In January 2016, the Obama administration transferred $1.71 billion to Iran from the U.S. Treasury. Of that money, the equivalent of $400 million in cash was directly flown to Iran in an unmarked Iranian cargo plane, predominantly in the form of small denomination Euros and Swiss francs that had been bundled and stacked on wooden pallets. Upon receipt of that money, Iran released three American citizens that it had imprisoned on false or trumped up charges.
While that dramatic story has gained quite a lot of attention, the story of how the U.S. Department of Justice’s Judgment Fund at the U.S. Treasury was used to fund an additional $1.31 billion to Iran’s accounts at other nation’s central banks would appear to involve a similar level of intrigue.
Specifically, the Obama administration obtained the full $1.31 billion it ultimately transferred to Iran was done through 13 withdrawals of $99,999,999.99 and one payment of $10,390,236.28 from the DOJ’s Judgment Fund.
The 13 separate withdrawals of $99,999,999.99, or rather, 13 separate withdrawals of one penny less than $100 million each, appear to have been structured to specifically allow the U.S. Federal Reserve to directly transfer the funds to foreign central banks as cash items. The Associated Press’ Bradley Klapper reports:
On Jan. 17, the administration paid Iran the account’s $400 million principal in pallets of euros, Swiss francs and other foreign currency, raising questions about the unusual payment. The $1.3 billion covers what Iran and the U.S. agreed would be the interest on the $400 million over the decades....
Briefing reporters last week, a senior U.S. official involved in the negotiations said the interest payments were made to Iran in a “fairly above-board way,” using a foreign central bank. But the official, who wasn’t authorized to be quoted by name and demanded anonymity, wouldn’t say if the interest was delivered to Iran in physical cash, as with the $400 million principal, or via a more regular banking mechanism.
The money came from a little-known fund administered by the Treasury Department for settling litigation claims. The so-called Judgment Fund is taxpayer money Congress has permanently approved in the event it’s needed, allowing the president to bypass direct congressional approval to make a settlement.
Economic analyst Tom Blumer describes why these payments actually represent a transfer of cash to Iran.
The reference to a “foreign central bank” by the “senior U.S. official” Klapper quoted appears to be a classic case of misdirection. That’s because the default reason for the 13 payments of one penny less than $100 million has to be that any amount larger than that would not have been processed by the U.S. central bank, aka the Federal Reserve, as a “cash item.”
Section 3.0 of the Fed’s Operating Circular No. 3 relates to “Items We Do Not Handle as Cash Items” (emphasis: “Not”). That section includes the following dollar threshold:
We reserve the right to charge back an item if in our discretion we judge that circumstances require that it should not be handled as a cash item. We reserve the right to return an item payable by, at or through a bank that has been reported closed. We do not handle an item in the amount of $100,000,000 or more, and we reserve the right to return items in amounts of less than $100,000,000 that in our judgment are intended to avoid the $100,000,000 limit. The Reserve Bank may reject a purported electronic item and reverse any provisional credit that may have been given for it.
Thus, the payments, all but one kept just under $100 million, were from all appearances deliberately structured to ensure that the Fed would treat them as “cash items.” Additionally, the supposedly “independent” Fed failed to reject the payments, even though they clearly were “intended to avoid” the $100 million limit.
The sub-$100 million size of these 14 payments enabled them all to be processed as “cash items.” Thus, it appears that the Fed could have sent the funds after processing to the unnamed “foreign central bank” the AP’s source mentioned as immediately disbursable “cash items.”
As such, it would then appear that the Obama administration directly transferred some $1.71 billion from the U.S. Treasury to Iran or to its bank accounts in cash, the equivalent of $400 million in physical cash and $1.31 billion in electronic payments purposefully structured to ensure its delivery in ready-to-spend form to the Iranian government’s accounts at as yet unidentified foreign central banks.
One of the reasons this portion of the story is so interesting is because it is a crime for U.S. citizens to structure withdrawals from their private bank accounts this way. Writing at the New York Times, Josh Barro describes how the U.S. law prohibiting such structured withdrawals was used to prosecute former U.S. Speaker of the House of Representatives Dennis Hastert.
Dennis Hastert has not been indicted on a charge of sexual abuse, nor has he been indicted on a charge of paying money he was not legally allowed to pay. The indictment of Mr. Hastert, a former House speaker, released last week, lays out two counts: taking money out of the bank the wrong way, and then lying to the F.B.I. about what he did with the money.
Does that make sense? Conor Friedersdorf of The Atlantic, for example, is worried that the indictment constitutes government overreach, punishing Mr. Hastert for concealing payments whose disclosure he may have thought would be damaging to his reputation, but which were not illegal.
Federal prosecutors allege Mr. Hastert was paying hush money in exchange for wrongdoing that happened long ago. But Mr. Hastert is charged with structuring: making repeated four-figure cash withdrawals from his bank in order to avoid the generation of cash transaction reports, which banks are required to send the government about every transaction over $10,000. These reports have been required since 1970, with the intention of helping the federal government identify organized criminals and tax evaders.
The contrast between the Obama administration’s actions to transfer $1.71 billion to Iran and the prosecution of Dennis Hastert brings to mind the self-indictment of former President Richard Nixon’s unlawful, pardoned conduct that came to light through his 1977 interviews with David Frost:
“If the president does it, that means it’s not illegal.”
The U.S. House of Representatives’ Financial Services Committee will begin an inquiry into the Obama administration’s transfer of U.S. taxpayer funds to Iran’s government this week. It will be interesting to see what determinations will be made, since right now, answers to the questions raised by the irregularities of the whole transaction are not forthcoming from the administration.
Thanks to bills California governor Jerry Brown signed in July, Californians now face ID and background checks to purchase ammunition, and the state will create a new database of ammunition owners. Magazines holding more than 10 rounds are banned and the state now restricts the loaning of guns, without background checks, even to close family members. Californians can be forgiven for thinking that these measures burden law-abiding citizens more than they restrict the violent criminals who flout the law. The six gun-control bills that Gov. Brown signed, however, are not the limit of California’s surge in gun control.
As Diana Lambert explains in the Sacramento Bee, the UC Davis Medical Center “will house the nation’s first state-funded firearm violence research center.” The University of California Firearm Violence Research Center gets a five-year grant of $5 million, part of the governor’s budget package. Garen Wintemute, a physician and expert on “firearm violence,” will head the center, whose first project will be “a survey that looks at who owns guns, why they own them and how they use firearms.” Californians could be forgiven for thinking that, as Sam Paredes of Gun Owners of California told Lambert, the state research team seeks “any justification to control guns” and has never shown firearm ownership in a positive light.
Wintemute claimed to be “driven by data, not by a policy agenda,” and that suggests a project for his new state-funded center. 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 Germany restricted firearms. The Nazis also wanted to know “who owns guns” and they ruthlessly suppressed firearm ownership by disfavored groups. Do California’s new gun laws, with their heavy-handed restrictions and database of ammunition owners, resemble in any way the gun laws of National Socialist Germany? After all, Nazi Germany was one of the most repressive and violent regimes in history. For $5 million, California taxpayers surely deserve an answer.
Shortly after signing a contract with general manager Mike Wiley, Sacramento’s Sacramento Regional Transit “slipped into financial duress from which it has yet to recover,” wrote Tony Bizjak of the Sacramento Bee. “The agency has tapped reserve accounts in the last three years to balance its budget, leaving it with virtually no emergency funds this summer. RT raised rider fares 10 percent on Friday, making its buses some of the most expensive to ride in the country.” Though a bust as a manager, Regional Transit rewarded Wiley with a pension of $278,000, a full $48,000 more than his final salary of $230,000. The transit boss selected an option that will pay him $220,000 a year, still $10,000 above the federal pension maximum of $210,000. When Wiley departed, Regional Transit cut 20 administrative positions, but as Denny Walsh of the Sacramento Bee observes, the federal government is blocking state efforts at pension reform.
In 2012, California adopted a pension-reform measure that requires government employees to pay at least half the cost of their pensions. Under this measure, government employees have to work longer before retirement, and the state caps their pay for pension purposes. “At the time of its passage,” writes Walsh, “the statute was projected to save the state up to $60 billion over 30 years.” The federal Department of Labor, however, charges that California’s pension reform deprived Regional Transit employees of collective bargaining rights. Therefore, the federal government has cut off grants for millions of dollars. Federal labor officials only approved grants to transit agencies “that agreed to restore pre-reform-act pension benefits and bargaining rights.”
As Lawrence McQuillan explains in California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, extravagant government pensions are depleting budgets and threatening vital public services. The federal government makes the task of pension reform more difficult.
Six years ago, the U.S. Congress passed the Telework Enhancement Act of 2010, which permitted eligible bureaucrats who work in the civilian portion of the executive branch of the U.S. federal government to telecommute to work. When the law was passed, lawmakers expected to realize several benefits, particularly in the nation’s capital:
Today, nearly 25% of these bureaucrats have taken advantage of the Telework law to work part time from home. Unfortunately, the General Accounting Office has issued a report that suggests that none of these expected benefits have yet to be measured. The Post and Courier reports:
... the GAO has concluded in a review of six agencies, big and small, that there is no compelling evidence to show that working from home delivers the anticipated benefits. Those include less congestion and fewer auto emissions by reduced commuting, and fewer energy costs at federal agencies when office space isn’t occupied.
Auditors found “little data to support the benefits or costs associated with their telework programs.”
Allowing federal bureaucrats to telecommute to work would also appear to not enhance the productivity of the workers who participate in the program. The Post and Courier recalls what was learned in a case study involving patent examiners employed by the U.S. Patent and Trademark Office.
After whistleblowers in 2014 alerted federal auditors to abuses, investigators found little oversight of stay-at-home workers. Consequently, the quality of work suffered, leading to the issuance of faulty patents and, later, litigation.
Moreover, the system was subject to abuses by the teleworkers and their supervisors. Stay-at-home examiners were given credit for work yet to be reviewed, and many workers didn’t complete their assignments until the very last minute.
Nevertheless, 99 percent of those examiners were given a “quality” rating that qualified them for bonus payments.
Teleworking might have a place in the federal bureaucracy, but the findings so far say it should be very limited, and closely monitored.
If the telework program for the employees of the federal government is going to work, the work they do has to get done and it has to get done right. Otherwise, the days of bureaucrats being allowed to work from home in their pajamas deserves to be extremely short.
The CBO has issued its mid-year update to its Budget and Economic Outlook, which covers the years from 2016 through 2026. Here’s their summary of the main change in what they project for the next 10 years.
CBO’s estimate of the deficit for 2016 has increased since the agency issued its previous estimates in March, primarily because revenues are now expected to be lower than earlier anticipated. In contrast, the cumulative deficit through 2026 is smaller in CBO’s current baseline projections than the shortfall projected in March, chiefly because the agency now projects lower interest rates and thus lower outlays for interest payments on federal debt. Nevertheless, by 2026, the deficit is projected to be considerably larger relative to gross domestic product (GDP) than its average over the past 50 years.
That seems like something of a mixed bag, where the U.S. government’s budget deficit will be larger than projected in 2016 and 2017, but will be smaller than the CBO had previously projected in the following 8 years, but the reason for that change is the same: the U.S. economy is currently growing more slowly than they previously anticipated. In 2016, that slower economic growth means larger deficits, but in future years, that same slower growth translates into lower than previously expected interest rates, which means smaller payments on the U.S. national debt, which they believe will offset the reduction in the U.S. government’s tax revenues in those years.
Figure 1-1 of the CBO’s mid-year update shows what they now expect for the U.S. government’s annual budget deficit, which after 2018, is projected to steadily grow to levels that in the previous 50 years, were typically only seen during deep U.S. recessions.
Figure 1-2 in the report shows what the CBO now expects for the U.S. government’s current spending and revenue collection trends.
Under current law, the CBO projects that the U.S. government’s revenue will rise as a percentage share of GDP throughout the next 10 years. At the same time, the CBO projects that the U.S. government’s spending will rise even faster, which is why the government’s annual budget deficits are projected to steadily rise. Both trends are well above the government’s long-term historical averages, which means that the cause of the projected growing deficit problem isn’t that the government won’t be collecting enough taxes, but rather that it will be spending too much money.
Compared to 2015, the U.S. government’s budget deficit in 2016 will be 35% larger at $590 billion. And though future budget deficits through 2026 are now projected to rise more slowly than what was anticipated 6 months ago, the cumulative effect of those budget deficits will increase the public portion of the U.S. government’s total public debt outstanding from 77% of GDP to 86% of GDP.
Considering the bigger picture for the U.S. government’s fiscal outlook by including the intragovernmental portion of the national debt, the U.S. government’s total public debt outstanding of $19.4 trillion is about 106% of GDP. If the CBO’s 10 year projection holds, the total national debt of the U.S. government will rise to be around 125% of GDP by 2026.
The historic record for that figure was set in 1945, when the U.S. was fighting World War 2, which drove the national debt up to reach 119% of GDP. According to the CBO’s new projections, it looks like the U.S. government could beat that record sometime in 2022.
As we noted, California’s vaunted high-speed rail project will require 35 miles of tunnels through the mountains north of Los Angeles. Governor Jerry Brown, a backer of the bullet train, also has tunnel vision for the Sacramento-San Joaquin Delta. Brown wants to dig 35 miles of tunnels to convey water to the State Water Project and Central Valley Project. The tunnels are officially known as the California WaterFix, and as Dale Kasler notes in the Sacramento Bee, a 2013 state cost-benefit study concluded that the project “makes financial sense.” On the other hand, according to Jeffrey Michael, director of the Center for Business and Policy Research at the University of the Pacific, the tunnels are a financial bust.
In the new study, Benefit-Cost Analysis of The California WaterFix, Michael argues that the project “is not economically justified under both the base and optimistic scenarios.” According to his estimate, Waterfix will provide “only 23 cents of benefits for each dollar of cost.” Construction costs, estimated at $16 billion, “are still more than 2.5 times larger than benefits.” The project could only be justified “if its construction and mitigation costs were below $2 billion or if its water yield could be increased from an annual average of 225,000 acre feet per year to about 2 million acre feet per year without negatively impacting the environment or causing any additional harm to other water users.”
As Michael’s study emerges, Gov. Brown is seeking approval for WaterFix from two federal agencies. As Kasler explains, state officials “believe it’s crucial to get those approvals before President Barack Obama leaves office next January, or risk losing momentum on the entire project.”
Gov. Brown appears undisturbed by the financial, environmental and safety concerns, and his brand of tunnel vision can’t reverse itself. The governor prefers to focus on the joys of spending and a glowing legacy down the road. Long after he leaves office, California taxpayers, and their children, will be stuck with the costs.
They came before dawn, a squad of six armed officers, banging on the door of Maria Elena Hernandez, 62, a Los Angeles grandmother. When she identified herself, one of the officers twisted her arms behind her back and slapped her in handcuffs. Hernandez protested that the officers had the wrong person, but they duly carted her off to jail. The armed squad was not from the Los Angeles Police Department, the DEA or the Department of Homeland Security. As Marisa Gerber notes in the Los Angeles Times, the armed squad was from the California Department of Insurance (CDI) and they did have the wrong person. The CDI had confused Hernandez with an insurance fraud suspect of the same surname, but it took them more than two months to catch the error. By that time she owed $2,000 in bail bonds and $1470 for a medical exam initiated by jail staff. The CDI said they deeply regretted the error, but the Hernandez case might prompt Californians to take a hard look at this state agency.
The CDI claims it is the “largest consumer protection agency in the state,” with more than 1,300 employees and an annual budget of more than $260 million. The 1988 Proposition 103 “expanded CDI’s authority” and made Insurance Commissioner an elected office. The CDI’s fraud division dates from 1979 and in 1980 the division’s detectives became sworn peace officers conducting surveillance, undercover operations, and making arrests. The Fraud Division’s funding “is primarily secured from assessments on insurance policies issued in the State,” including every automobile policy. The CDI bills the division as “the premiere insurance fraud investigative agency in the nation with over 200 sworn officers operating in nine regional offices throughout the State of California.”
This “premier” agency sometimes busts the wrong person in an armed pre-dawn raid. The CDI also confirms that bureaucracies tend to get bigger, more expensive, and also more militant. In similar style, the federal U.S. Department of Education deploys an armed enforcement division that conducts pre-dawn raids. The Transportation Safety Authority, initially limited to airports, deploys a Visible Intermodal Prevention and Response program that rousts people at train stations and other transportation hubs. It’s all for the protection of the public of course.
In 1996, construction began on a brand new major league ballpark in Phoenix, Arizona, which became the home of the Arizona Diamondbacks when it was completed and opened in 1998. Originally called Bank One Ballpark, the stadium is now known as Chase Field.
The stadium cost $349 million to complete, of which, $238 million (68%) was contributed by the taxpayers of Maricopa County and $111 million (32%) was contributed by the Diamondbacks baseball team.
Last week, Maricopa County’s Supervisors voted unaminously to move forward with negotiations to sell Chase Field to a private developer who made an unsolicited bid of just $60 million for the stadium, which is just a little over 25% of the amount they paid nearly 20 years ago to build it.
In terms of today’s inflation-adjusted dollars, the total cost to build the 48,569 seat air-conditioned stadium with a retractable roof, which is fully owned by the Maricopa County Stadium District, comes in at over $515 million, with the equivalent taxpayer-contributed portion working out to be more than $351 million.
These inflation-adjusted figures that the stadium has really depreciated by nearly 89% since its construction began 20 years ago. For Maricopa County taxpayers, that $60 million sale would represent the recovery of just 17% of the inflation adjusted dollars they spent to build the stadium.
That’s a fire sale price, so a very good question to ask is why are the county supervisors of Maricopa County leaping all over the opportunity to sell the stadium for so apparently little. Laurie Roberts of the Arizona Republic asked the same question and got part of the answer:
How could a ballpark we spent $250 million to build not even 20 years ago on prime land in downtown Phoenix be worth only $60 million?
I built my house around that same time. It’s now worth more than twice what I paid for it. Why is Chase Field worth only a quarter of what we paid for it?
Why would we sell it for $60 million when the county’s own assessor puts the value at $351 million?
Maricopa County Supervisor Denny Barney, in selling the deal to his colleagues, laid it out: “This allows us to honor the public trust by not only returning public dollars to the public coffers ... and at same time finding a way to help Diamondbacks play and maintain their agreement to play in Chase Field.”
In other words, we’re holding this fire sale because team owner Ken Kendrick has threatened to go elsewhere if we don’t give him better terms than called for in his team’s contract with the county. Read: $187 million in ballpark upgrades.
Put another way: we’re contemplating selling a public asset for 25 cents on the dollar so that Diamondbacks can get what they want: Fewer seats, fancier suites and more doodads that the county says our contract doesn’t require us to provide.
If the sale doesn’t happen, then Maricopa County is on the hook to pay $187 million in upgrades to Chase Field, which would appear to be nearly $187 million more than the county has available to pay for such improvements. By selling the stadium, the Maricopa County government is also selling that liability to the potential new owners, who will be required by the stadium’s 30-year contract with the Arizona Diamondbacks to deliver those upgrades. For the buyer, that represents a cost of at least $247 million.
Otherwise, Maricopa County will need to both borrow more money to meet its contractual obligations and raise its taxes to pay for expenses it knew it would have from the outset and should have provided for paying.
But it didn’t. What the taxpayers of Maricopa County are really getting in this deal is $60 million in cash and the avoidance of at least an additional $187 million in costs. That combined $247 million then represents what the county is really getting in jumping on the opportunity to sell the stadium.
While that $247 million is almost 4% more than the amount it contributed to build the stadium back in the 1990s, once inflation is factored in, Maricopa County is really selling the stadium for a 30% discount, which is the gap between $247 million and the equivalent of $351 million in today’s dollars that it paid to build the stadium 20 years ago, which coincidentally happens to be the amount at which its assessor has appraised the current value of the stadium.
As bad as taxpayer financed stadiums are for the finances of nearly all cities that have built them, that may be the best deal the taxpayers in any city have been offered in return for their investment in major professional sport franchises.
The Department of Veterans Affairs has gotten itself into hot water with its Inspector General again, this time, for wasting over $292,492 to buy some 282 television sets for a new patient area in the John D. Dingell VA Medical Center in Detroit, Michigan that was never built, where the TVs were thus never installed. Instead, they have sat for over two and half years in storage.
The Daily Caller News Foundation‘s Luke Rosiak has the story:
Detroit’s Department of Veterans Affairs (VA) hospital spent $311,000 on TVs that were never used and remain in storage.
The federal agency’s facility ordered the 300 TVs “because they had funds available,” which “may have violated the bona fide needs rule,” according to a new report from the department’s inspector general (IG).
Now, the TVs have sat “in storage for about 2 1/2 years. Further, warranties for the TVs expired.”
Detroit’s WJBK adds more to the story with personal interviews.
“You got a lot of homeless veterans that need help,” said veteran Robert Height. “To buy TVs and not use them, come on, we could have done something better with the money.
“There is a lot more that can be done. What’s more important -homeless veterans or TVs?”
That’s a good question, and other veterans interviewed by WJBK had some suggestions.
“For one thing, they can start off with some wheelchairs,” said veteran Earnest Smith. “I see a lot of veterans don’t have their wheelchairs. A lot of veterans have to be waited on, and water fountains that the veterans can use as they wait to see their doctor.”
“Basically the care here is more like a clinic than a hospital, I can get more help going to the DMC.” said veteran Larry Smith.
Imagine that. Veterans believe the VA should focus its priorities on providing medical treatment and disability accommodations to meet their health needs. The question remaining to be asked of the VA’s administrators is will they ever tune in to the reality show going on around them?
Politicians may bill it as “free”, but government monopoly in education is big business that racks up considerable public debt. As Dan Walters of the Sacramento Bee observes, in recent decades California has issued $45 billion in school bonds now being repaid at a cost of nearly $3 billion a year. With interest the total cost of retiring the bonds will be about $90 billion. That figure is about to get bigger because “a $9 billion bond issue has been placed on the Nov. 8 ballot by a coalition of school groups, developers and the construction companies that profit from school contracts.”
The measure is Proposition 51, the Kindergarten Through Community College Public Education Facilities Bond Act of 2016. Though it will increase debt, the educrats and their allies are billing it as the ticket to economic recovery. “Studies show that 13,000 jobs are created for each $1 billion of state infrastructure investment,” the measure claims. “These jobs include building and construction trades jobs throughout the state.” So the bond money supposedly trickles down into jobs, but only within a narrow range. Prevailing wage laws reserves those jobs for union companies, and more than 90 percent of workers in the private sector are not union members. So “free” public education is highly profitable for a select group of insiders. On the other hand, the whole K-12 government monopoly system is based on the trickle-down principle.
The late John Mockler was a wealthy lobbyist who became secretary of education and executive director of the State Board of Education under Governor Gray Davis. Mockler authored Proposition 98, the 1988 constitutional amendment that earmarked 40 percent of the California’s general fund budget for K–12 education. All that money, now some $65 billion, must trickle down through multiple layers of bureaucratic sediment before it reaches the classroom. Taxpayers might wonder about the results for students. Nearly half of incoming students in the California State University system need remedial math and English.
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