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Voting to Borrow for the Children


Tuesday November 4th, 2014   •   Posted by Craig Eyermann at 5:22am PST   •  

ii-421-Education201st On Election Day 2014, many voters in California will likely see at least one of 118 local bond measures on their ballots, with local government entities seeking permission to borrow a collective total $12.6 billion dollars as they also increase local property taxes to pay back the money being borrowed over the term of the loans, which is how school bonds work.

Of these 118 measures, 112 are purportedly for the benefit of the state’s public schools, where the authors of the ballot measures claim the money being borrowed will go to things like repairing facilities or otherwise improving the government-run schools. For the children.

But there is no law in California that requires government school officials to spend the money they borrow for those stated purposes. Ed Ring explains where money claimed to be “for the children” will really be going:

“As the result of California Courts refusing to uphold the language of the High Speed Rail bonds, the opponents of any bond proposal, at either the state or local level, need only point to High-Speed Rail to remind voters that promises in a voter approved bond proposal are meaningless and unenforceable.”

- Jon Coupal, October 26, 2014, HJTA California Commentary

If that isn’t plain enough—here’s a restatement: California’s politicians can ask voters to approve bonds, announcing the funds will be used for a specific purpose, then they can turn around and do anything they want with the money. And while there’s been a lot of coverage and debate over big statewide bond votes, the real money is in the countless local bond issues that collectively now encumber California’s taxpayers with well over $250 billion in debt.

Over the past few weeks we’ve tried to point out that local tax increases—166 of them on the November 4th ballot at last count, tend to be calibrated to raise an amount of new tax revenue that, in too many cases, are suspiciously equal to the amount that pension contributions are going to be raised over the next few years. For three detailed examples of how local tax increases will roughly equal the impending increases to required pension contributions, read about Stanton, Palo Alto, and Watsonville’s local tax proposals.

It’s a long way to go from borrowing money to fix up public schools that are falling apart to instead borrowing money to ensure that public employees never get anything less than the full amount of their very generous public pensions that they claim they deserve after their careers of making sure the public schools don’t fall apart. But at least after the debt has all been paid, California voters can rest assured that the public schools will be in even greater need of repair because the money to fix them went somewhere else.

So we guess that these 118 local bond measures for fixing up poorly maintained public schools won’t be the last that Californians will be seeing on their ballots.

If only the money that local governments are borrowing were really going to things that would actually address the education needs of California’s children, rather than crushing their future with enormous debt bills.

Government Pension Surge Drives Tax Increases


Monday November 3rd, 2014   •   Posted by K. Lloyd Billingsley at 4:55am PST   •  

calpersLogo_200This week voters in California will make the call on, count ‘em, 140 tax increases, from sales taxes to levies on soda and marijuana. If voters should wonder what is driving these tax increases, Mark Bucher of the California Policy Center has a few suggestions in his October 26 Sacramento Bee article headlined “Big Pensions drive proposed tax increases on Nov. 4 ballots.” And “big” is no exaggeration.

Bucher cites the case of Bruce Malkenhorst, a former city official in Vernon, who last year received a pension of $552,000, more than the salary of the President of the United States. The year before, Malkenhorst was busted for misappropriate use of public funds, as Bucher notes, “causing his pension to be cut to a mere $115,000.” However, Malkenhorst mounted a legal challenge and duly bagged the $552,000. And he says to himself, what a wonderful world. In fact, as Bucher notes, in 2013, a full 99 California retirees received at least half-million-dollar government pension payouts of $500,000, a notable surge from only four in 2012, though four was still too many. A good ballpark figure would be zero.

Bucher also flags, as the major drivers of profligacy and tax increases, the 40,000 California retirees who in 2013 took home pensions greater than $100,000. These include an L.A. librarian bagging $137,000 and a court reporter with $105,000. By Bucher’s count, these pensions mean that California now spends one out of every nine state and local tax dollars on pensions, up from one in 16 tax dollars in 1994. This means that current tax increases “do not increase government services, but simply service government pensions.” Further, “in 2014, California will spend approximately $45 billion on pensions, equaling total state and local welfare spending for the first time. And in the zero-sum game of government spending, an extra dollar spent on pensions means one less spent on welfare, infrastructure or safety—or returned to the taxpayer.”

Bucher calls for proactive pension reform and finds hope in a recent ruling that CalPERS is not above bankruptcy protection, forcing Stockton retirees “to take pension haircuts.” How should other legislators proceed? Says Bucher, “start with Malkenhorst and six-figure pensions for mid-level civil servants.” But don’t stop there. Give every government employee a long-overdue pension haircut. And when they retire, don’t replace them.

The Bureaucrats’ Secret Buying Spree


Saturday November 1st, 2014   •   Posted by Craig Eyermann at 1:42pm PST   •  

ii-gov-purchase-card2 Oh, to be a bureaucrat in the U.S. federal government! What other jobs pay just as much or more than similar work done in the private sector, but with much, much more generous benefits? Which would appear to be even more generous than we previously knew, thanks to the discovery of a surprising new perk by Scott McFarlane of Washington, D.C.’s NBC affiliate, News4 I-Team: taxpayer-funded purchase cards with no accountability!

The federal government has spent at least $20 billion in taxpayer money this year on items and services that it is permitted to keep secret from the public, according to an investigation by the News4 I-Team.

The purchases, known among federal employees as “micropurchases,” are made by some of the thousands of agency employees who are issued taxpayer-funded purchase cards. The purchases, in most cases, remain confidential and are not publicly disclosed by the agencies. A sampling of those purchases, obtained by the I-Team via the Freedom of Information Act, reveals at least one agency used those cards to buy $30,000 in Starbucks Coffee drinks and products in one year without having to disclose or detail the purchases to the public....

The I-Team, using the Freedom of Information Act, received a list of “micropurchases” made by the Dept. of Homeland Security at Starbucks vendors nationwide in 2013. The list includes dozens of transactions, including in Washington, D.C., and Maryland. Several of the purchases were made at an Alameda, California, Starbucks vendor and cost more than $2,400 each, just below the $3,000 threshold for which purchases need not be publicly disclosed. After reviewing the I-Team’s findings, Rep. John Mica (R-FL), chair of a U.S House Oversight subcommittee said, “When you have $10,000 being spent at one Starbucks by DHS employees in one city in six months, someone is abusing the purchasing permission that we have given them.”

“DHS” refers to the Department of Homeland Security. From the information provided above, it would appear that DHS employees sought to conceal a very large purchase from Starbucks in Alameda, California, by breaking the purchase into smaller transactions to avoid having to disclose the true scale of the expenditure, much like drug traffickers do with their bank deposits in order to avoid the scrutiny of the authorities.

In this case, the DHS facility nearest to Alameda’s Starbucks locations is the U.S. Coast Guard Base at Alameda, whose personnel would appear to know quite a lot about how drug traffickers operate, which perhaps explains how a DHS employee could come up with that particular purchasing strategy.

Now, multiply that single abuse by a single federal government bureaucrat for spending $10,000 at a single Starbucks location by the federal government’s two million civilian employees, and that goes a very long way to explaining how the bureaucrats’ secret buying spree can add up to a bill that totals $20 billion dollars.

Bay Bridge Escapes Criminal Investigation


Wednesday October 29th, 2014   •   Posted by K. Lloyd Billingsley at 5:26am PST   •  

ct_logo_200We have been following the story of the new eastern span of the San Francisco-Oakland Bay Bridge, which came in ten years late, $5 billion over budget, and with lingering safety concerns. As we noted, UC Berkeley structural engineering professor Abolhassan Astaneh-Asi believes the bridge is unsafe and declines to use it. Governor Jerry Brown, a former candidate for president, responded to the safety issues with: “I mean, look, shit happens.” Some whistleblowers also thought so, and in a Sacramento hearing last January they called for a “criminal investigation.” That did not happen, but Caltrans boss Brian Kelly ordered an administrative investigation by the California Highway Patrol. The CHP deals with crimes committed on state property, but it’s a strange choice to investigate malfeasance on the bridge.

According to the Sacramento Bee, whose reporting brought the safety concerns to light, the CHP probe found “no illegality or retaliation against engineers who complained about construction defects.” The 33-page CHP report, however, cost some $823,000, with 13 officers working nearly 13,000 hours, including 1,500 hours of overtime. So taxpayers may be forgiven for seeing the CHP investigation not only as a cover-up but also as an excuse to waste even more money. But the story does not end there.

In the January hearing, Sen. Mark DeSaulnier complained that the cost overruns, 10-year delay, and lingering safety issues had eroded public confidence and made Californians “adverse to taxes.” These taxes were needed for other “infrastructure” projects that DeSaulnier claimed would promote economic growth. He gave no examples, but the prime candidate is surely the state’s $68 billion high-speed rail project.

DeSaulnier, who is running for Congress, is passing on an earlier Senate bridge report to state Attorney General Kamala Harris, with recommendations for a criminal investigation. Harris has shown not the slightest interest in challenging government bureaucracy, so taxpayers should not be surprised if the criminal investigation never comes off. That is good news for bureaucrats but bad news for taxpayers. If they believe massive state agencies are essentially unreformable, one can hardly blame them.

The Hidden Deficit


Tuesday October 28th, 2014   •   Posted by Craig Eyermann at 6:58am PST   •  

In the U.S. government’s just-completed fiscal year for 2014, there is a very large discrepancy between the “official” size of the budget deficit, $483 billion, and the amount by which the U.S. national debt increased, $1,086 billion (or $1.086 trillion, if you prefer). We’ve been digging through the Monthly Treasury Statements issued by the U.S. Treasury Department to get a better understanding of how that large of a discrepancy could possibly happen.

We estimate that the discrepancy really works out to be $244 billion, which is the figure we obtain when we subtract the $277 billion that the federal government borrowed from “itself” (primarily from Social Security’s Old Age and Survivors Insurance Trust Fund), the nearly $70 billion increase in the federal government’s Operating Cash (because Uncle Sam likes to have “walking around” money), $11 billion in “Miscellaneous Adjustments, and the $483 billion represented by the “official” budget deficit of the U.S. government from the $1,086 billion year-over-year increase in the nation’s total public debt outstanding.

In going through the Monthly Treasury Statements, we found two primary contributors to the hidden deficit: Deposit Funds, which represents money the U.S. government accumulates but does not own, and Federal Direct Student Loans, which represents money that the U.S. government borrows for the purpose of loaning out to college students.

The contribution of the U.S. government’s Deposit Funds liability, which accounts for just under half of the $244 billion discrepancy, is the result of the shell game that U.S. Treasury Secretary Jack Lew was playing during the debt-ceiling debate of the federal government’s 2013 fiscal year, when Treasury officials redirected money that should have gone to things like the Civil Service Retirement Trust Fund for government employees to avoid having to borrow more money from the public than the U.S. Treasury was authorized to do under the law. The chart below shows how the account balance for the U.S. Treasury’s Deposit Funds changed from month to month during the last few fiscal years.

account-balance-us-government-deposit-funds-liability-fy2012-thru-fy2014

When the debt-ceiling crisis was resolved in October 2013, the first month of the federal government’s 2014 fiscal year, the U.S. Treasury immediately rushed out to borrow over $119 billion to replace the I.O.U.s it had borrowed from “itself” during that shell game.

And then, on top of that, the U.S. government borrowed an additional $123 billion so it could loan the money directly to college students, accounting for the remainder of the U.S. government’s hidden deficit.

The chart below shows how much debt the U.S. government has accumulated for the purpose of loaning money directly to students since 2004.

cumulative-amount-borrowed-by-us-government-to-provide-federal-direct-student-loans-fy2004-thru-fy2014

Nearly all of the increase occurs after 2008, which corresponds to President Barack Obama’s tenure in office, which saw the federal government take over the student loan industry from the private sector. The U.S. government’s cumulative borrowing of $707 billion U.S. dollars to issue student loans accounts for nearly $1 out of every $10 that the U.S. government has borrowed since President Obama was sworn into office.

That makes Federal Direct Student Loans the largest single contributor to the hidden deficit of the U.S. government.

Social Security for Nazis


Monday October 27th, 2014   •   Posted by K. Lloyd Billingsley at 5:18am PST   •  

socialsecurityadmin-seal_200David Rising, Randy Herchaft, and Richard Lardner of the Associated Press have discovered that a small group of ex-Nazis, including death-camp guards and SS soldiers, are drawing America Social Security payments to the tune of more than $1.5 million. According to the AP, the U.S. government allowed the suspected war criminals to continue collecting Social Security if they agreed to leave the country to face prosecution abroad. The AP reporters found that at least 38 of 66 Nazi guards removed from the United States were allowed to keep their Social Security benefits and only 10 were prosecuted for war crimes in Europe. The federal U.S. Department of Justice denies it used Social Security as an incentive to persuade Nazi suspects to leave the country voluntarily, but American taxpayers have good reason to remain skeptical. And they might contrast the Social Security payments to Nazi war criminals with the restrictions American workers face.

As we noted two years ago, if an American worker is unable to find employment and chooses to take Social Security at age 62, the payout is substantially less than at age 65 or 67. In many cases, the payout would be inadequate to pay a mortgage and household expenses. Retirees at 62 can still work, but Social Security imposes an income limit in the neighborhood of $15,000. Beyond that, the government docks $1 for every $2 the worker earns. The limit increases at full retirement age but does not go away until 67, when the worker is obviously less able to work. This all amounts to enforced poverty and makes no sense on any level. The system that enforces these oppressive rules manages to keep the money flowing to Nazi war criminals.

Workers who find that disturbing should also consider the double standard for federal government employees. Under the Federal Employees Retirement System they are able to retire seven years earlier at 55, with no income restrictions and even with a Special Retirement Supplement (SRS) “designed to help bridge the money gap,” and which kicks in “your missing Social Security income until you reach age 62.” The American ruling class always gets the best deal.

The 2014 Wastebook Is Here!


Thursday October 23rd, 2014   •   Posted by Craig Eyermann at 8:56am PST   •  

wb14 cover_Display It’s back! Senator Tom Coburn’s annual compendium of some of the zaniest ways that the U.S. federal government burns through all the money it taxes and borrows in the name of spending: the 2014 Wastebook!

This year’s edition features over $25 billion worth of examples of bad decisions made by U.S. politicians and bureaucrats. Here are some highlights that caught our attention as we reviewed the 2014 Wastebook’s table of contents (and their cost), which we may explore more in upcoming articles:

  • Swedish Massages for Rascally Rabbits. ($387,000).
  • Scientists Hope Gambling Monkeys Unlock Secrets of Free Will. ($171,000).
  • Synchronized Swimming for Sea Monkeys. ($307,524).
  • New Bridge Demolished for Using $3,271 Worth of Canadian Steel. ($45,000).
  • FEMA Overlooks Flood Victims, Rebuilds Golf Course Instead. ($202,291).
  • Corporate Welfare for Mega Farmers. ($8,536,052).
  • Airport Tree-Trimming Project Turns into 27-Hole Golf Course Renovation. ($5,000,000).
  • Farmers Get Grant to Produce “Worm Power” Compost. ($199,000).
  • Taxpayers Charged to Promote Hillary Clinton’s $14 Million Book in Europe. ($55,000).
  • Medicaid Provider Taxes. ($4,000,000,000).

Until then, we encourage you to go through the 2014 Wastebook’s very well researched examples of where Uncle Sam’s team of politicians and bureaucrats makes bad decisions and spent money as if in a drunken stupor. If only there were a federally funded program to send them texts to convince them to not drink ($194,090) so much from the fountain of government spending in the first place!

And in the meantime, here’s the trailer:

Coburn, Tom. 2014 Wastebook: What Washington Doesn’t Want You to Read. 2014 Wastebook. 21 October 2014.

Ruling Class Rail Rolls On


Wednesday October 22nd, 2014   •   Posted by K. Lloyd Billingsley at 5:08am PST   •  

HiSpeedCATrain_200Opponents of California’s so-called “bullet train” went to court contending that the funding plan for $68 billion high-speed rail project violated the ballot measure voters approved in 2008. A Sacramento court agreed, but the Third District Court of Appeal overturned the ruling. Now, as the Sacramento Bee recently reported, the California Supreme Court let the appeal stand, and that has high-speed rail bosses feeling good about themselves. Dan Richard, chairman of the board of the California High-Speed Rail Authority, said they would move “aggressively” to build “a modern high-speed rail system that connects the state, creates jobs and complies with the law.” Stuart Flashman, attorney for opponents of the project, told reporters the decision was “bad news for California’s voters and for the state’s financial future.” He’s right about that.

Dan Richard said the train is supposed to “connect the state,” specifically Los Angeles and the San Francisco Bay Area. The first section of the project, however, is out near Fresno. This confirms that a primary purpose is to connect California congressmen with money, so they can show that they are bringing home the bacon for their districts. As we noted, the project is also a soft landing spot for washed-up politicians such as board member Lynn Schenck, a former congresswoman and chief of staff for California governor Gray Davis. And of course Governor Jerry Brown sees the bullet train as one of his legacy projects.

Suppose the bullet train did connect Los Angeles and San Francisco. It remains dubious whether it could make that trip in two hours and 40 minutes, as ballot measure 1A stipulated. In the style of Obamacare, you have to spend the money and build it before you find out how fast it goes. As it happens, two hours and 40 minutes is more than twice as long as it takes to fly between the two cities, but by all indications the bullet train will be more expensive than air travel as well. And if anybody thinks the final cost of construction will be $68 billion, the state has a bridge to sell you.

Fiscal Year 2014 National Debt Wrap-up


Tuesday October 21st, 2014   •   Posted by Craig Eyermann at 9:34pm PST   •  

Who were the major holders of debt issued by the U.S. federal government as of the end of its 2014 fiscal year?

The preliminary answer of who owns the $17.860 trillion in debt as of 30 September 2014 is presented graphically below:

fy2014-to-whom-does-the-us-government-owe-money

The data for foreign holdings will be revised over the next six months. We anticipate that the holdings indicated for Belgium will be shifted to other foreign entities, given that nation’s role as an international banking center.

Since FY2013

Since the end of the U.S. government’s 2013 fiscal year on 30 September 2013, the total public debt outstanding for the U.S. government has increased by $1.086 trillion (or to agree with the units shown on our chart, $1,086 billion). That would mark the sixth time in the past seven years that the national debt of the United States has expanded by more than $1 trillion dollars per year—double the typical half trillion a year increases that were viewed as a major problem prior to Barack Obama’s presidency.

year-over-year-changes in-us-national-debt-fy2000-fy2014

The $1.086 trillion increase in the total national debt for Fiscal Year 2014 is all the more remarkable because the U.S. Treasury Department just bragged that the federal government’s budget deficit for FY2014 was $483 billion.

Oct 15 (Reuters) — The U.S. budget deficit fell by nearly a third to $483 billion in fiscal 2014, the lowest level since 2008, as a quickening economic recovery boosted tax collections and spending grew only modestly, the Treasury Department said.

The deficit, down from $680 billion last year, was the lowest since a $459 billion budget gap in fiscal 2008, which was followed by four straight years of $1 trillion-plus deficits in the wake of the financial crisis.

U.S. Treasury Secretary Jack Lew and White House Budget Director Shaun Donovan hailed the data on Wednesday as a “return to fiscal normalcy” as the 2014 deficit fell to 2.8 percent of gross domestic product. That was the lowest since 2007 and a smaller share of the economy than the annual average for the last 40 years.

Somehow, the U.S. federal government managed to borrow and spend an additional $603 billion, above and beyond the official budget deficit of $483 billion claimed by the Obama administration, in order to cause the national debt to increase by more than one trillion dollars in one year.

How Could That Happen?

Part of the answer lies in the debt-ceiling debate during 2013, which ultimately led to the partial federal government shutdown for the first 17 days of the 2014 fiscal year, from 1 October 2014 through 17 October 2014.

Here, U.S. Treasury Secretary Jack Lew artificially kept the U.S.’s total public debt outstanding from increasing above the statutory debt ceiling by shifting around the portion of debt held by U.S. government entities, such as Social Security’s Trust Fund and the U.S. Civil Service Retirement Fund—giving them I.O.U.s as he redirected funds intended for them to instead allow the U.S. Treasury to continue rolling over the debt it owes to the public.

The reason the U.S. government had to go through a partial shutdown is because those trust funds didn’t have enough money to keep the shell game going until the debt ceiling was increased. When it finally was, the U.S. government “owed” some $328 billion to “itself”. Which it promptly rushed out to borrow in Fiscal Year 2014.

That’s also why the increase in the national debt for FY2013 seems so low. $328 billion of the debt that should have been recorded in that year was actually recorded in FY2014.

That means that the U.S. national debt increased by $758 billion in FY2014, $275 billion more than the official amount of the U.S. Treasury’s claimed $483 billion budget deficit.

We’re still waiting for the official explanation of that fiscal discrepancy.

Data Sources

Federal Reserve Statistical Release. H.4.1. Factors Affecting Reserve Balances. 1 October 2014. [Online Document]. Accessed 17 October 2014.

U.S. Treasury. Major Foreign Holders of Treasury Securities. Accessed 17 October 2014.

U.S. Treasury. Monthly Treasury Statement of Receipts and Outlays of the United States Government for Fiscal Year 2014 Through September 30, 2014. [PDF Document].

[Cross-posted at Political Calculations]

California Covered in Cronyism


Monday October 20th, 2014   •   Posted by K. Lloyd Billingsley at 5:31am PST   •  

CoveredCA_200As we have noted, Covered California, the Golden State’s wholly owned subsidiary of Obamacare, is massively dysfunctional and wasted $1.3 million on an absurd promotional video featuring flabby exercise guru Richard Simmons. The California health exchange also stonewalls consumers and serves as a lucrative landing spot for washed-up government officials such as former state finance director Ana Matosantos. But the problems don’t stop there.

As Jim Miller notes in the Sacramento Bee, consumer groups are pressing Attorney General Kamala Harris to investigate $184 million in Covered California contracts without competitive bidding. These reportedly include “millions of dollars in contracts to firms or people that had professional ties to Covered California executive director Peter Lee.” A reported $4.2 million in contracts went to The Tori Group, “a consulting firm whose founder had once worked with Lee. Other contracts went to the subsidiary of a firm Lee once led,” according to a report from Consumer Watchdog. Covered California bosses claimed they needed no-bid contracts to meet tight deadlines, but Watchdog president Jamie Court said, “This isn’t about speed. This is about being opaque,” and the no-bid deal was “the antithesis of open government and good government.” That is true, but not the end of it.

Covered California and Obamacare are the antithesis of good health care. The cardinal rule of anything medical is: first, do no harm. Obamacare violated that rule by taking away the health plans people wanted, and by taking away the people’s right to choose the care they believe best meets their needs. Now they get only the care government bosses want the people to have, administered by a system that is dysfunctional, wasteful, and unaccountable. That may be good for ruling-class insiders, but for everybody else it remains a highly unhealthy situation.

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