MyGovCost News & Blog

Two years ago, as we noted, California’s high-speed rail project was facing 36 miles of tunnels through the mountains north of Los Angeles, a tectonically complex area abounding in earthquake faults. As independent experts observed, these tunnels would have been the most ambitious tunneling project in U.S. history, with 90% odds of massive cost overruns. Bullet train bosses claimed they had not yet picked the exact route through the mountains, and the project was behind schedule on land acquisition, financing, permit approvals, and still facing multiple lawsuits. None of that diminished the rail bosses’ tunnel vision.

As Ralph Vartabedian reports in the Los Angeles Times, according to current plans, “a crucial part of the journey will be a 13.5-mile tunnel beneath the winding peaks and valleys of Pacheco Pass,” which will be “the nation’s longest and most advanced transportation tunnel.” Trouble is, the best tunnel experts peg the cost at “anywhere from $5.6 billion to $14.4 billion,” and the route “also requires a 1.5-mile tunnel just east of Gilroy, itself a major infrastructure project.” As UC Berkeley civil engineer William Ibbs told Vartabedian, “This is not good news for taxpayers of California.” That also applies to the entire project.

As California’s state auditor has noted, the rail project has been handing out sweetheart no-bid contracts. The rail “Authority,” has no building experience but has already established four offices, a Sacramento headquarters and three regional offices. The bureaucratic structure provides a soft ride for ruling-class retreads such as Lynn Schenk, former congresswoman and chief of staff for governor Gray Davis. The project also runs roughshod over property rights. As Hedley Lamarr said in Blazing Saddles, one thing stands between the rail authority and the land they want: “the rightful owners.”

Last year Lawrence McQuillan gave the bullet train the Golden Fleece Award for the government program “guilty of egregiously fleecing taxpayers.” And this is all before a single rider ever stepped aboard. If it ever was built, the $98 billion rail project would still be slower and more expensive than air travel. On the other hand, the bullet train is not really about transportation.

It’s a hereditary project for governor Jerry Brown and a great way for government to spend money without providing value for taxpayers. As High-Speed Rail Authority, chief engineer Scott Jarvis explained about the $14.4 billion Pacheco Pass tunnel: “We don’t see any problem.”

In 2015, the nonpartisan government spending transparency advocate OpenTheBooks began tracking the U.S. government’s purchases of firearms and ammunition down to the department and agency level, where one of the most surprising things they uncovered back then was that civilian government agencies that you would never think would have a legitimate need for semiautomatic rifles were in fact buying them in bulk.

Two years later, OpenTheBooks has mined through an additional two years worth of federal government purchase requisitions and has updated their counts of both guns and bullets that have been bought by agencies within the federal government. Writing at Forbes, Open The Books’ CEO, Adam Andrzejewski, reviews the new information they found.

We live in a dangerous world. For the 70,000 officers at Homeland Security and the 40,000 officers within the Department of Justice, proper training and equipment are vital to their daily law enforcement duties. Over a nearly two-year period – the last years of the Obama administration (FY2015 – FY2016), these law enforcement agencies spent $138 million on new guns and ammunition. That seems reasonable.

What’s curious, however, is that traditionally administrative agencies spent more than $20 million. Four notable examples:

1) The 2,300 Special Agents at the Internal Revenue Service (IRS) are allowed to carry AR-15’s, P90 tactical rifles, and other heavy weaponry. Recently, the IRS armed up with $1.2 million in new ammunition. This was in addition to the $11 million procurement of guns, ammunition, and military-style equipment procured between 2006-2014.

2) The Small Business Administration (SBA) spent tens of thousands of taxpayer dollars to load its gun locker with Glocks last year. The SBA wasn’t alone – the U.S. Fish and Wildlife Service modified their Glocks with silencers.

3) The Department of Veterans Affairs (VA) has a relatively new police force. In 1996, the VA had zero employees with arrest and firearm authority. Today, the VA has 3,700 officers, armed with millions of dollars’ worth of guns and ammunition including AR-15’s, Sig Sauer handguns, and semi-automatic pistols.

4) Meanwhile, Department of Health and Human Services (HHS) agents carry the same sophisticated weapons platforms used by our Special Forces military warriors. The HHS gun locker is housed in a new “National Training Operations Center” – a facility at an undisclosed location within the DC beltway.

It will be interesting to find out if the Department of Health and Human Services is arming itself the way that it is to conduct the same kind of stealthy, offensive operations that the U.S. Army’s special forces divisions are most famous for conducting. For an agency whose oversight extends to the administration of subsidized health care and welfare programs, we’re curious to see what kinds of missions that they might perform that requires M9 pistols and M-4 Carbines to name just two examples among the “top-of-the-line gear” currently used by Special Forces Soldiers.

While Janus v. American Federation of State, County, and Municipal Employees awaits a ruling from the U.S. Supreme Court, developments in California may clarify the issues involved. The California Association of Psychiatric Technicians, a government employee union with more than 6,000 members, will levy a monthly charge of $6.50 to fund political activities. Union bosses are alarmed over “the election of Donald Trump,” as one told reporters. What about union members who are not alarmed by the election of Donald Trump? The union would still hit them up with the levy, so their own money would be used against them.

In similar style, government employee unions are currently able to slap “agency fees” on workers who are not members of the union. This practice forces workers to subsidize a union as a condition of working for their own government. In Janus, the high court will decide whether that confiscation continues, or whether employees have a right to work without joining a union. The default position of union bosses is that non-members are “free riders,” who benefit from the union without paying for it. This assumes that the worker has no merit beyond what union bosses negotiate for her with politicians.

The political spending of government employee unions is decidedly one-sided. The National Education Association, for example, favors Democrats by 93 percent. And government employee unions are not like unions in the private sector. They exist to implement government policy, which is why politicians cut them sweet deals, and union bosses claim the legislature is “our house.” CalTrans pays more than 3,000 members of Professional Engineers in California Government just to sit around. Those are the real “free riders.”

Meanwhile, with Neil Gorsuch in place, the high court could well rule in favor of the right to work, and against union confiscation. But whatever the decision in Janus, government employee unions are a bad deal for taxpayers and non-members alike.

It may come as a surprise to many Americans, but the U.S. government operates at least two fully socialized health care systems, for which it both pays the cost of health care and also directly provides it: the Veterans Health Administration for military veterans and the Indian Health Service for Native Americans.

Both can be considered to be gross failures when it comes to providing timely, quality medical care for the populations they are responsible for serving.

Those failures, and the secret wait list health care rationing scandal that centered on the VA’s practices, are the reason why the U.S. Congress pushed through the Veterans Access, Choice and Accountability Act back in 2014, which was later extended in April 2017. The new law allows veterans who would otherwise face long wait times to receive care from the VA or who live more than 40 miles away from a VA health care facility to obtain medical care from providers outside of the VA-run system through its Veterans Choice Program.

That intended-to-be-temporary program has been in the news during the last few weeks because it is facing another funding crunch, just weeks after receiving $2.1 billion in emergency funding, where it is once again at risk of running out of money before the end of the year.

The funding crunch has led to moves by U.S. politicians to call for reforms in how the VA manages its finances for the program, where the department has significantly underestimated its budget requirements on several occasions in the last year, with each requiring additional emergency funding to resolve.

While the program has made it onto the U.S. General Accountability Office’s high risk list because of its administrative and fiscal issues, at its core, one of the main reasons that the Choice program keeps running out of money sooner than VA management has been projecting is because an increasing number of veterans are turning to it to receive needed medical treatment that the VA itself is not capable of providing in a timely manner. And that is even with the Veterans Choice Program’s “cumbersome authorization and scheduling procedures” and delays in payments to private medical service providers that have resulted in veterans being billed for their treatment, which would discourage them from using the program to seek care outside of the VA’s fully-socialized system.

That an increasing number of veterans are seeking care through the poorly-managed Veterans Choice Program despite its ongoing issues is an indication that the VA’s fully-socialized system for providing health care for America’s veterans must be performing even worse in its core mission of providing needed medical care in a timely fashion. If it were succeeding in achieving that mission, we would see the number of veterans seeking to escape it dwindle over time. That is something that is not happening, where having the safety valve of the temporary Veterans Choice Program is perhaps making it appear as if the regular VA system is working better than it really is, which is a really scary prospect.

The bottom line is that even with new management, the VA still needs a lot of reform. Veterans voting with their feet to seek out medical care provided through practitioners in the private sector are telling us the direction in which that reform needs to move. That direction for reform is something that can also benefit the Native Americans who still don’t even have the choice of going outside of the U.S.’ government-run socialized health care systems for better and more timely service.

At the very least, providing that same basic opportunity to be able to choose whether to stay within the Indian Health Service’s socialized health care system or to go outside of it for their medical care would be a good place to begin that reform.

Rep. Tom Marino, Pennsylvania Republican, has withdrawn his name for consideration as President Trump’s drug czar. By some accounts, Marino backed legislation that restricted enforcement of opioid laws. Sen. Joe Manchin, West Virginia Democrat, who called for Marino’s withdrawal, said “we need a drug czar who has seen the devastating effects of the problem.” Actually, we don’t, and President Trump should consider whether we need a drug czar at all.

The federal government already deploys the Drug Enforcement Administration, with an annual budget of nearly $3 billion. So in effect, the DEA boss renders a drug czar redundant. Don’t forget the Food and Drug Administration, whose budget has ballooned to $5 billion. Plenty of drug czars in that massive bureaucracy, and in recent years czars have been surging all over the federal government.

President Obama appointed 45 czars, and as Judicial Watch noted, “Many of these ‘czars’ are unconfirmed by the Senate and are largely unaccountable to Congress. Further, their activities are often outside the reach of the Freedom of Information Act (FOIA), creating a veil of secrecy about their precise role in the administration.” As we noted, a day after Washington state allowed the sale of medical marijuana in the style of Colorado and California, drug czar Michael Botticelli sought to spend $25 billion in the war on drugs.

President George W. Bush deployed some 33 czars, including one for bird flu. Franklin Roosevelt appointed at least 11 czars, including one to deal with rubber. These actions imply that unelected appointees with the title of Russian kings can solve all problems. They can’t, but they do waste taxpayers’ money. President Trump, who wants to drain the swamp, should not appoint any drug czar and would be wise to eliminate all czars in government.

Meanwhile, a historical note. A century ago the Bolshevik Revolution was going on, but the Bolsheviks did not overthrow Czar Nicholas. He abdicated the throne and the Bolsheviks toppled the provisional government of Alexander Kerensky, the closest Russia ever came to liberal democracy.

“Tesla fired hundreds of workers this week, including engineers, managers and factory workers,” reported Louis Hansen of the San Jose Mercury News. “Little or no warning preceded the dismissals,” which came after performance reviews, as the company struggles to produce its Model 3 sedan, for which 450,000 customers are waiting. Overall, Tesla showed the door to as many as 700 employees. Taxpayers would be hard pressed to find similar action in government at any level, despite disastrous performance.

In 2015 the federal Environmental Protection Agency spilled three million gallons of toxic wastewater in southern Colorado’s Animas River. EPA boss Gina McCarthy did not lose her job, and few if any EPA managers were fired over the massive spill. As we noted, for years the EPA kept on staff “policy advisor” John Beale, who performed no work for the agency and claimed to be working for the CIA. The EPA even paid Beale retention bonuses, but no EPA bosses lost their jobs over his fakery.

The federal Social Security Administration paid out more than $1.5 million to ex-Nazis, including death-camp guards and SS soldiers. 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. Reports have not emerged about Social Security bureaucrats losing their jobs for keeping the Nazis funded.

In 2013, the Internal Revenue Service handed out between $13.3 an $15.6 billion in improper payments. Even so, taxpayers will be hard pressed to find a report of any IRS employee or manager being fired for this massive waste and fraud. Indeed, the intrusive federal agency also gave $2.8 million in bonuses to employees with disciplinary and tax compliance problems of their own.

If motorists don’t like cars produced by Tesla, they can buy a Ford, Toyota or Kia. Taxpayers, on the other hand, have no choice but to deal with the IRS, EPA, and the whole federal bureaucratic establishment. If President Trump is serious about “draining the swamp,” he needs to take a cue from Tesla and fire those who fail to perform for the people.

On September 20, 2017, Hurricane Maria slammed into Puerto Rico and knocked out the entire power grid of the U.S. territory.

Nearly three weeks later, about 90% of the island’s electrical grid was still without power.

In Puerto Rico, electrical power is solely provided to some 1.5 million households and businesses by the Puerto Rico Electric Power Authority (PREPA), which is a monopoly owned by the territory’s government.

That matters because the government of Puerto Rico used its ownership of the electric utility and the revenue it generates to borrow against. And because the government has borrowed far more than it can hope to ever pay back, it is very constrained in the actions it can now afford to take.

Gavin Bade of UtilityDive, an electrical utility industry trade publication, describes how those constraints are now affecting PREPA’s ability to restore electrical service to the island in the following brief (emphasis mine):

• The Puerto Rico Electric Power Authority (PREPA) declined to ask for help from mainland electric utilities in the days after Hurricane Maria, instead turning to a small Montana-based contractor to carry out grid restoration practices.
• Earlier this week, PREPA CEO Ricardo Ramos told E&E News that his bankrupt utility did not reach out to munis on the continental U.S. because he was unsure it could pay them back for assistance. About 90% of the island remains without power weeks after the storm hit.
• The American Public Power Association (APPA), the trade group for U.S. munis, confirmed that mutual assistance programs were not activated, but said PREPA had already contracted with Whitefish Energy by the time the trade group convened a conference call to coordinate aid. PREPA did not respond to requests for comment.

This is a pretty direct example of what can happen when a government’s emergency reservoir of debt runs dry. A government or business that maintains a low debt burden or that has no debt would be able to easily borrow money to facilitate its recovery. They can easily draw from the emergency reservoir of debt to fund their recovery, using the revenue they will generate from doing so to replenish it.

But for Puerto Rico, whose government’s debt burden far exceeds its revenue and its ability to pay back the money it owes to its creditors, does not have that option available to it. And when they need it most, they are being forced to make decisions that leaves “many power sector observers on the mainland scratching their heads”, where they cannot afford to take the actions they would need to get up and running as soon as they otherwise could in the case of restoring electrical power to the territory.

That’s the real danger in having a debt burden that becomes excessive. When a crisis comes, you lose options that you might otherwise have had to effectively deal with it, because you’ve used up your margin of safety for borrowing.

As Lawrence McQuillan notes in California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, outlandish pensions for government employees have put state budgets in crisis and threaten the services taxpayers receive. In California, government employees could retire at age 55 with two percent of their salary for each year of state employment. In September of 2012, governor Jerry brown signed a bill extending the age to 63, a weak attempt at reform but better than nothing. Even so, California’s Board of Equalization bosses worked against it.

The BOE’s Jerome Horton wanted the agency, which already had more than 4,000 on staff, to hire as many new government employees as possible before the reform kicked in on January 1, 2013. The new hires were supposedly to staff a call center in Culver City that turned out to have an existential problem, so the new staff were sent on temporary assignments. This was hardly the first example of BOE indifference to taxpayers.

As we noted, the BOE misallocated $47.8 million in retail sales tax to the state’s general fund. BOE bosses spend taxpayer dollars on events to promote themselves and dish out raises to high-level management without performance reviews. The BOE headquarters in Sacramento has earned a reputation as a “bottomless money pit.” It was purchased from CalPERS for $80.7 million in 2007, remains plagued with falling glass, toxic substances and other defects that have cost $60 million. And the place is also a hive of nepotism.

It recently emerged that more than 800 the 4,200 BOE employees have relatives on BOE staff. So they were hired not because of merit or competence but because some relative pulled the strings to get them on board. In all likelihood, most if not all were unqualified and/or incompetent. This whole cozy gang will soon be transferred to a new revenue agency that reports to the office of governor Jerry Brown, a born-again tax hiker and prolific spender. So taxpayers should expect more corruption, more incompetence, and less accountability going forward.

Earlier this week, we mentioned that if a fiscally strapped local government cannot tax or cut its way out of its debt burden, and won’t take action to directly reduce its most costly liabilities, then bankruptcy is a viable third option to preserve the interests of those who reside within the government’s jurisdiction.

But there may be another action that local government politicians and bureaucrats might take before it comes to that! A fiscally strapped local government can trade away its control over its revenue without filing for bankruptcy, as was proposed just last week by the nation’s most heavily debt-burdened city–Chicago:

Under a plan announced on Wednesday by the mayor’s office, Chicago would create a new entity to issue bonds backed by city’s share of Illinois sales tax collections in an effort to reduce its borrowing costs….

Illinois’ fiscal 2018 Illinois budget, which was enacted last month, included a provision allowing home-rule local governments like Chicago to assign their state revenue to an entity for the purpose of issuing debt.

Carole Brown, Chicago’s chief financial officer, said the state sales tax dollars would flow first through the new entity to meet debt service and other requirements before any of the revenue is released to the city’s general fund.

Chicago’s city government is effectively recognizing that allowing its politicians and bureaucrats to have full control over its revenue is harming its credit, where their proposed solution involves taking a significant portion of that control away from themselves. Not to the same extent as would happen if the city were to officially declare bankruptcy and have its fiscal management taken over by a court-appointed receiver, but certainly a step forward in that direction.

Think of it as “Bankruptcy Lite” for Chicago politicians! The question now, however, is whether Chicagoans would benefit more from a real bankruptcy process, which fully restructures and reduces its liabilities to affordable levels, or from the “lite” version being promoted by city officials – including the mayor – who benefit by getting to keep some of their power over the money they receive from taxes imposed on Chicago’s residents.

If the choice for Chicago residents is now between bankruptcy and “bankruptcy lite”, why settle for anything less than grabbing all the gusto they can from a full bankruptcy?

What is your local government’s debt burden? Or in other words, how much of your local government’s annual revenue would be fully consumed by its liabilities?

That’s a question that J.P. Morgan took on in its recent analyst report The ARC and the Covenants 3.0, in which it considered the total debt burdens of the governments of U.S. cities, counties, and states.

Here’s an excerpt from the report’s Executive Summary, in which the private bank explains its interest in the results of the analysis and what liabilities are included in each level of government’s total debt, which goes into the calculation of their “IPOD” ratio, which is their estimate of the true burden of debt local governments throughout the United States:

As managers of $70 billion in US municipal bonds across our asset management business (Q2 2017), we’re very focused on credit risk of US municipalities. Last year, we completed our tri-annual credit review of US states. While a few states have very large debts relative to their revenues, many are in decent shape. This summer, we completed a review of the largest US cities and counties. In general, US cities and counties have substantially more debt relative to their revenues than US states. While most have several years to undertake remediation measures, some very difficult choices will be required in order for them to meet all of their future obligations. And when these choices become untenable and rare municipal bankruptcies do occur, bondholders have usually received lower recoveries than pensioners.

The concept of “debt” needs to be expanded when thinking about municipal credit risk, since general obligation bonds are only part of the picture. As “debt”, we include unfunded obligations related to pensions and retiree healthcare along with bonds, leases and other obligations supported by each municipality’s general account. As shown above, bonds and leases (“net direct debt”) only represent around one third of the total debt of US cities and counties.

The chart below shows our “IPOD” ratio for US states, cities and counties. This measure represents the percentage of a municipality’s revenues that would be needed to pay interest on direct debt, and fully amortize unfunded pension and retiree healthcare obligations over 30 years, assuming a conservative return of 6% on plan assets. While there’s no hard and fast rule, municipalities with IPOD ratios over 30% may eventually face very difficult choices regarding taxation, non-pension spending, infrastructure investment, contributions to unfunded plans and bond repayment.

Here is the chart showing J.P. Morgan’s IPOD ratios for U.S. cities, counties and states, with the results ranked from worst (left) to best (right). Do you see your city, county or state listed among the worst?

For the local governments with the worst debt burdens, residents can expect that their governments will be compelled to try to improve their fiscal plights, most often by increasing their taxes and cutting the services they provide. They might likewise take steps toward directly reducing their liabilities before they might be forced to file for bankruptcy, say by correcting their public employee pension and health care benefits to reflect what they can afford to sustain with their revenue. But their success in doing that depends on how much political power local government bureaucrats wield and the extent to which they choose to oppose needed reforms.

And then, there’s the third option: forcing the issue and filing for bankruptcy. But wouldn’t it be better for the politicians and bureaucrats to face the music on their own long before a federal judge has to be brought in to fix the problems they created for themselves?