MyGovCost News & Blog

The High Cost of Government Not Paying Debts

Thursday June 29th, 2017   •   Posted by Craig Eyermann at 6:19am PDT   •  

37867592 - surprised woman shocked to see the bill As Illinois’ debt doomsday clock keeps ticking down to July 1, 2017, where in the absence of the state legislature passing a budget that can be approved by the state’s governor, the state government will almost certainly have its credit rating cut to junk status as it will also stop paying contractors to work on road projects throughout the state, it is important to consider what is going on in the U.S. territory of Puerto Rico, which has not only had its credit rating cut to below junk status, it is currently going through the state government-equivalent of bankruptcy proceedings for restructuring its debts.

Writing in Investor’s Business Daily, Illinois resident Ike Brannon describes how the actions being taken by the U.S. territory’s political leaders are directly and negatively impacting Illinois’ own dismal fiscal situation.

Puerto Rico is currently $73 billion in debt, which is close to 100% of the island’s annual output. It owes a sizeable portion of this to the island’s current and future pensioners: Puerto Rico’s pension fund is woefully underfunded. It also owes billions to general obligation bondholders—whose investments are guaranteed by the island’s constitution—and to COFINA (also known as Puerto Rico Sales Tax Financing Corp.) bondholders, who hold debt explicitly backed by sales-tax revenues.

The government wants to greatly reduce its payments to these creditors—and others—in order to avoid further spending reductions and to minimize necessary reductions in pension benefits, among other priorities. While such actions may appear to be a reasonable and fair outcome, the reality is that setting aside established law and precedent has long-term ramifications that go beyond Puerto Rico.

This is problematic because there are numerous other states—my home state of Illinois comes to mind—that are also in dire financial straits. The Prairie State has been effectively running a deficit for at least a decade and is burdened by a public pension that will likely go bust the next time there is a recession.

Illinois also has taken a page out of the Puerto Rico playbook by beginning to demonize its bondholders as greedy investment bankers profiting off the misery of others.

While such rhetoric plays well with the voters—and that is to whom Puerto Rico’s new governor, Ricardo Rossello, is clearly playing—it makes escaping the island’s financial predicaments more problematic. Once the Puerto Rican government and its oversight committee reach some sort of arrangement for moving the island forward, it will need to re-engage with capital markets to borrow money—whether it be for capital improvements, short-term credit arrangements, or something else.

If Puerto Rico spends the next year denigrating its lenders and trying to break contracts, few investors will want to take a chance lending money to the island again. Put simply, the market cannot credibly believe future repayment promises no matter what steps Puerto Rico takes—at least not until it returns to economic expansion and solvency.

What’s more, if Puerto Rico successfully breaks these covenants, municipal bondholders in Illinois—and elsewhere—are going to perceive that their investments now contain much more risk than they had previously perceived, and will demand a higher interest rate to take it.

In short, Puerto Rico’s shenanigans may hasten Illinois’ insolvency.

The key to regaining solvency is to reverse the overspending commitments of politicians that created the debt problems for each in the first place.

You would think that politicians everywhere would be anxious to send the message to the bad actors among their numbers to stop the bad behavior that is only hurting their ambitions. But that’s the problem of being in the business of taxing the money made by the people who earned it and wastefully spending it to advance their political agendas – they just don’t feel the pain until it is far too late. And when they do, the politicians waste everybody’s time in slurring the people who were willing to keep them afloat in good faith and by demanding that responsible taxpayers bail them out for their avoidable predicaments.

The very least that they could do is not act surprised when the bills for their bad behavior come due.

CalPERS Court Loss a Big Hit on Taxpayers

Wednesday June 28th, 2017   •   Posted by K. Lloyd Billingsley at 9:23am PDT   •  

The U.S. Supreme Court has dismissed a lawsuit by California’s public employee retirement system against investment banks that supposedly “duped” them into buying some $700 million of stock. CalPERS, the nation’s largest pension trust fund, could have joined a class-action with others but declined to do so. Then CalPERS missed the three-year statute of limitations to file its own suit and the Supreme Court voted 5-4 to toss the case. News reports said the loss would cost “California government retirees” tens of millions. In reality, government retirees will continue to receive their generous pensions while taxpayers ultimately pick up the tab for the losses of $300 million. CalPERS unfunded liabilities have increased 383 percent in ten years and last year CalPERS was some $100 billion short of fully funding its pension obligations.

CalPERS is obviously mismanaged and also corrupt. As we noted, Fred Buenrostro bagged a salary of $238,992 as chief executive of CalPERS from 2002 to 2008. He also took more than $250,000 in bribes from Alfred Villalobos, a former CalPERS board member, to steer the pension fund’s investments to the clients he represented. Last year Buenrostro was sentenced to four and a half years in prison, but he will still draw his CalPERS pension of nearly $12,000 a month, a full $141,228 a year before taxes. The recent loss of $300 million won’t hurt him because taxpayers will be picking up the tab for that, along with the massive unfunded liabilities. Taxpayers can be forgiven for believing that CalPERS corruption and mismanagement will continue unabated.

Uncle Jerry Wants Your Magazine

Monday June 26th, 2017   •   Posted by K. Lloyd Billingsley at 10:10am PDT   •  

The July 4 holiday is just around the corner but Californians might want to mark their calendar for July 1 because on that day they could become lawbreakers. Last year, the legislature passed gun laws, approved by governor Jerry Brown, that require Californians, by July 1, to get rid of any rifle or pistol magazine holding more than 10 rounds of ammunition. As Shasta County Sheriff Tom Bosenko told reporters, “We’re essentially making law-abiding citizens into criminals with this new law.” Those who fail to turn in their magazines could face jail time and those who do surrender the magazines receive no compensation for their property. Bosenko explained that he would not be going door to door demanding that citizens surrender their magazines, but Californians have good cause to remain wary.

As we noted, on July 1 the UC Davis Firearms Violence Research Center gets its first $5 million from the state. Supposedly a scientific enterprise, the Center’s first project, according to director Garen Wintemute, will be “a survey that looks at who owns guns, why they own them, and how they use firearms.” They want “the names,” of the gun owners, and this is troubling. Some types of firearms are more easily fitted with high-capacity magazines, the popular AR-15 for example. Since guns are registered, state officials could easily track down the owners and come knocking to see if they still have any magazines holding more than 10 rounds. After all, California’s attorney general Earl Warren strongly supported the internment of American citizens of Japanese ancestry. So for the Golden State, jailing people for keeping the magazines they lawfully purchased should not be a problem.

Gun-control politicians fancy themselves as compassionate progressives but their approach recalls the highly restrictive policies of National Socialist Germany. In Gun Control in the Third Reich: Disarming the Jews and “Enemies of the State” author Stephen P. Halbrook compiled data on the way Adolph Hitler’s regime restricted firearms. The Nazis also wanted to know “who owns guns” and used registration records of the Wiemar Republic to suppress firearm ownership by disfavored groups.

Accountability Finally Arrives at the VA

Monday June 26th, 2017   •   Posted by Craig Eyermann at 6:33am PDT   •  

30365766 - accountability word under a magnifying glass looking for someone to take responsibility, credit or blame Last Friday, President Trump signed the VA Accountability and Whistleblower Protection Act into law, which promises to finally make it easier for the Department of Veterans Affairs senior leadership to remove supervisors and employees who have engaged in misconduct from their jobs, while also better protecting the employees who make misconduct at the VA known to the public.

The Associated Press‘ Darlene Superville and Jonathan Lemire report on the President’s comments at the signing ceremony:

“Our veterans have fulfilled their duty to our nation and now we must fulfill our duty to them,” Trump said during a White House ceremony. “To every veteran who is here with us today, I just want to say two very simple words: Thank you.”

Trump repeatedly promised during the election campaign to dismiss VA workers “who let our veterans down,” and he cast Friday’s bill signing as fulfillment of that promise.

“What happened was a national disgrace and yet some of the employees involved in these scandals remained on the payrolls,” Trump said. “Outdated laws kept the government from holding those who failed our veterans accountable. Today we are finally changing those laws.”

What made the event more remarkable was a bit of play-acting between President Trump and VA secretary David Shulkin. The Washington Post covered that angle of the event depicting what would happen if the VA secretary failed to uphold the new law by allowing VA employees who have engaged in misconduct to remain on its payroll.

President Trump on Friday pantomimed killing off his veterans affairs secretary should he fail to successfully implement new reforms at the long-plagued Department of Veterans Affairs.

At a ceremony in the East Room of the White House where he signed the VA Accountability and Whistleblower Protection Act, Trump said, “I have no doubt it will be properly implemented.”

Turning to VA Secretary David Shulkin, who stood on stage to Trump’s right, the president said, “Right, David?”

“Absolutely,” Shulkin replied.

Smiling, Trump responded, “Better be, David, or ...” He then made a pistol with his right hand, aimed it at Shulkin and mouthed his signature words: “You’re fired!”

The audience of administration officials, lawmakers and veterans and their families laughed at the president’s joke.

The seemingly never-ending series of scandals emanating from the Department of Veterans Affairs and the feckless actions of former President Obama in addressing them are major reasons why the VA Accountability Act passed the U.S. Congress with a strong bipartisan majority. We can only hope that the passage of the law to impose greater accountability at the VA is finally the beginning of the end of the department’s ongoing scandals.

California Expands Travel Ban Inequality

Friday June 23rd, 2017   •   Posted by K. Lloyd Billingsley at 1:07pm PDT   •  

California has added Texas, Alabama, Kentucky and South Dakota to its travel ban. State attorney general Xavier Becerra made the announcement accompanied by representatives from the ACLU and Equality California, which apparently fancy themselves part of government. California’s AB1887, enacted last year, purports to ban state employees from travelling to states perceived to discriminate “on the basis of sexual orientation, gender identity, or gender expression.” As Becerra explained, “We will not spend taxpayer dollars in states that discriminate.” Actually, the state will.

The travel ban, conveniently enough, does not apply to law enforcement officers, tax auditors and certain training events that are required to gain grants. California also allowed UCLA to participate in NCAA tournament basketball games in Memphis, Tennessee, a state on the ban list along with Kansas, Mississippi, and North Carolina. Lots of money was spent in Tennessee, and gained there by way of television rights and such. The inclusion of Texas, however, brought an interesting fact to light.

California’s Board of Equalization, a tax agency that does not equalize anything, maintains offices in Chicago, New York, and Houston, Texas. As we noted, the BOE is a corrupt, wasteful body that misallocates public funds, stages useless events, and dishes out raises to high-salaried staff without performance reviews. BOE bosses are also fond of spending taxpayer dollars to promote themselves, and the shabbily constructed BOE headquarters in Sacramento remains a safety threat and bottomless money pit. Recent attempts at reform simply move thousands of BOE employees to a new revenue department reporting to the governor.

By all indications, California government will continue to spend taxpayer dollars in Texas. With so many exemptions, the state travel ban is not exactly a model of equal treatment under the law. The state’s embattled taxpayers could not be blamed for seeing the ban as a power play, an intrusion into the affairs of other states, and a matter of posturing.

California High-Speed Rail Rides No-Bid Gravy Train

Thursday June 22nd, 2017   •   Posted by K. Lloyd Billingsley at 9:42am PDT   •  

California’s vaunted bullet train has yet to carry a single passenger but it has managed to make the news. As it turns out, the state’s High-Speed Rail Authority offered a contract extension of $3 million on a noncompetitive basis. In other words, it was a no-bid sweetheart deal. That emerged in a new report from California’s state auditor Elaine Howle, who finds that the state’s General Services and Technology departments “did not provide adequate oversight of the billions of dollars state agencies awarded through noncompetitive contracts from fiscal years 2011–12 through 2015–16.” The 27 noncompetitive deals the auditor reviewed “could have been avoided if the agencies had engaged in sufficient planning.” Likewise, “both General Services and Technology have enforcement mechanisms, they rarely employed them, allowing agencies to continue inappropriately using noncompetitive requests.” Taxpayers should not be surprised that the vaunted “bullet-train” is on this track.

As we noted, it was pitched as a swift route from Los Angeles to the Bay Area, but construction began way out by Fresno, not exactly on the route. The land the rail project needs remains in the hands of the rightful owners, and the first 118 miles could cost $3.6 billion more than expected. The Federal Railroad Administration has already forked over grants of $3.5 billion for that very segment, supposedly the easiest. Other parts would require the most elaborate tunneling project in U.S. history, certain to incur massive cost overruns.

Few Californians are panting for an essentially 19th century form of transportation that was slower and more expensive than air travel. California’s high-speed rail project is best viewed as a bait-and-switch ploy to get state voters to finance local transit projects they otherwise would not support. The state’s High Speed Rail Authority has no experience building anything, but has managed to establish, count ‘em, four offices, a Sacramento headquarters and three regional offices. Commuters can’t ride those, but the Authority works well as a comfy sinecure for ruling-class retreads like board member Lynn Schenk, a former congresswoman and chief of staff for governor Gray Davis. As we noted, a convicted embezzler also found work with the rail authority, so criminals are also all aboard.

Taxpayers should not be surprised that this bloated, useless outfit should hand out $3 million in a no-bid deal to favored insiders. And according to High-Speed Rail’s new business plan, the total cost for the project will now be $98 billion.

Illinois Comptroller Tells Governor: “The State Can No Longer Function”

Thursday June 22nd, 2017   •   Posted by Craig Eyermann at 6:21am PDT   •  

12071081 - poor man showing empty pockets in front of american state of illinois flag Illinois’ fiscal situation is getting worse. ZeroHedge summarizes the state’s rapidly deteriorating predicament:

With just 10 days to go until Illinois enters its third year without a budget, resulting in the state’s imminent downgrade to junk status and potentially culminating in a default for the state whose unpaid bills now surpass $15 billion, Democratic Illinois Comptroller Susana Mendoza issued a warning to Illinois Gov. Rauner and other elected officials on Tuesday, saying in a letter that her office has “very serious concerns” it may no longer be able to guarantee “timely and predictable payments” for some core services.

In the letter posted on her website, Mendoza who over the weekend warned that Illinois is “in massive crisis mode” and that “this is not a false alarm” said the state is “effectively hemorrhaging money” due to various court orders and laws that have left government spending roughly $600 million more a month than it’s taking in. Mendoza said her office will continue to make debt payments as required, but indicated that services most likely to be affected include long-term care, hospice and supportive living centers for seniors. She added that managed care organizations that serve Medicaid recipients are owed more than $2.8 billion in overdue bills as of June 15.

“The state can no longer function without a responsible and complete budget without severely impacting our core obligations and decimating services to the state’s most in-need citizens,” Mendoza wrote. “We must put our fiscal house in order. It is already too late. Action is needed now.”

A combination of the state legislature’s failure to produce a budget during the last three years, court-ordered spending, and most significantly, spectacularly underfunded state government employee pension funds, where Illinois’ former state employees benefit payments are almost uniquely protected from ever being reduced by the state’s highest law.

Some states (seven) have a constitutional provision that specifically states that public pension plans create a contract between the state and participant (employee) although the protections vary state-to-state. Michigan, for example, has a constitutional provision that protects benefits accrued to date while Illinois’ constitution says accrued and future retirement benefits are protected. These kinds of specific protections make it impossible (barring extreme circumstances) to change an employee’s retirement benefit. This rigidity is why unfunded pension liabilities in these states (Illinois in particular) are so alarming – because the law essentially prohibits the legislature to making any changes that could decrease that liability. The law only allows for changes to future employees, whose benefits are of course not included in that unfunded liability.

In other words, Illinois’ dismal fiscal state was entirely created by its elected officials and the people on the state government’s payroll, whose long-running abuse of power to put themselves ahead of everyone else in the state has been enshrined in the state’s constitution.

No wonder the state can no longer function. The only remaining question is how did it take the state so long to get to this point?

U.S. Forest Service Can’t Cut It

Wednesday June 21st, 2017   •   Posted by K. Lloyd Billingsley at 8:15am PDT   •  

“Budget cuts threaten forests’ roads, hunting, fishing,” headlines the piece by McClatchy reporter Anshu Siripurapu. Trails “could get messier,” and maintenance on bridges, dams and recreation sites “could” become tougher. “That’s the potential fate of national forest projects, thanks to President Donald Trump’s proposed budget for fiscal 2018,” Siripurapu warns. The president seeks $100 million for forest service capital improvement and maintenance, down from $363 million and “a 73 percent cut.” Actually it isn’t, and we are not talking about trees here. The U.S. Forest Service is a federal bureaucracy and if it gets less money than bosses want, strictly speaking, that is not a cut. Likewise, as we noted, if a politician gets a raise of 4 percent instead of 6 percent, that is not a salary “reduction.” For all his alarm, Mr. Siripurapu nowhere questions whether the U.S. Forest Service has been doing a good job with all those taxpayer dollars.

As economist Robert H. Nelson notes, in a 2013 survey federal workers ranked the U.S. Forest Service worse than 260 out of 300 similar agencies. Forest Service mismanagement allowed wildfires to threaten communities and resources throughout the West at record levels, and this problem endured for 15 years. The agency also failed to address declines in forest health and dropped “multiple use management” in favor of “ecosystem management.” This resulted in “a radical curtailing of timber harvesting, forest thinning and other more aggressive actions that would have helped to address the continuing fire problem.” Nelson recommends a management model similar to charter schools, freeing the agency from a “bureaucratic straitjacket” and holding them accountable for results.

Sterling Burnett of the Heartland Institute told Siripurapu the government should consider selling some of its land to private companies to raise money and to reduce the amount of forest it has to manage. As Burnett explained, “There is no reason the federal government needs to own 100 million acres of forest.”


Government Greedloaders Always Grab More

Tuesday June 20th, 2017   •   Posted by K. Lloyd Billingsley at 12:19pm PDT   •  

As we noted, Jerry Brown has jacked up gasoline taxes and fees by $5.2 billion, and the governor slams those less than worshipful of this hike as “freeloaders.” Brown is a big booster of “subsidiarity,” which means that bureaucrats can use tax money designated for needy school children to boost the salaries of bureaucrats and government employees. Something like that is now going on with the governor and state politicians. They will be getting a pay raise of 3 percent, their fifth raise in five years and coming on top of a 4 percent raise from last year. Those bagging the raises include lieutenant governor Gavin Newsom, attorney general Xavier Becerra and treasurer John Chiang. This is instructive in several ways.

Last year’s 4 percent followed a 3 percent hike in 2015, a 2 percent hike in 2014 and a raise of 5 percent in 2013. This year the Citizens Compensation Commission said it was only fair that politicians be “made whole following the reductions.” So in government parlance a raise can be a “reduction.” More important, the raise is not linked to any performance measure on the part of the governor and other politicians. They have made few if any cuts in government waste, and failed to boost accountability and transparency in any meaningful way. But the politicians are getting raises anyway, and as the news report helpfully notes, legislators also get tax-free per diem payments every day the legislature is in session, and these average about $34,000 for the legislative years. So politicians are always taking home more than they claim.

Meanwhile, according to news reports, 5 percent raises are also in store for CalPERS bosses such as CEO Marcie Frost, whose salary is $300,000, general counsel Matthew Jacobs, $338,000, and investment officer Wylie Tollette, who bags $378,000, though her total compensation package is $537,000. The raise is not tied to performance but based on a survey of other organizations that gave out raises of 6 to 7 percent. So for ruling class politicians and bureaucrats, envy is part of the process, total compensation is always higher than they claim, and a raise is really a reduction. That’s how it works for the government greedloaders.

Eliminating Federal Government Waste: Phase 1

Monday June 19th, 2017   •   Posted by Craig Eyermann at 6:10am PDT   •  

59667727 - female office worker or business woman cuts a piece of paper with the word waste on it as a waste reduction business concept. What a difference a small change in personnel at the White House makes!

Nearly two and a half years after becoming President, Barack Obama finally got around to signing an executive order to establish the “Campaign to Cut Government Waste“, which promised to impose new oversight and accountability aimed at reducing waste, fraud and abuse throughout the executive branch of the U.S. government, with a specific goal of reducing the number of web sites operated by U.S. government agencies in half.

If you’re familiar with any of the horror stories of waste, fraud and abuse that came to characterize entire government departments like the Environmental Protection Agency (EPA), the Department of Veterans Affairs (VA), then you appreciate how little reduction was actually achieved.

That lack of success was really a problem of misplaced priorities, which becomes clear when you compare what the Obama administration achieved with what the Trump administration is taking on less than six months into the new president’s term in office. Niv Elis of The Hill reports:

The White House budget office on Thursday kicked off the administration’s “war on waste,” eliminating reports and requirements in an effort to set an example for other government agencies.

“Government may do a decent job of looking forward, but we do a lousy job of cleaning out the closet,” Office of Management and Budget Director Mick Mulvaney said.

Over time, Mulvaney said, government agencies build up an unruly list of reporting requirements and regulations that are seldom addressed.

His office went through 253 guidance and policy documents and decided to pull 59 of them, including an ongoing reporting requirement on the Y2K bug and a report on a completed Bush-era e-government program.

“Some are duplicative, some or obsolete, some are just finding a different methodology,” said Linda Springer, a senior adviser to Mulvaney. The housecleaning exercise, which the administration is asking every office and agency to carry out, is “phase 1” of a plan to increase government efficiency.

The OMB’s ongoing reporting requirements for the Y2K bug problem, which hasn’t existed as a meaningful concern in the real world since the early years of the preceding presidential administration of George W. Bush, is emblematic of the lack of serious focus on eliminating wasteful bookkeeping requirements within the federal government’s bureaucracy. NextGov‘s Mohana Ravindranath indicates how such outdated requirements contribute to bureaucratic regulatory clutter for years after they’ve ceased to be relevant.

The repealed IT guidance doesn’t seem all that impactful, Robert Shea, former associate director for administration and government performance at OMB and now a public sector principal at Grant Thornton, told Nextgov.

Because agencies likely weren’t actually paying attention to—and therefore weren’t burdened by—compliance requirements of decades-old policy, the rescinded IT memos appeared to be the result of “bookkeeping,” he said.

Perhaps the Y2K reporting requirement wouldn’t have persisted for quite so long if the bureaucrats responsible for both paying attention to and complying with such policy requirements were more diligent about their responsibilities. Either way, it doesn’t speak well of either the federal government’s bureaucratic culture or the oversight established by the Obama administration’s campaign to cut government waste that the task of eliminating this particular example of waste was left to the next White House admininstration.

Phase 1 of the OMB’s new initiative to reorganize the federal government to minimize waste will end on June 30, 2017, when all federal agencies will report back to the OMB on what bureaucratic requirements they’ve determined do not make for the efficient or effective use of taxpayer resources within their organizations. The completion of Phase 2 will follow three months later, when they submit their proposed agency budgets to the OMB and have to commit to following through on the waste reduction they identified in Phase 1.

It’s a very different way of doing business in Washington D.C.

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