MyGovCost News & Blog

Sweet Deals for Government Unions Boost Costs for Taxpayers


Friday June 24th, 2016   •   Posted by K. Lloyd Billingsley at 11:10am PDT   •  

20203696 - sacramento capitol buildingBack in 2013, some 8,000 members of the Service Employees International Union (SEIU) rallied at the California state capitol in Sacramento chanting, “We’re letting them know this is our house!” In 2012, the government employee unions had helped elect big-government, tax-hiking politicians such as Jerry Brown, and they were now clamoring for more money and benefits. In his first stint as governor, taxpayers might recall, Brown authorized collective bargaining for state employees, and that boosted the cost of government.

As Jon Ortiz reports in the Sacramento Bee, a tentative contract for California’s state craft and maintenance workers “hikes costs to taxpayers more than any deal bargained by the union in at least 11 years.” According to the state legislative analysis, the deal with the International Union of Operating Engineers Unit 12 “adds a total $473 million over four years to the state’s pay and benefit costs.” As the legislative analyst noted, the deal would “increase annual state costs more than any of the Unit 12 agreements ratified since at least 2005.”

Sweet deals for government unions, however, do not always result in productivity. As we noted, CalTrans pays some 3,500 employees to sit around. The legislative analyst sought to trim these positions but Bruce Blanning, executive director of Professional Engineers in California Government, defended the comfy arrangement. In his view, CalTrans should keep idle staff on hand to prepare future projects, and outsourcing work to independent contractors “wastes taxpayer money.”

The powerful SEIU, meanwhile, has been fighting legislation requiring government employee unions to publicly post itemized financial records and hold annual bi-annual elections. So SEIU local 1000 president Yvonne Walker, like other government union bosses, still has a strong case that the state capitol is “our house.” That’s a bad deal for taxpayers.

The Federal Student Loan Disaster


Friday June 24th, 2016   •   Posted by Craig Eyermann at 6:53am PDT   •  

Graduation_Cap_and_Diploma According to the U.S. Treasury Department, the federal government has borrowed over $1.036 trillion to loan money to U.S. college students through the Federal Direct student loan program through April 2016, with over 86% of that amount having been added since January 2009.

David Jesse of the Detroit Free Press reports that for the over $605 billion of federal student loans that have come due for payment, all is not going well with respect to former students paying back the money they borrowed from Uncle Sam:

Twenty percent of all federal loan borrowers have defaulted on their loans, according to new data released by the federal government last week,” the Free Press reports. “That translates into $121 billion of loans in default. That same data show 40 percent of all borrowers are not making any payments, and are in some sort of forbearance, delinquency or default.

For students who have fallen behind on their student loan payments, or who are in default, the decision to borrow money from the U.S. government to go to college is looking more and more like an extremely poor choice.

For U.S. policy makers, the exceptionally high rates of payment delinquencies and defaults mean their best intentions have backfired, with the result of harming the people they intended to help the most. The Wall Street Journal‘s Josh Mitchell writes about how what was supposed to be an investment in “human capital” has instead turned toxic:

The U.S. government over the last 15 years made a trillion-dollar investment to improve the nation’s workforce, productivity and economy. A big portion of that investment has now turned toxic, with echoes of the housing crisis.

The investment was in “human capital,” or, more specifically, higher education. The government helped finance tens of millions of tuitions as enrollment in U.S. colleges and graduate schools soared 24% from 2002 to 2012, rivaling the higher-education boom of the 1970s. Millions of others attended trade schools that award career certificates....

New research shows a significant chunk of that investment backfired, with millions of students worse off for having gone to school. Many never learned new skills because they dropped out—and now carry debt they are unwilling or unable to repay. Policy makers worry that without a bigger intervention, those borrowers will become trapped for years and will ultimately hurt, rather than help, the nation’s economy.

The article indicates that some 7 million Americans have defaulted on their federal student loans, which for $121 billion worth of student loans in default, puts the average value of a student loan in default at $17,285.

A monthly payment for a federal student loan with the current interest rate of 4.29% for undergraduates over a typical 10 year term is $177.39 according to the Student Loan Calculator at Bankrate.com, or $2,128.68 per year.

Because the money is owed to the federal government, Americans who are chronically unable to make the monthly payments on their on their student loans are not able to have the debt discharged through bankruptcy.

Instead, many of these former students will find themselves placed on the federal government’s Income Based Repayment plan that will instead take up to 10% of their discretionary income out of their pay each month for the next 20 years. The amount of discretionary income that can be subjected to an Income Based Repayment plan depends upon things like how many people are in the household of the student loan borrower.

In practice, except for expiring after a 20 year period, the federal government’s Income Based Repayment plan for student loans is no different from the income tax. Until that period expires, it should be considered to be an additional income tax – one that is specifically imposed on poor and lower middle class Americans.

Just like many of the 7 million Americans who could not afford to continue making an average $177.39 per month payment on their student loans and are now in default upon them. Just like an additional 7 million Americans who have fallen behind on their student loan payments.

VA Supervisors Fight Against Accountability


Monday June 20th, 2016   •   Posted by Craig Eyermann at 6:46am PDT   •  

va_seal According to a new whistleblower, supervisors at the the U.S. Department of Veterans Affairs’ central office are abusing their power in ways that include physical and verbal intimidation, sexual harassment, and orders to their staff to not cooperate with Congressional investigations of wrongdoing at the federal government entity. Ashleigh Barry of Phoenix’ KPHO/KTVK News reports:

The employee, a U.S. Air Force veteran and information security officer who chose to conceal his identity, took his concerns all the way to the top and yet little to nothing has been done about them....

Case in point, he says, is his direct supervisor, whom he accuses of threatening him because he recently reported problems and even illegal activities within the facility.

“That’s when he grabbed the arm of the chair and he lunged at me and he yelled at me and said, ‘I’m your supervisor. I’m telling you it’s wrong,’ then he ordered me not to report anything without his permission,” the whistleblower explained....

“I have had it put in writing to me that I am not to cooperate with investigators, specifically congressional investigators,” he said. “My personal belief is that they don’t want their dirty laundry exposed.”

Given the nature of the multiple allegations of misconduct, that would be something of an understatement.

There are three things that caught my attention in this story. First, the whistleblower praised the Phoenix VA’s new director, which suggests the problems at that particular branch of the VA are finally starting being addressed more effectively than they have in the past. Given how deep seated those problems are however, it will take considerable time for real progress in reforming the Phoenix VA to be made.

The second thing that caught my attention is the whistleblower’s reported background. As an actual veteran, he is in a real minority working in an administrative position at the VA, because of a clause in the Department’s contract with the American Federation of Government Employees, which gives “first and full consideration” to current employees of the federal government for administrative positions, and not to veterans. The effect of the VA’s hiring policy is to give preference to federal government union employees over veterans for its white collar positions.

The third thing to catch my attention is that the VA’s multiple problems with supervisor misconduct is strongly embedded in the VA’s Central Office. This reported fact confirms that the VA’s corruption scandals in rationing the provision of health care to America’s veterans through phony wait lists and other means is not the result of the rogue misconduct of individual VA employees or branches, but rather is the result of corrupt practices that have become institutionalized throughout the VA.

New leadership at the VA’s top leadership positions is the correct place to begin to remedy that situation, but fully remedying the VA’s ethical ailments will require a large scale flushing throughout its managerial ranks. Displacing the current occupants of many of these supervisory positions at the VA with actual veterans who have a real stake in the VA’s provision of health care to veterans could go a long way toward fixing what is clearly an institutional problem at the VA.

To be effective, more progress in that area needs to be made much more quickly than is currently being made, or else risk losing the little progress that has been made by corrupt supervisors outlasting the reformers. The new VA whistleblower’s story is a reminder of both how extensive the VA’s problems remain and how much bad wood needs to be cleared out before true accountability at the VA can be established.

Expensive Failure at California Department of Veterans Affairs


Friday June 17th, 2016   •   Posted by K. Lloyd Billingsley at 9:47am PDT   •  

43943273 - war veteran talking about problems during therapy

As Craig Eyermann observed last year, veterans who survive combat face health care rationing by the federal Department of Veterans Affairs. Contrary to official proclamations, veterans wait months before they can even get on a schedule to receive care. In Phoenix, as many as 40 veterans died before receiving care, all due to a secret rationing system that could only happen with the knowledge of VA bosses. The rigors veterans face, unfortunately, are not limited to the federal system.

As Rachel Cohrs writes in the Sacramento Bee, the California Department of Veterans Affairs (CalVet) has indulged an “expensive failure,” a $28 million on a computer system that “launched years later than planned, wastes staff time and has not been fully implemented.” The comprehensive computer system was intended to give veterans “consistent and integrated care” throughout the state, but state auditor Elaine Howle found that CalVet failed to hire a contractor for three years, and then dropped the ball on oversight plans. At one facility for elderly and disabled veterans, data entry with the new system took twice as long as the old system, and another facility reverted to paper records. CalVet bosses were aware of the problems in 2012 but did nothing until 2013 and then blamed problems on employees’ alleged unfamiliarity with the system. CalVet wants to replace the $28 million bust with another system it “hopes can be implemented next year.” Good luck with that.

The state auditor recalled a series of government technology failures in data security, the payroll system, and licensing board software. She might have mentioned Covered California, the wholly-owned subsidiary of Obamacare, which spent $454 million on a dysfunctional computer system. “This is the same system that has cost nearly half a billion dollars so far,” wrote Emily Bazar, the Center for Health Reporting. The system may have helped “multitudes” apply for health insurance, but “it also is responsible for countless glitches and widespread consumer misery.” As with the VA and CalVet, the misery is inherent in the system.

State Rankings for Fiscal Solvency


Thursday June 16th, 2016   •   Posted by Craig Eyermann at 6:22am PDT   •  

Eileen Norcross and Olivia Gonzalez of the Mercatus Center have released a new report on the fiscal solvency of each of the United States, Ranking the States by Fiscal Condition.

The rankings they determine for each state is based on the following five categories:

  • Cash solvency. Does a state have enough cash on hand to cover its short-term bills?
  • Budget solvency. Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?
  • Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
  • Service-level solvency. How much “fiscal slack” does a state have to increase spending if citizens demand more services?
  • Trust fund solvency. How much debt does a state have? How large are its unfunded pen-sion and healthcare liabilities?

So with no further adieu, here is their map showing the rankings. The more green the state, the better off it is, and the redder the state, the worse off it is:

mercatus-overall-fiscal-solvency-how-do-the-50-states-rank-FY2014

The report’s 2016 edition updates the rankings for each state through the end of Fiscal Year 2014, so it is a little over a year and a half out of date. That is an important consideration for several of the highest ranking states, because the composition of their economies includes large contributions from the oil and gas industry, which saw revenues plunge along with oil and gas prices in the latter half of 2014 and through 2015. Since Fiscal Year 2014 ended in September 2014, the report would barely capture the first few months of that major change.

It will be interesting to see how the fiscal condition of this year’s Top 5 states, Alaska, Nebraska, Wyoming, North Dakota, and South Dakota, might change in next year’s report.

The Bottom 5 states, Kentucky, Illinois, New Jersey, Massachusetts, and Connecticut, have big problems that are unlikely to change quickly, and will keep them at or near the bottom of the rankings for some time.

  • Each state has massive debt obligations. Each of the bottom five states exhibits serious signs of fiscal distress. Though their economies may be stronger than Puerto Rico’s, allowing them to better navigate fis­cal crises, their large liabilities still raise serious concerns.
  • Unfunded liabilities continue to be a problem. High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.
  • The bottom five states have changed since last year. Kentucky’s position has declined, plac­ing it in the bottom five this year. New York is no longer in the bottom five. New Jersey and Illinois improved slightly, but remain in the bottom five. Connecticut and Massachusetts also remain in the bottom five, in slightly worse positions than last year.

If it were a state, the U.S. territory of Puerto Rico would occupy the very bottom of the rankings.

But for this edition of the report, the state of Alaska wins the gold medal for its fiscal condition.

University of California Fails Lesson in Cutting Costs


Tuesday June 14th, 2016   •   Posted by K. Lloyd Billingsley at 5:16pm PDT   •  

sather3_MLThe regional transit authority in California’s state capital recently laid off 20 employees, most of them administrators. “We don’t have business needs to justify these positions,” new business manager Henry Li told Tony Bizjak of the Sacramento Bee.  In other words, the jobs were not necessary, and therefore wasteful.

The staff reductions will save the agency $1.5 million and avoid cuts in service. Indeed, the transit agency is planning to make improvements such as increased security and remodeling of stations.

Since 2007, Regional Transit has reduced staff from 1,200 to the present 960, and Li’s own salary of $216,000 is $14,000 less than that of the outgoing boss. Taxpayers might contrast this kind of bureaucratic trimming with the way the University of California has been bulking up.

Between 1993 and 2013, the UC system boosted administration staffing by more than 300 percent, and that is a major factor driving up costs. The university’s officials have been crying for more state money and have also enrolled more students from out of state, who pay higher tuition.

UC bosses have demonstrated an eagerness to cut low-level workers while retaining upper-level bureaucrats. As UC student association president Kevin Sabo explains, in terms of cost, “one vice chancellor position is the equivalent of a handful of service workers.” Such positions are largely redundant and serve up convenient opportunities for nepotism.

For example, UC Davis Chancellor Linda Katehi, who ordered campus cops to pepper spray students peacefully protesting tuition hikes, employs three family members on the UC campus, including her daughter-in-law Emily Prieto. Prieto’s PhD is in education, and she previously ran the Latino Resource Center at Northern Illinois University. Over the span of two and a half years at UC Davis, Prieto received promotions and raises that boosted her pay by more than $50,000. Last year UCD made her a “assistant vice chancellor,” boosting the pay of Chancellor Katehi’s daughter-in-law to $130,000. What a cozy world.

The University of California should take a lesson from Sacramento’s regional transit agency. When UC bosses start cutting administrative positions such as assistant vice chancellor, taxpayers will know they are serious about accountability.

Puerto Rico Debt Bailout Bill Advances in Congress


Monday June 13th, 2016   •   Posted by Craig Eyermann at 6:33am PDT   •  

puerto_MLA bill that would allow the U.S. territorial government of Puerto Rico to restructure its debts has passed in the U.S. House of Representatives, where it now needs Senate and Presidential approval to become law. The Wall Street Journal describes the main goals of the bill that passed in the House with bipartisan majorities.

Officials hope the bill accomplishes two things. First, they want to avoid a messy courtroom brawl between different creditors and the government that could curtail public services and further chill investment in Puerto Rico, which has been in recession for most of the last decade. Second, they want to reduce a debt burden that currently absorbs around 30% of the commonwealth’s revenue, far more than any U.S. state....

The island has defaulted on three classes of bonds, including last month when it missed most of a $422 million payment, and faces $2 billion in payments on July 1 that the island’s governor said can’t be paid.

“Come July 1, if nothing is done, Puerto Rico will technically be bankrupt,” said Anne Krueger, a former IMF economist who led a detailed review of the island’s economy. “Assets will be tied up in courts. It is very likely that essential services will have to be suspended.”

Puerto Rico’s government and public agencies owe over $70 billion to the U.S. territory’s creditors, which for Puerto Rico’s estimated population of 3.2 million, represents a burden of $21,875 per resident. Since Puerto Rico’s average per capita income is $11,241, the government debt burden upon Puerto Rico’s residents is especially heavy, weighing in at nearly double their incomes.

The most important aspect of the bill that passed the House is that it takes any restructuring of Puerto Rico’s debt out of the hands of the territory’s governor and puts in the hands of a federal oversight board, who will be appointed by the U.S. Congress and the President.

That is a very important development given the shenanigans that Puerto Rico’s officials have been engaging in with respect to their obligations. CBS Marketwatch reports on how Puerto Rico’s governor, Alejandro Garcia Padilla, is trying to weasel out of paying back money that Puerto Rico’s government received and spent after borrowing it, claiming that because the government had no authority under its constitution to borrow the money, it cannot be required to pay it back:

An audit report published on Thursday suggests that debt-laden Puerto Rico may be able to void some of its borrowing because politicians exceeded constitutional debt limits and their own authority.

The report, shared with MarketWatch, states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable. The scope of the audit report, issued by the island’s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by J.P Morgan.

Warren Meyer had perhaps the best reaction to the territory’s highly questionable legal arguments:

So government officials break the law by taking out a loan they shouldn’t have taken out, and the punishment is that they get to keep the money and not pay it back? This is absolutely absurd. That means that completely innocent third parties are essentially being fined $4.4 billion for the malfeasance of Puerto Rico’s government officials.

Given the problems that many states have with respect to their public employee pension benefits, it will probably be just a matter of time before states like Kentucky, Illinois, New Jersey, Massachusetts, and Connecticut attempt similar maneuvers given their fiscal situations.

The Major Owners of the U.S. National Debt in Spring 2016


Thursday June 9th, 2016   •   Posted by Craig Eyermann at 6:01am PDT   •  

Last week, based on estimates published by the U.S. Treasury Department, we indicated that Saudi Arabia owns at least 0.6% of the U.S. government’s total public debt outstanding. But that leaves at least two really big questions unanswered:

  1. How much is the total national debt of the United States now?
  2. And who are the biggest owners of it?

Fortunately, Political Calculations has visualized the U.S. Treasury’s data on the major domestic and foreign holders of all debt issued by U.S. government entities, at least through March 31, 2016:

spring-2016-to-whom-does-the-US-government-owe-money

So the answers to the two questions we asked above are:

  1. Over 19.2 trillion dollars, or if you prefer to see it written out, over $19,264,938,619,643. By the end of the U.S. government’s 2016 fiscal year on September 30, 2016, we expect that the amount of the U.S. government’s total public debt outstanding could very well be over double what it was at the end of its 2008 fiscal year ($10,024,724,896,912.40).
  2. See the chart above!

In case you’re wondering, the category of “U.S. Individuals and Institutions” is dominated by insurance companies and banks. That doesn’t include the U.S. Federal Reserve however, which with holdings over 12.9% of the total value of the entire U.S. national debt, has become the largest single holder of debt securities issued by the U.S. government since the end of 2008.

Mo’ Bigger Government, Continued


Monday June 6th, 2016   •   Posted by K. Lloyd Billingsley at 9:34am PDT   •  

cal_cap_MLAs we noted back in January, the California Coastal Commission, the most powerful land-use agency in the nation, fired executive director Charles Lester. Since high-level bureaucrats seldom lose their lucrative jobs, this move hinted at the prospects for improved accountability. That didn’t happen, however, and the firing of Lester, an appointee beyond the reach of voters, did not prompt legislators to put the Coastal Commission itself up for a vote. Now, as Patrick McGreevy reports in the Los Angeles Times, politicians want to expand the Commission. AB 2616, authored by assemblywoman Autumn Burke, would add three new commissioners, appointed by the governor, the Assembly Speaker and the Senate Committee on Rules, expanding the Commission to 18. The new appointees are to work with communities burdened by pollution and focus on “issues of environmental justice.” Despite the rhetoric, expanding the CCC is a bad idea.

The Coastal Commission is an unelected body that overrides the elected governments of coastal counties and cities on issues of land use. The Commission has become know for regulatory zealotry, running roughshod over property rights, and Mafia-style corruption. Commissioner Mark Nathanson, for example, served five years for bribery. Longtime CCC executive director Peter Douglas, a zealot of considerable ferocity, lobbied for the power to bypass the courts and levy fines directly. In 2014, the legislature granted that power, but the CCC always wants more. The CCC has been mounting a power surge into animal management, surfing tournaments, and pushing for influence on issues outside its jurisdiction, such the Gregory Canyon landfill in San Diego County.

California’s duly elected governments, on the coast and inland, are entirely capable of overseeing land-use and environmental concerns. The CCC demonstrates how government progressively becomes more intrusive, more expensive, and less responsive to the people. All that will increase with three new members. The CCC began as a temporary body, and as Milton Friedman used to say, temporary government projects usually become permanent. One might add that the government commission demonstrating the strongest case for elimination is the one politicians are most likely to expand.

An Explosion in Federal Government Waste


Monday June 6th, 2016   •   Posted by Craig Eyermann at 5:49am PDT   •  

cash vortex_ML

By definition, waste is an act or instance of using or expending something carelessly, extravagantly, or to no purpose.

In practice, the existence of waste means that costs get run up while nothing of benefit is produced.

As an example, the U.S. federal government is extraordinarily wasteful. In fact, Investors Business Daily reports that the amount of waste it produces annually has doubled since the end of 2008.

Big Government: The federal government wasted more than $100 billion on overpayments last year. It knows this, even tracks it, but somehow can’t seem to stop it. Is there a better indication that government is too big?

A federal website called Payment Accuracy tracks in great detail what it calls “improper payments” made by the federal government through Medicare, Medicaid, farm programs, school lunch programs and others to contractors, doctors, students, and so on.

Last year, the government made $126 billion in overpayments, nearly double the amount it made in President Bush’s last year.

To put the federal government’s wasteful management of its current finances into perspective, IBD puts it into a perspective that even a federal bureaucrat can understand:

It is, for example, equal to the combined budgets of the Departments of Justice, Energy, Interior, State and the EPA for 2015.

It’s twice as much all the income taxes paid by everyone making less than $50,000.

It’s roughly equal to the combined 2015 profits of Apple, Exxon Mobil, Wal-Mart, Google, Pfizer and Comcast.

Successfully eliminating waste is like finding on the street money you thought you had lost forever. It’s a shame that stopping wasteful spending on the scale executed by the people responsible for spending money in the U.S. government doesn’t appear to be have been much of a serious priority for the people who have managed them over the last seven years.

The U.S. National Park Service offers the following solution for how to eliminate waste:

trash-in-can-to-correct

In words, instead of throwing it around mindlessly, put it where it’s supposed to go.

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