Budget Cutting For Dummies...And Washington Politicians - Part 2: Government Efficiency

This is a second part of our themed week on how and why the political class needs to reign in its spending as soon as possible to avoid a financial disaster and suggest ways to accomplish the task. Yesterday's post identified anywhere from $100 billion to $140 billion worth annual savings that could be wrung out of government with relatively no pain except for corporate welfare recipients and incumbent politicans' re-election finances.

Today's focus is on making government more efficient, either by doing things better and smarter or just plain eliminating wasteful spending that benefits relatively few Americans. The basis for the following budget cuts is a comprehensive analysis jointly done by Nicole Tichon, Federal Tax And Budget Reform Advocate in the U.S. Public Interest Research Group and Andrew Moylan, Director of Government Affairs, in the National Taxpayers Union. Although I will not review all of their excellent work below, understand that it appears to be relevant, analytically sound, well researched, based on solid, underlying financial and government statistics and best of all, nonpartisan. Their recommendations cross many government functions.

Their work concentrated on four specific areas of government spending that could be reduced significantly or eliminated:

1. Ending Wasteful Subsidies - Budget savings by 2015 = $62 billion
2. Improving Contracting and Asset Acquisition - Budget savings by 2015 = $353 billion
3. Improving Program Execution and Government Operations - Budget savings by 2015 = $77 billion
4. Addressing Outdated Or Ineffective Military Programs - Budget savings by 2015 = $107 billion

Thus, over the next four years, their recommendations could save taxpayers about $600 billion or about $150 billion a year on average. Combine these results with the savings we estimated yesterday from other areas that are not included above and in just two days, we have identified about $250 billion a year in wasteful government spending, or about about $2.5 TRILLION over ten years. Compare these savings with the meager ten year savings of President Obama's budget of $1 TRILLION. And we are not even done yet.

Below are some examples from each of the four categories above that Ms. Tichon and Mr. Moylan identified for savings:

* Ending Wasteful Subsidies

- Terminate the Federal government's Overseas Private Investment Corporation (OPIC) which uses taxpayer money to subsidize the foreign operations of many large multinational corporations via financing and insurance support. This is a blatant form of corporate welfare, let these large corporations support themselves overseas and save the taxpayers $154 million by 2015.

- Eliminate the Market Access Program which uses taxpayer dollars to fund advertising and promotions for private companies that sell agricultural products overseas. Given how well the U.S. farming industry is doing, let these companies fund their own advertising and promotions overseas. Drop this corporate welfare program and save $1 billion by 2015.

- Eliminate insurance subsidies for repeatedly flooded homes through the National Flood Insurance Program. One percent of these policies represent up to 30% of all insurance claims since they are repeatedly damaged by flooding. Eliminate the subsidies for these loser properties and save $891 million by 2015.

- Eliminate the program that subsidizes deepwater natural gas and petroleum research. With oil prices rapidly galloping to over $100 a barrel, eliminate this corporate welfare program and let the oil companies themselves decide whether or not they want to fund the research, saving the taxpayer $258 million by 2015.

- Reduce funding for public timber sales since the Forest Service has spent more on Federal timber sales in recent years than it has collected from the companies that harvest the timber. Save $279 million by 2015.

* Improving Contracting And Asset Acquisition

- If the government implemented the reforms of the bipartisan Defense Acquisition Panel which was passed last year by Congress in an attempt to address Department Of Defense acquisition processes, taxpayer savings by 2015 would be $135 billion.

- A recent audit by the Defense Contract Audit Agency found 32 existing Homeland Security contracts, collectively worth $34.3 billion, that have been plagued by waste, abuse, and/or mismanagement. Eliminate these poorly performing contracts and bank the $34.3 billion.

- The Government Accountability Office (GAO) investigated armed forces purchasing and inventory processes and results and found that our armed forces continually purchase  products that are never used, never required, or are obsolete. Fix these purchasing problems, as identified by the GAO, and save $184.5 billion by 2015.

* Improve Program Execution and Government Operations

- Sell off 25% of the 55,500 buildings that the Federal government owns that are vacant or are underutilized, according to the Office of Management and Budget, netting the taxpayer $24 billion by 2015.

- According to the Congressional Budget Office (CBO), if Medicare better aligned its payments to cover actual costs for its graduate medical education program, the taxpayer would save over $20 billion by 2015.

- According to the GAO, the Federal government wastes large amounts of money through the Housing and Urban Development's programs due to a variety of overpayment errors. If corrected, the government would save more than $4.5 billion by 2015.

- The Troubled Asset Relief Program still has an unspent amount of $15 billion on its books. Given that the banks are much healthier and the economy is much healthier, return that money to the taxpayers and save $15 billion immediately.

- The GAO has investigated and concluded that the National Drug Intelligence Center's functions are  duplicative and its scandals numerous. Terminate the program and save $223 million by 2015.

* End Wasteful or Outdated Military Programs and Systems

- Cancel the production of the overly expensive and under performing V-22 Osprey aircraft and save over $6 billion by 2015.

- According to the Sustainable Defense Task Force, the "F-35 Lightning may represent all that is wrong with our acquisition process." It is overly expensive, has serious cost overrun problems, and "would provide a capability that is not warranted, considering emerging threats." Drop the program and save $22.5 billion by 2015.

- Terminate spending for high risk satellites and replace them with low-cost alternatives since the Defense Department has already determined that ground based radars "not only provide a viable alternative to a space based system but also provide this capability at significantly lower risk and costs." Drop the expensive system, go with the less costly and less risky alternative and bank the $5 billion in savings by 2015.

- Align or right size the nation's nuclear arsenal and save $56.75 billion by 2015.

- Eliminate the outdated, unreliable, and unneeded Expeditionary Fighting Vehicle which even the Secretary of Defense does not need or want. Savings would exceed $16 billion by 2015.

Thus, these judicial and intelligent budget cuts are similar to yesterday's cuts since:

• No animals were killed or harmed in the development of the budget cut list.
• No Americans went hungrier, sicker, or poorer as a result of any of the identified cuts.
• Corporate welfare was cut back, personal welfare or aid to the poor was unaffected.
• Americans' freedom was unaffected but the freedom of politicians to use taxpayer money to fund their re-election campaigns via earmarks, defense contractor and lobbyist donations, and corporate welfare donations was negatively affected.

This is an outstanding piece of analytical work from these two Americans, each of them representing two different views of the world. The U.S. Public Interest Research Group usually comes at the world from a left leaning, Democratic party perspective while the National Taxpayers Union usually comes at the world from a right leaning, Republican party perspective.

However, on this issue they come to the same conclusion: "Our nation faces unprecedented fiscal challenges, as the commitments we've made now and into the future far outpace our fiscal capacity.... It will be critical to reach out across party lines and across ideological persuasions to achieve common-sense reforms that bring us closer to balance."

Now look at their statement relative to the petty actions and petty politics that the Washington political class have engaged in relative to this grave problem. Pretty pathetic performance from our politicians' perspective. It does not appear that they appreciate the "unprecedented fiscal challenges" the nation faces with their meager and petty attempts at budget reform. 

A typical, non-political American found over $100 billion in annual budget cuts yesterday and these two smart people, Ms. Tichon and Mr. Moylan, from two widely different perspectives, have found about $600 billion in budget cuts within just a very small sample of government operations. It is not that difficult... any dummy can do it. Well, most any dummy.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment

State Governments: Immobile, Going Broke But High On Wine

Before I get into today's post, I want to take a minute to thank all of our veterans, both retired and active, for their unselfish service to our country. They are truly American heroes. Veteran's Day makes me think of my dad who served in World War II in the European Theater. Thankfully, he made his way safely across Europe and was one of the lucky veterans who got to come home. He never really talked or boasted about his experiences, just went about building a good life for his family. I believe he is like the vast majority of other veterans: proud to be an American, quiet about their sacrifices, respectful of other Americans, and very courageous. Thank you.

Let's talk about many of our state governments, specifically on how many of them are heading towards insolvency as a result of their state employee pension and retiree medical liabilities. Consider an article from the October 18, 2010 issue of Businessweek magazine:

• According to a study by the University of Rochester and Northwestern University, there could up to as much as $3 TRILLION in unfunded state workers' retirement liabilities. This comes out to about $26,000 worth of debt burden for every family in America.
• One reason for the problem is that state governments have historically been very generous with the way they funded the retirement plans of their state employees. According to the U.S. Labor Department, state and local governments paid $3.04 per hour toward each state employee's retirement in 2007 compared to $.92 that private companies paid for their employees.
• The median state government pension plan had only 76% of its obligations covered as of this summer.
• Six cities, Boston, Chicago, Philadelphia, Cincinnati, Jacksonville, and St. Paul Minnesota, will run out of pension money by 2020 if nothing changes.
• Other state government programs, such as drug treatment centers and after school activities, are being starved for funds and curtailed in an attempt to meet these huge retirement obligations.

Now consider some individual state situations:

• According to a recent online article by the Washington Examiner, the state government of Maryland has $33 billion in unfunded pension liabilities.
• According to the online website, www.stateline.org, West Virgina has a $7.4 billion shortfall in its state government retiree health care system.
• According to the Houston Chronicle, the Texas state government has a $38.5 billion shortfall in its retiree fund.
• According to an online National Review article, the state of Ohio would have to dedicate 100% of its the next 8.75 years of its revenue stream to fulfill the current state government employee retirement liabilities, excluding any future liabilities. Obviously, if this was theoretically to happen, all other state funding would bet set to zero for almost nine years, i.e. no teachers, no state police, no roadwork, etc.
• Virgina recently closed a $4 billion shortfall in its operating budget partly do to the fact that it did not pay the required $620 million into its state employee retirement fund, raising the possibility of a larger shortfall for the funding down the road.

Why did I single out those five states? It ties into another article I recently came across in the October 25, 2010 issue of Businessweek titled: "Pouring Government Money Into Merlot and Chardonnay." Apparently, despite possibly being $3 TRILLION in the hole just for state government employee pension benefits, all fifty state governments have some kind of program of giving state taxpayer money to in state wineries. The article points out the following examples:

• The state of Maryland, despite a $33 billion shortfall, has paid out over $80,000 to six in-state wineries to both plant more vines and expand production capacity. Knob Hall Winery received $8,000 from the state to plant 4,000 vines. The winery has lost money every year since it opened in 2006 and will be unprofitable again this year. Thus, the state of Maryland is not even funding a profitable private endeavor.
• The state of Texas, despite a $38.5 billion shortfall, allocates $2.3 million a year of taxpayer money for wine research, marketing, and grants, nine times what it allocated in 2005. Thus, as the economy got worse, more taxpayer money went into the in-state wine business.
• The state of Ohio, despite swimming in red ink caused by its out of control retiree liabilities, spent more than $1.1 million in subsidizing its state wineries last year, up 38% from the previous year.
• The state of Virginia, despite a multi-billion dollar budget shortfall, dedicates $1.3 million of its budget to support its state wineries.
• Although the West Virginia state government winery support dollars are not in the article, consider the financial status of the Forks of Cheat Winery in West Virginia. The winery is 22 years old and has yet to turn a profit. Wonder how many West Virginia taxpayer dollars are going to support this long time unprofitable operation?
• According to a spokesperson from the American Sommelier Association, it usually takes over two decades, if then, for a new winery to become profitable.

My goodness. As a result of their outsized retiree pension liabilities, the states are rapidly facing bankruptcy, find themselves cutting other vital human services in order to pay for these retiree programs, but somehow think it is a good idea to subsidize unprofitable private businesses. How many drug treatment centers could be kept open in Texas if it diverted that $2.3 million winery subsidy? How many more teachers could Ohio keep on the payroll if they diverted the $1.3 million they spend?

And it is not just the states. According to the article, the Federal government, the government level with over $13 TRILLION worth of debt, will spend $500,000 of Federal taxpayer money just to help Virgina wineries, it will spend $40,000 to encourage alternative vine growing strategies in Idaho, and will spend $9,000 to improve highway access to wineries in Colorado.

Obviously, stopping all winery subsidies will not cure the states' pension program problems and will not balance the Federal budget. However, these subsides are no more than examples of corporate welfare and should not be a responsibility or priority of any government entity, there are just too many problems, both financial and human, that need to be addressed with limited funds. How many other industries in each state and throughout the country receive taxpayer dollars? Add up all of those subsidies and you are probably talking about some serious dollars.

If a winery cannot be profitable on its own, it is not the state's duty to keep it alive. In doing so, other vital financial needs go unmet. This is the concept that New York Times columnist David Brooks talked about several weeks ago, our "immobile government." Government in America today has become so burdened down with bad priorities, poorly structured, poorly negotiated, and poorly financed retirement plans for state workers and corporate subsidies for failing businesses such as wineries to discuss a few, that vital services, services that could positively and materially affect regular individual citizens, go wanting. Drug treatment centers, school funding, infrastructure improvements, etc. cannot be done because the political class has done such a poor job of immobilizing government at every level with bad and burdensome priorities.

At least at the Federal level, Step 44 from "Love My Country, Loathe My Government" needs to be implemented to get this corporate welfare waste under control. That step would not allow any taxpayer dollars to be spent on any program unless it materially affected a substantial amount of citizens in at least five states. If Colorado wants to build a road to its wineries, it should do it without Federal spending.

The question of whether state governments and the Federal government will be able to fix its financial status and shake off the bondage of immobile government, is the greatest challenge facing the country today. I can only hope that the politicians can find the courage, respect, and knowledge to fix these dire problems. We can pay no higher respect to the sacrifices all of our veterans have made than to fix the country they so bravely defended so many times and restore the freedom that immobile government steals away.

Our recent book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.



Please visit the following sites for freedom:


http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/