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Entitlements Squeezing Out Everything Else

Friday November 21st, 2014   •   Posted by Craig Eyermann at 6:50am PST   •  

10101668_SHow much has government spending for things like Medicaid, Medicare, Social Security, Affordable Care Act subsidies, unemployment benefits, and other welfare programs grown since today’s Social Security recipients were born?

The National Interest‘s Milton Ezrati has the numbers:

These constraints are crystal clear in existing budget data. Entitlements have grown relentlessly over the decades, from 30 percent of all government spending in 1950 to fully 70 percent today. They amount to 15 percent of the gross domestic product (GDP). More than one dollar in seven, then, of everything this country produces now gets paid out in one or the other of these programs. Since the full implementation of the Affordable Care Act promises only to increase those proportions, and voters clearly show no desire to fork over still more economic resources to Washington, the rest of the budget, everything else that Washington does, faces a relentless financial squeeze.

Ezrati describes where this is all going:

The arithmetic is irrefutable, whatever some people would like to believe. There simply is no room in the budget for much else but entitlements. Washington will either reverse sixty-plus years of practice and turn to serious entitlements reform, or it will have to give up on most of its other priorities. The only remaining question is this: can the White House, the Senate and the House do the math?

We suspect that the politicians and bureaucrats who occupy each of these institutions can indeed do the math, but won’t, until the time when their pay, benefits, and power are negatively impacted, since those are the only priorities that they really care about.

Until then, the entitlement squeeze will be on!

Government Wings It on Waste

Wednesday November 19th, 2014   •   Posted by K. Lloyd Billingsley at 6:10am PST   •  

bird_200At the end of our recent piece on the Great Crane Giveaway, we observed that “when it comes to big government and bureaucracy, things are always worse than they seem.” As it turns out, the crane giveaway wasn’t the end of it, as San Francisco Chronicle columnists Phillip Matier and Andrew Ross point out.

The new bridge is in place, but the old bridge needs to be torn down. As that proceeds, “the double-crested cormorants and other birds that call the old Bay Bridge home are fast becoming a $30 million-plus headache.” But the birds are not the problem. “As crews demolish the 10,000-foot-long steel structure where the birds roost, they’ve had to navigate around broadly interpreted state and federal environmental laws designed to protect the feathered critters.” Bay Area Toll Authority mouthpiece Randy Rentschler told the columnists that the bridge has “suffered tens of millions of cost overruns and months of delays” from regulation enforcement.

Caltrans is spending $709,000 on nesting “condos” on the underside of the new bridge, hoping the birds will move. Caltrans also spent $1 million on decoys and such for the same purpose, but the birds haven’t moved. Caltrans is now speeding up the work, at a cost of additional $12.5 million. By Matier and Ross’s count, transportation bosses will need $17 million more, bringing the regulatory-driven spending on birds to more than $33 million, “which ain’t chicken feed.” So with government regulation and bureaucracy, things are always much worse than they seem, and don’t forget the new eastern span of the San FranciscoOakland Bay Bridge.

It came in $5 billion over budget and ten years late, with more than a reasonable doubt about its safety. Defective welds and other problems prompted insiders to call for a criminal investigation, but no surprise that nothing of the kind took place. Misconduct, incompetence, and waste all enjoy special protection in California government.

How Generous Are Military Benefits?

Tuesday November 18th, 2014   •   Posted by Craig Eyermann at 7:02am PST   •  

militaryspendingTom Slear retired from the U.S. Army in 2001 after reaching the rank of lieutenant colonel in a career spanning 28 years, 23 as a reservist, where he specialized in logistics and never faced combat. He recently wrote an opinion piece in the Washington Post, in which he described veterans benefits as “too generous.” Here are excerpts:

Once I joined the Reserves, I started out receiving what today would be $11,000 annually for two days of drill per month and 13 days of active duty per year. That increased to $17,600 when I retired in 2001.

Even though I spent 80 percent of my time in uniform as a reservist, I received an annual pension in 2013 of $24,990, to which I contributed no money while serving. (Reserve retirement pay does not start until you turn 60. For those who remain on active duty for at least 20 years, payments start the month they leave service. Those who enlist at 18, right out of high school, can retire at 38 and receive $26,000 a year for the rest of their lives.)

My family and I have access to U.S. military bases worldwide, where we can use the fitness facilities at no charge and take advantage of the tax-free prices at the commissaries and post exchanges. The most generous benefit of all is Tricare. This year I paid just $550 for family medical insurance. In the civilian sector, the average family contribution for health care in 2013 was $4,565, according to the Kaiser Family Foundation.

Simply put, I’m getting more than I gave. Tricare for military retirees and their families is so underpriced that it’s more of a gift than a benefit.

Now, compare that with the benefits that California State police officers collect when they retire, which we discussed in a previous article:

It’s said that government workers now make, on average, 30% more than private-sector workers. Put that fantasy aside. It far underestimates the real figures. By my calculations government workers make more than twice as much. They are America’s fastest-growing group of millionaires.

Doubt it? Then ask yourself: What is the net present value of an $80,000 annual pension payout with additional full health benefits? Working backward the total NPV would depend on expected returns of a basket of safe investments–blue-chip stocks, dividends and U.S. Treasury bonds.

Investment pros such as my friend Barry Glassman of Glassman Wealth Services say 4% is a good, safe return today. But that’s a pitiful yield, isn’t it? It’s sure to disappoint the millions of baby boomers who will soon enter retirement with nothing more than their desiccated 401(k)s–down 30% on average from 30 months ago–and a bit of Social Security.

Based on this small but unfortunately realistic 4% return, an $80,000 annual pension payout implies a rather large pot of money behind it–$2 million, to be precise. That’s a lot. One might guess that a $2 million stash would be in the 95th percentile for the 77 million baby boomers who will soon face retirement.

That $2 million also happens to be the implied booty of your average California policeman who retires at age 55.

By comparison, we find that military benefits are far less generous than those enjoyed by “civilian” government employees.

In the grander scheme of things, it’s the overly generous pensions of civilian government employees that present a greater threat to the fiscal stability of the communities they serve. Such benefit plans have forced a number of local governments across the United States into bankruptcy proceedings.

To deal with that bigger picture, we propose that state and local governments bring their benefits to be in line with what military reservists receive after similar periods of public service.

Although Lieutenant Colonel Slear describes reservists’ benefits as excessively generous, a reduction of the benefits of state and local government employees to the level enjoyed by reservists would least lower the risk that the federal government would bail out state and local governments, and thus would save money at the federal level as well.

Government Scam Cell Anniversary

Monday November 17th, 2014   •   Posted by K. Lloyd Billingsley at 9:48am PST   •  

CIRM_200California’s $3 billion Stem Cell Research and Cures Act, Proposition 71, promised life-saving cures and therapies for a host of afflictions. In 2004 voters approved the measure, which created the California Institute for Regenerative Medicine (CIRM). Ten years later, David Jensen of the California Stem Cell Report shows how that is working out for patients and taxpayers alike.

“No California-financed cures or therapies have reached the clinic and none are likely to do so for years, if then,” says Jensen, who has been watching CIRM since 2005. So a ballpark figure for the number of actual cures and therapies emerging from CIRM is zero, and likely to stay that way. But as Jensen shows, CIRM is productive on another front: “The agency is spending money at a rate of $21,000 an hour, 24 hours a day, seven days a week.” So these folks are very good at spending other people’s money. By Jensen’s count, “more than $1.8 billion has been awarded,” and it has not been spent in a haphazard manner. A full 88 percent of the money, almost all of it, is “going to institutions linked to persons who are or have been on the agency’s board of governors.” UC Davis, which has a seat on the board, has received $125.8 million, ranking fifth among recipients. And as Jensen notes, former CIRM boss Alan Trounson is now with StemCells Inc. in New Jersey, which received $19.4 million from CIRM. None of this should come as a surprise.

In practice, CIRM has always stood for California Institute for the Redistribution of Money. Real estate tycoon Robert Klein cleverly wrote Prop. 71 to install himself as the institute’s chairman, and he protected it from almost all legislative oversight by requiring a 70 percent supermajority of both houses to make any structural or policy changes. He awarded huge salaries, such as president Alan Trounson’s $490,000, and provided a comfortable landing spot for politicians, such as former state senator and ex-Democratic Party boss Art Torres, immediately tripling the lawyer’s salary to $225,000. Klein grabbed $150,000 a year for himself, and the CIRM board gave money to a for-profit company for which Klein had lobbied, even though the institute’s own scientific reviewers twice rejected the proposal.

With this kind of insider trading, and no cures, CIRM is a complete bust. California should shut it down and beware of any initiative that comes wearing a white coat.

The Federal Student Loan Racket

Friday November 14th, 2014   •   Posted by Craig Eyermann at 7:11am PST   •  

13427759_S Since 2008, roughly $1 out of every $10 new dollars borrowed by the U.S. government through the end of its 2014 fiscal year has gone to fund the Federal Direct Student Loan program, which lends the money borrowed by Uncle Sam to college students at over double the interest rate that the U.S. government is charged by its lenders.

Federal borrowing for the sake of making student loans accounts for over $700 billion of the more than $7 trillion increase in the total public debt outstanding over that time. How much money do you think that the U.S. federal government is making from running that racket?

Earlier this year, the General Accounting Office (GAO) looked at the income that the U.S. Treasury was raking in as a result of its Direct Loans program for students for the federal government’s 2007 through 2012 fiscal years, when it originated a reported $454 billion in student loans. The GAO found that the U.S. federal government netted a profit of $66 billion.

We should note that well over 95% of this activity occurred after 2008, corresponding to President Obama’s tenure in office and the federal government’s effective takeover of the student loan industry from the private sector during that time.

Personal finance guru Suze Orman has some thoughts about the federal government’s profiteering:

If one were to ask me what I think is the most dangerous threat to our economy, the answer is very simple: student loans.

As I write this, we have more than $1.2 trillion of student loan debt. About 10 million federal students loans are taken out annually, and then there are the insanely dangerous private student loans on top of that staggering number.

And while 6.7 million borrowers in repayment mode are delinquent, the sad fact is that many lenders aren’t exactly incentivized to work with borrowers. Unlike all other forms of debt, student loans can’t be discharged in bankruptcy. Moreover, lenders can garnish wages and even Social Security benefits to get repaid. A new report by the Consumer Finance Protection Bureau details just how bad the situation is for private loan borrowers. (From Oct. 1, 2013, through Sept. 30, the agency handled about 5,300 private student loan complaints, an increase of nearly 38 percent from the previous year.)

And private student loans aren’t the only problem. Do you know that from 2007 to 2012, the government made $66 billion in profit on federal student loans? We can all debate how our government should generate revenue to support federal spending programs, but doing it on the backs of young adults who need an education to compete in the increasingly competitive global workforce is just appalling.

Orman doesn’t make the connection that borrowers who owe money to the federal government for student loans are even more disadvantaged than those who took out loans with private lenders, because the federal government is even less responsive. And because there is no limit on how long a debt owed to the federal government can be collected, it has even less incentive to work with borrowers.

Perhaps the most effective way to resolve this issue would be simply to make all student loans fully dischargeable in bankruptcy proceedings once more, whether originated by private lenders or by the federal government. That way, the people who need real and permanent relief from their student debts, regardless of who their lender might be, could get it.

Faced with the risk of losing massive amounts of money because of the bad decisions it made in getting into the business of making direct student loans in the first place, the federal government might then have an adequate incentive to adopt a more fiscally sound approach to its direct lending racket by getting out of it.

And that would go a very long way toward eliminating the federal government’s hidden budget deficit.

Bay Bridge Crane Giveaway Another Bad Deal for Taxpayers

Wednesday November 12th, 2014   •   Posted by K. Lloyd Billingsley at 5:34am PST   •  

Lifter_200As we have noted, the new eastern span of the San FranciscoOakland Bay Bridge came in $5 billion over budget, a full ten years late, and with doubts about its safety. One UC Berkeley structural engineering professor declines to use the new span. In Sacramento hearings on the safety theme, insiders called for a “criminal investigation” over defective welds on the Chinese fabrication, and the way workers troubled by the defects had been reassigned. No criminal investigation took place, and Caltrans bosses tapped the California Highway Patrol, of all people, to conduct an investigation. To the surprise of nobody, the CHP found nothing wrong. State Sen. Mark DeSaulnier still said he would recommend that California Attorney General Kamala Harris launch a criminal investigation. She has not done so, and shows no inclination to challenge any of California’s bloated and corrupt bureaucracies. Some commuters and taxpayers think this is as bad as it gets, but they are wrong.

Bay Area commuters paid $50 million for a huge crane, the massive Left Coast Lifter, used in the bridge’s construction. But as Phillip Matier and Andrew Ross report in the San Francisco Chronicle, Bay Area bosses are giving the crane to the builder, American Bridge/Fluor. They are not only happy for the gift, but “now, it turns out, those same builders are cashing in on it—putting it to work constructing a new taxpayer-funded bridge in New York.” New York governor Andrew Cuomo loves the deal, which he says will save his state more than $1 billion.

It turns out that the company’s bid for the Bay Bridge work included a provision allowing it to keep the crane. Was that a bad deal for Bay Area tollpayers? Matier and Ross asked Sen. DeSaulnier, who needed to look at the contract but said “they should get some value out of it.” Nice thought, senator, but they won’t. The crane giveaway, like the rest of the Bridge project, is a bad deal for taxpayers. When it comes to big government and bureaucracy, things are always worse than they seem.

Veterans Triple Dip Disability Benefits

Tuesday November 11th, 2014   •   Posted by Craig Eyermann at 6:32am PST   •  

10073253_S It’s a shame, but this Veterans Day, we have to consider how broken the fiscal stewardship of the U.S. federal government has become by the way that approximately 60,000 disabled veterans have gamed the system to triple dip into government-provided benefits.

One veteran on disability collected nearly $210,000 in benefits in 2013, while another earned more than $122,000—nearly three times what his actual military pay would have been—according to a watchdog report being released Thursday that found tens of thousands of veterans are triple-dipping on disability.

Tens of thousands of veterans collect their military retirement pay and disability benefits from the Veterans Administration and disability checks from Social Security too, according to a new report from the Government Accountability Office. All told, nearly 60,000 triple dippers collected $3.5 billion in benefits.

By our math, splitting $3.5 billion among the 60,000 government disability recipients who are triple-dipping the system would put an average of $58,333 in the pockets of each.

To put that number in context, according to the U.S. Census Bureau, in 2013, the median income earned by individuals who worked in full time jobs for at least 50 weeks during the year was $44,348.

What makes this breakdown of federal fiscal stewardship particularly troubling is that Social Security’s disability insurance trust fund will run out of money in less than two years, which under current law, will force disability benefits to be slashed.

So what makes possible the triple dipping that is depleting Social Security’s disability trust fund at such an accelerated pace?

Most Americans aren’t able to collect Social Security disability payments if their income is at least $13,000 a year. But Social Security rules don’t treat military retirement or VA disability payments as regular income, which means veterans can collect tens of thousands of dollars from the Pentagon and VA and still get money from Social Security....

Of the $3.5 billion spent in 2013 on the triple dippers, $1.4 billion came from the VA, $1.2 billion came from the Pentagon, and $937.4 million came from Social Security.

To be clear, the real problem here is the rules, which, thanks to the unconstrained growing complexity of the rules over time and the knowing neglect of those who write and enforce them, have reached the point where they are directly causing the accelerated fiscal deterioration of a federal government program intended to aid the disabled.

But when the inevitable budget crisis arrives, at least we know that it will not have been allowed to happen by chance.

U.S. Postal Snoop Surge

Monday November 10th, 2014   •   Posted by K. Lloyd Billingsley at 5:13am PST   •  

As we have noted, the United States Postal Service (USPS) is a perennial loser, always billions in the red, with taxpayers on the hook. On the other hand, whatever the losses, the USPS finds a way to give postal bosses a pay hike. As a visit to any post office will confirm, the regular service is slow. But as Ron Nixon notes in the New York Times, the USPS is an eager beaver when it comes to snooping on Americans.

usps-logo_200Last year the USPS approved 50,000 requests to monitor the use of mail in criminal and security investigations, which these days can mean just about anything, such as being less than worshipful of the government. As Nixon notes, the surveillance program is “more extensive than previously disclosed and that oversight protecting Americans from potential abuses is lax.”

Theodore Simon of the National Association of Criminal Defense Lawyers told the Times, “It appears that there has been widespread disregard of the few protections that were supposed to be in place.” The Times found that on Freedom of Information Act requests, the USPS lowballs the numbers. The agency also uses Mail Imaging, a program that photographs the exterior of every piece of mail. This is supposedly for processing, but as Nixon explains, “it is also used as a surveillance system that allows law enforcement agencies to request stored images of mail sent to and received by people they are investigating.”

Postal bosses say not to worry, but as this Bay Area editorial says, “the truth is that we have no way of knowing. The tracking doesn’t have to be reported to anyone, which makes this program ripe for abuse.” Therefore, “Congress needs to act now.” Good luck with that, because Congress has been unable to implement such simple reforms as the end of Saturday delivery. This confirms that, like other federal operations, the USPS is essentially unreformable.

If legislators ever want to get serious, they should lift the USPS monopoly on first-class mail. That will improve efficiency, promote accountability, and help protect taxpayers against excessive government snooping.

Uncle Sam Pays for Swedish Massage of New Zealand Rabbits

Saturday November 8th, 2014   •   Posted by Craig Eyermann at 10:41am PST   •  

13504595_S There’s a lot not to like about how much money the various agencies and departments of the U.S. federal government waste, but perhaps the most bizarre example from the 2014 Wastebook is the story of how the National Institute of Health (NIH) spent $387,000 over two years to provide Swedish massages to the feet of New Zealand White rabbits four times a day.

That was the choice the agency’s leadership made in setting the NIH’s priorities, where instead of spending the money more practically, say to develop effective protocols to prevent U.S. health care workers from becoming infected with the Ebola Virus Disease before it arrived in the U.S., chose instead to use the money to study whether Swedish massage techniques might be beneficial for helping the feet of human athletes recover more quickly after exercise. Something that human athletes have been doing for some time because the benefits of the practice have already been well established.

The 2014 Wastebook, which is produced by the office of Senator Tom Coburn of Oklahoma, who is also a medical doctor, critiqued the rationale for the NIH’s research.

“We tried to mimic Swedish massage because anecdotally, it’s the most popular technique used by athletes,” said Thomas Best, the project leader and co-medical director of the Ohio State University Sports Medicine Center.

The researchers “acknowledged that the injury created in our animal model may not be completely analogous to the injury produced in humans with eccentric exercise.” They do note, however, that studies do exist to support the use of massage to treat human muscle aches and pains.

If the researchers were seeking to learn how to indentify the most optimal application of massage therapy to treat human muscle aches and injuries, then perhaps they should have observed human subjects. Instead, this study seems to have chased tax dollars down a rabbit hole. Taxpayer dollars that could have supported potentially more transformative research were instead spend on exercise and massage equipment for rabbits.

But that’s not all. The Chicago Tribune‘s John Kass went the extra mile to find out if there might be another, more practical reason why anyone would want to massage the feet of rabbits as part of a “scientific” study.

But I wasn’t through with my own scientific inquiry, so I called the famed Slagel Family Farm, about 100 miles south of Chicago, which provides rabbit, pork and beef to Chicago’s top gourmet restaurants.

LouisJohn Slagel, a fifth-generation farmer, answered the phone and was struck dumb by the news. “They’re taking my tax dollars and using them to massage rabbits’ feet?”

Yes, Mr. Slagel.

I’ve never really been embarrassed for my country before this. But outlining the program and the cost to a rabbit man made me realize that we’ll never get our deficit and debt under control.

Mr. Slagel? Any reaction to the federal rabbit foot massage?

He was silent for some time, then answered: “Well I certainly don’t think that’s a good use of the public funds, but that’s Washington for you.”

By an amazing coincidence, Slagel raises New Zealand rabbits, which is the same breed rubbed Swedishly by the NIH.

“They’re a gentle rabbit,” he said. “But I still can’t believe it. When you first mentioned it, I thought perhaps it was something like Kobe beef, where they massage cattle. But you wouldn’t massage a rabbit.”


“They’re only about 3 pounds,” he said. “They’re tender enough.”

The 2014 Wastebook indicates that the rabbits in the NIH’s Swedish massage study were eventually euthanized, but it doesn’t reveal how the researchers finally disposed of its animal research subjects.

Pillage People Strike Again

Wednesday November 5th, 2014   •   Posted by K. Lloyd Billingsley at 6:09am PST   •  

Treasury_200As we have noted, the Internal Revenue Service has been targeting those who advocate limited government and lower taxes, and calls this harassment “horrible customer service.” The IRS also sends billions to identity thieves and wastes more billions in improper payments. The federal agency generally fails in the fight against tax fraud. Now, as Shaila Dewan notes in the New York Times, the IRS is grabbing the money of Americans who have done nothing improper.

Dewan cites the case of Iowa restauranteur Carole Hinders, who had $33,000 from her checking account seized by the IRS. Hinders was not charged with any crime. The federal agency’s pillage people grabbed the money because she deposited less than $10,000 at a time. Without any investigation whatsoever, the IRS charged that Hinders did so to avoid triggering a government report for deposits of $10,000 or more, a measure designed to catch drug traffickers, terrorists, and such. Hinders had been told by her mother that deposits of less than $10,000 help the bank avoid paperwork. Here’s another example: A Michigan grocery store owner found his insurance company would cover only up to $10,000 in cash. So when he approached that limit, he made a deposit. These are hardly the only cases.

Dewan notes that the IRS seized $447,000 from the accounts of the Hirsch brothers, owners of Bi-County Distributors in New York State. The Hirsches had kept their deposits low because three of their bank accounts had been closed by the paperwork of the frequent cash deposits. As Dewan observes, “the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent. Many give up.” Former federal prosecutor David Smith told the Times, “They’re going after people who are really not criminals. They’re middle-class citizens who have never had any trouble with the law.” And as Hirsch lawyer Joe Potashnik told Dewan, “I don’t think they’re really interested in anything. They just want the money.”

IRS officials claim they will curtail these practices and focus on cases with “exceptional circumstances.” Based on their record, one doubts it. Accountability simply does not exist at this agency, and their ultimate boss, President Obama, finds not a smidgeon of corruption in their worst actions. They want the money and will go after it by any means necessary.

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