the GAO reports.

I’ve described some of the causes of cost overruns in this essay. One of the fundamental factors that drives all kinds of federal government inefficiency is that costs are benefits to public-sector decisionmakers.

For program administrators, it always seems as though the need for services is growing, and program expansion also brings greater personal prestige.

For politicians, there is little if any downside if federal projects in their districts double or triple in cost. Indeed, cost overruns are usually a benefit to them because that means more voters in their districts will receive money from taxpayers who live elsewhere in the nation.

While decisionmakers in private markets are disciplined by the need to earn profits, there is no such mechanism in the public sector to control costs. Occasional negative stories by good reporters like Pincus may embarrass the big spenders in government, but it rarely seems to change their spendthrift ways.