What a difference a small change in personnel at the White House makes!
Nearly two and a half years after becoming President, Barack Obama finally got around to signing an executive order to establish the “Campaign to Cut Government Waste“, which promised to impose new oversight and accountability aimed at reducing waste, fraud and abuse throughout the executive branch of the U.S. government, with a specific goal of reducing the number of web sites operated by U.S. government agencies in half.
If you’re familiar with any of the horror stories of waste, fraud and abuse that came to characterize entire government departments like the Environmental Protection Agency (EPA), the Department of Veterans Affairs (VA), then you appreciate how little reduction was actually achieved.
That lack of success was really a problem of misplaced priorities, which becomes clear when you compare what the Obama administration achieved with what the Trump administration is taking on less than six months into the new president’s term in office. Niv Elis of The Hill reports:
The White House budget office on Thursday kicked off the administration’s “war on waste,” eliminating reports and requirements in an effort to set an example for other government agencies.
“Government may do a decent job of looking forward, but we do a lousy job of cleaning out the closet,” Office of Management and Budget Director Mick Mulvaney said.
Over time, Mulvaney said, government agencies build up an unruly list of reporting requirements and regulations that are seldom addressed.
His office went through 253 guidance and policy documents and decided to pull 59 of them, including an ongoing reporting requirement on the Y2K bug and a report on a completed Bush-era e-government program.
“Some are duplicative, some or obsolete, some are just finding a different methodology,” said Linda Springer, a senior adviser to Mulvaney. The housecleaning exercise, which the administration is asking every office and agency to carry out, is “phase 1” of a plan to increase government efficiency.
The OMB’s ongoing reporting requirements for the Y2K bug problem, which hasn’t existed as a meaningful concern in the real world since the early years of the preceding presidential administration of George W. Bush, is emblematic of the lack of serious focus on eliminating wasteful bookkeeping requirements within the federal government’s bureaucracy. NextGov‘s Mohana Ravindranath indicates how such outdated requirements contribute to bureaucratic regulatory clutter for years after they’ve ceased to be relevant.
The repealed IT guidance doesn’t seem all that impactful, Robert Shea, former associate director for administration and government performance at OMB and now a public sector principal at Grant Thornton, told Nextgov.
Because agencies likely weren’t actually paying attention to—and therefore weren’t burdened by—compliance requirements of decades-old policy, the rescinded IT memos appeared to be the result of “bookkeeping,” he said.
Perhaps the Y2K reporting requirement wouldn’t have persisted for quite so long if the bureaucrats responsible for both paying attention to and complying with such policy requirements were more diligent about their responsibilities. Either way, it doesn’t speak well of either the federal government’s bureaucratic culture or the oversight established by the Obama administration’s campaign to cut government waste that the task of eliminating this particular example of waste was left to the next White House admininstration.
Phase 1 of the OMB’s new initiative to reorganize the federal government to minimize waste will end on June 30, 2017, when all federal agencies will report back to the OMB on what bureaucratic requirements they’ve determined do not make for the efficient or effective use of taxpayer resources within their organizations. The completion of Phase 2 will follow three months later, when they submit their proposed agency budgets to the OMB and have to commit to following through on the waste reduction they identified in Phase 1.
It’s a very different way of doing business in Washington D.C.
Over the last several weeks, we’ve been watching a very strange race to the bottom between two very fiscally-troubled states, Illinois and Connecticut, where the state government of each seems intent on becoming the first U.S. state to crash its credit rating all the way down to junk status.
It looks like Illinois’ state government is going to get there first, and quite possibly, within the next few weeks. Eric Pianin of the Fiscal Times considers the possibility of Illinois becoming the first state to go bankrupt since Arkansas defaulted on its debt in 1933, during the depths of the Great Depression.
Last week, the state marked the second full year in which Gov. Bruce Rauner and a combative Democratic legislature were unable to agree on a new operating budget. The state Senate the week before rejected a House-passed budget measure premised on a $7 billion revenue shortfall after Rauner threatened to veto it….
Illinois has the dubious distinction now of being the only state to have operated without a complete and balanced budget for the past 700 days. Instead, it has been forced to conduct business under court-ordered spending and stop-gap measures while running up a massive deficit. For years dating back to Democratic rule in the State House, Illinois has led the nation in state budget shortfalls, pension fund crises, and unpaid bills to public universities, schools, social service agencies and government vendors.
As of last week, little had changed. The state was responsible for a record backlog of unpaid bills totaling $14.7 billion, causing fear among programs and local agencies dependent on state aid. State legislators also failed to approve a stand-alone kindergarten through 12th-grade education budget that was vital to the operations of the financially struggling Chicago school system, Reuters reported. A $15.7 billion bill to ensure schools open in the fall passed the Senate but was soundly defeated in the House.
How bad has Illinois’ state legislature’s dysfunctionality become? At this point, the state is currently negotiating deals with its creditors to lower the penalties that the state will have to pay once the state’s credit rating has been cut to junk status, which in the absence of the legislature reaching a viable budget deal that could be approved by the state’s governor, will happen as early as July 1, 2017. That pending action became all but ensured after a federal judge ordered the state to pay health care providers who are owed money by the state’s Medicaid welfare program.
At the same time, the state’s creditors are requiring that the state pay higher and higher interest rates on the money they borrow from them, where in recent weeks, those rates have exploded upward. Business Insider reports on the effects of the state’s recent credit downgrades to be just one step above “junk”:
The downgrades have left Illinois’ debt just one notch above junk status, which would create limitations on the kinds of investors who can hold the bonds.
This has caused a sharp spike in bond spreads on Illinois general obligation bonds, making it more costly for the already cash-strapped state to borrow.
The state hasn’t even achieved junk status yet, but is already paying for it.
Joel Kotkin, a Presidential Fellow in Urban Futures at Chapman University, charts “California’s Descent to Socialism,” a new statist strain that “more resembles feudalism than social democracy” and being advanced by, “among others, hedge-fund-billionaire-turned-green-patriarch Tom Steyer.” He wants to double down on environmental and land-use regulation but as Kotkin observes, the state’s already severe land-use controls have made California, “among the most unaffordable in the nation, driving homeownership rates to the lowest levels since the 1940s.” Regulatory zealotry has also driven many tax-burdened middle-class families to leave the state.
Under the new socialism, Kotkin writes, “expect more controls over the agribusiness sector, notably the cattle industry, California’s original boom industry.” Limits on building in the periphery of cities “also threaten future growth in construction employment, once the new regulations are fully in place.” None of this does anything for the climate, but it does provide a stage for governor Brown, Tom Steyer and the Sacramento bureaucracy to “preen as saviors of the planet.”
To these and other regulatory burdens, Kotkin cites “growing calls for a single-payer health care system,” which as we recently noted is really government monopoly health care, a multiple-payer system with taxpayers footing the bill. Trouble is, the state Senate passed the health measure “without identifying a funding source to pay the estimated $400 billion annual cost.”
By Kotkin’s calculations, California’s middle-income earners, would have to fork over an estimated $50 billion to $100 billion a year in new taxes to pay for it. Further, “It’s hard to see how the state makes ends meet in the longer run without confiscating the billions now held by the ruling tech oligarchs.” So all you high-tech entrepreneurs now on the rise, don’t say you weren’t warned. Sooner or later, California’s “new kind of socialism,” is coming after you.
As we noted, California’s Board of Equalization has managed to misallocate nearly $50 million in tax revenue. BOE members have been spending public funds to promote themselves, staging useless events, and dishing out raises to high-salaried staff without performance reviews. The shabbily constructed BOE headquarters in Sacramento remains a safety threat and bottomless money pit. Some BOE bosses have been calling for reform, and on June 12, state controller Betty Yee came out with a plan.
“Lawmakers move to blow up California tax board,” runs the Sacramento Bee headline, but that’s not quite right. The new plan “does not eliminate the Board of Equalization,” even though according to the state legislative analyst the BOE spends only $27 million out of its $670 million budget on programs required by the state constitution. So the BOE remains and under the new plan it will “shed almost 90 percent of its 4,800 employees.” Actually, it won’t because “the employees would keep their jobs, but most of them would move to a new revenue department that would report to the Governor’s Office.”
That would be the office of recurring governor Jerry Brown, a born-again tax hiker who has made California’s income and sales taxes the highest in the nation. More recently Brown has championed a $5.2 billion tax hike to fix the state’s disastrous roads. They are a disaster because transportation maintenance and infrastructure money has been used to subsidize general fund bond payments. Governor Brown also wants to spend nearly $70 billion on a bullet train and $15 billion to dig tunnels under the San Joaquin-Sacramento River delta.
Taxpayers should be clear what is going on here, a surge of fake reform. The new plan does not “blow up” the Board of Equalization, which does not equalize anything. On the other hand, the new plan further empowers a spendthrift governor whose tax hikes will punish workers statewide. Yee’s plan could get a vote this week and be in place by July 1.
Economist Tyler Cowen has a thought-provoking op-ed in Bloomberg that challenges the government bureaucrat industrial complex argument that higher taxes on the rich will provide enough money to pay for every welfare program they want. Here’s perhaps the most eye-opening part of Cowen’s article:
If we look at the overall fiscal position of the U.S. federal government, we are spending beyond our means and the future will require some mix of spending cuts and tax increases. According to a report from the Government Accountability Office: “To close the gap solely by raising revenues would require a revenue increase of about 33 percent, and maintaining that level of revenue, on average, each year over the next 75 years.” I would submit that revenue increases of such magnitude are unlikely or perhaps even impossible, and thus any new spending will have to come out of other government spending. In other words, for better or worse, we’ve already committed to spending that tax increase on the wealthy that you were planning to use for other purposes.
The same GAO report indicates that a sustained 25% reduction in the U.S. government’s planned, non-interest spending would also close the nation’s fiscal gap. The difference between using the U.S. government’s tax revenues and its spending to achieve that end is that unlike tax collections, which are periodically affected by things like recessions, U.S. politicians can always control exactly how much the government spends. But only if they choose.
The Financial Choice Act designed to undo Dodd-Frank financial regulations has passed the House and as it moves to the Senate opponents are crying foul over attempts to weaken the federal Consumer Finance Protection Bureau (CFPB). Ed Mierzwinski of the U.S. Public Interest Research Group told Consumer Reports, “The bill would leave the successful CFPB as an unrecognizable husk.” This calls for some review.
As we observed in “Financial Crisis and Leviathan,” a deep recession, widespread unemployment, and fathomless debt were the prevailing conditions when CFPB was created in 2011. The federal agency, with more than 1,600 employees, was based on the premise that consumers were unable to look out for themselves without help from the federal government. As CFPB defender Paul Krugman noted, “Don’t say that educated and informed consumers can take care of themselves,” and “even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals.” The CFPB was also created with no hint that government policy, regulation or failure could have played any role in the financial crisis. CFPB backers also avoided mention of the Community Reinvestment Act, despite considerable evidence that the 1977 Carter-Era CRA, with its lax lending standards, was a key part of the problem.
According to a former employee, the CFPB is partisan, secretive, and obstructionist. Earlier this year, Ted Cruz and John Ratcliffe, Texas Republicans, introduced bills that would eliminate the CFPB, whose boss Richard Cordray is under fire for allegedly withholding documents. Yet, as the Financial Choice Act moves to the Senate, the federal agency endures.
As Milton Friedman noted, creating new agencies and programs is easy but eliminating them is practically impossible. A bi-partisan ruling class that retains a massive federal Department of Education is not likely to be troubled by the fledgling Consumer Financial Protection Bureau. Taxpayers should not be surprised if much more than a “husk” of the CFPB emerges from the Senate.
What do the citizens of San Diego, California and St. Louis, Missouri have in common?
In the world of professional major league sports, both cities have recently lost their National Football League franchise, with the billionaire owners of both the San Diego Chargers and the St. Louis Rams decamping for the “greener” pastures of Los Angeles.
But after those actions were announced, both cities’ passionate sports fans have had the opportunity to vote to increase taxes on themselves and specifically targeting any tourists visiting their towns to spend on fancy new sports stadiums.
Having learned from their experiences in dealing with billionaire sports franchise owners, voters in both cities sent those ballot measures down in flames. The San Diego Tribune‘s Dan McSwain weighed in on the outcome of the November 2016 vote in San Diego, where the city’s voting residents sent a clear message to the moneyed-interests looking to tap public tax dollars to fund their stadium scheme.
To be sure, the Charger’s Measure C was far from perfect. It may not have withstood legal challenge, because it came perilously close to the state’s constitutional prohibition against raising taxes for a specific private purpose.
Politically, however, its core strategy was deft. It would have raised taxes on hotel guests only. Because hotels are subject to robust rate competition on most nights, in economic terms this means hotel owners ultimately would absorb the higher cost in the form of lower profits.
That’s why the Chargers attached a convention center to the project. The team could share or avoid big costs on common slabs of concrete foundations, concourses and such.
And this wouldn’t be some empty stadium used just 10 days a year. Tourism dollars would flow from conventions. Why, the project would pay for itself, consultants projected.
Indeed, Measure C effectively offered a $1.8 billion convadium with $1.15 billion coming from hoteliers, indirectly, and $650 million coming directly from the Chargers, its fans, and the NFL.
Fatally for the measure, the team failed to convince the hotel industry, which preferred a waterfront expansion of its existing center. In the late 1990s, the industry had convinced politicians to bill taxpayers directly for the last expansion through the city’s general fund. If hoteliers were going to pay this time around, they wanted to run the show.
Yet the death blow was delivered by voters, 57 percent of whom rejected Measure C in November. We can safely infer that ordinary people understood that tax dollars, even those effectively paid by hoteliers, are tax dollars. Once hiked, taxes can just as easily go to roads, pensions and the poor in San Diego instead of further enriching the NFL.
Indeed, we can probably rule out “not-in-my-backyard-ism.” Voters who lived in downtown precincts — the very people who would live amid the traffic jams and reveling conventioneers from a 15-acre convadium — supported the project by 52 percent to 48 percent, according to data from the county registrar.
No, this was a vote against handouts to billionaires. With, perhaps, a message to the hotel industry.
The story in St. Louis is a little different. There, in April 2017, voters had the opportunity to vote to tax themselves and their visitors to fund the construction of a soccer stadium as part of an effort to bring Major League Soccer to the city. Sports Illustrated reports:
It looks like St. Louis will remain a two-sport town after voters defeated a measure that would have helped pay for a stadium as part of an effort to lure a Major League Soccer franchise.
City voters turned down Proposition 2 on Tuesday by a 53 percent to 47 percent vote. It would have provided $60 million from a business use tax to help fund a soccer stadium.
MLS leaders have expressed strong interest in St. Louis, but only if voters agreed to public funding. The league is expected to award two expansion franchises this fall, both of which would begin play in 2020.
With the vote’s outcome, St. Louis, a city where soccer has long been a hotbed for the sport, effectively pulled itself out of consideration to have a major league professional soccer team, having learned from the bills that the city’s taxpayers will still have to pay for another 10 years to its creditors for building its professional football stadium that no longer hosts a professional football team.
Eventually, voters learn when they’re being played by billionaire team owners looking to profit from getting taxpayer financing and respond accordingly.
Despite a wet winter and thick snowpack, California still faces increasing demands for water. New sources are always welcome and the Cadiz project seeks to pump groundwater from private holdings in the Mojave Desert to supply homes in arid southern California. San Bernardino County approved the project but the loudest voice against it is California’s senior senator Dianne Feinstein, former mayor of San Francisco.
“California’s public lands and resources are under siege by a powerful corporation and its allies in Washington,” Feinstein charged in a recent opinion column, describing Cadiz as “a particularly destructive project” that threatens “tortoises and bighorn sheep to breathtaking wildflower blooms that blanket the region.” The project “places a big emphasis on corporate profit at the expense of the broader public,” and it’s a matter of “Republican overreach,” backed of course by the Trump administration, and they seek to “rob us of our public lands.” Cadiz board member Winston Hickox offered a different view.
As California Environmental Protection Agency secretary from 1999-2003, Hickox worked with Feinstein on water issues, and from 1975-1983 he served as governor Jerry Brown’s special assistant for environmental affairs. According to Hickox, the Cadiz project “will conserve enough water for 400,000 Californians each year for 50 years without causing a single adverse environmental impact.” As he notes, it was approved in accord with California’s Environmental Quality Act and prevailed in multiple court challenges. Hickox shot down Feinstein’s use of the U.S. Geological Survey and National Park Service and charged that she used her stature “to misrepresent facts.” Animals and flowers are not at risk, and the Cadiz project, Hickox concludes, “will add a new water supply in a safe and sustainable manner.” By opposing it on a partisan basis, and misrepresenting the facts, Feinstein abuses the public she claims to protect.
Meanwhile, as Cadiz moves ahead, California should consider the example of Australia, a nation with an arid climate and limited water supplies. As Australia’s National Water Commission explained in Water Markets: A Short History, water markets and trading were “the primary means” to achieve the best use of existing resources.
President Trump has pulled the United States out of the Paris Climate Accord on the grounds that it puts the energy reserves of the United States, including coal, “under lock and key” while allowing other nations to develop their coal resources and coal jobs. The Paris deal is therefore “a massive redistribution of United States wealth to other countries.” The Paris Climate Accord is hardly the first international deal to attempt such top-down redistribution. Recall the “North-South Economic Dialogue,” promoted by the United Nations.
As Paul Johnson noted in Modern Times, 11 of the “South” states, including Mexico, Venezuela and Pakistan, were north of the equator, and one, Saudi Arabia, had the world’s highest per-capita income. Australia, the only continent entirely in the southern hemisphere, was considered “North.” The entire Soviet Bloc, entirely in the northern hemisphere, was omitted altogether. “The concept was meaningless, except for purposes of political abuse,” Johnson wrote, and “inevitably, America was presented as the primary villain in the North-South melodrama.” The same is true of the Paris Accord, masquerading as a climate measure based on science.
California Governor Jerry Brown, at this writing on a tour of China, claims the science is all settled, which was also said of Newtonian physics. Climate alarmism is an orthodoxy, not a matter of facts and inquiry, and those who question it become heretics and criminals to be vilified. True to form, The Nation called withdrawal from the Paris Accord “a crime against humanity,” charging “this is murder, even if Trump’s willful ignorance of climate science prevents him from seeing it as such.”
Such hysteria recalls Squealer, apologist of the ruling pigs in George Orwell’s Animal Farm. When head pig Napoleon steals the milk and windfall apples, Squealer explains that this is not an act of selfishness and privilege but absolutely necessary for the welfare of the wise “brainworkers.” As Squealer contends, “this has been proved by Science, comrades.”
When President Trump unveiled his official budget proposal for the U.S. government’s 2018 fiscal year two weeks ago, the proposal was greeted by headlines such the following from Bloomberg:
Trump to Pitch Deep Cuts to Anti-Poverty Programs, Medicaid
Or the following headline from the New York Times:
Trump’s Budget Cuts Deeply Into Medicaid
The biggest federal government program being targeted for spending reductions in the Trump budget compared to previous budget proposals is the Medicaid welfare program. Here’s how Bloomberg described the cuts in their article.
The upcoming budget request for fiscal 2018, which include dropping the top individual tax rate to 35 percent, is already attracting criticism from Democrats. Trump’s proposal will also call for $800 billion in cuts to Medicaid, the health program for the poor, the Washington Post reported….
During the presidential campaign, Trump promised not to cut Social Security, Medicare or Medicaid. He has already broken that promise on Medicaid by backing cuts to the program called for under the Obamacare repeal bill passed by the House on May 4. The White House has said that the president intends in his budget to keep his pledge on Medicare benefits and Social Security retirement benefits.
To get a better sense of the changes to Medicaid that are actually spelled out in President Trump’s first budget proposal, and how that compares to recent historical spending and President Obama’s last budget proposal, we’ve put the following chart together.
Perhaps the most surprising part of President Trump’s spending proposal for Medicaid spending is how similar it is to what President Obama proposed in the next four years from 2017 through 2021.
After that, the proposed increases in federal spending on Medicaid diverge, where President Obama’s final spending proposal had Medicaid spending increasing exponentially on autopilot at a rate far faster than the nation’s projected economic growth, which puts the Medicaid program onto an unsustainable path.
By contrast, President Trump’s budget proposal sets Medicaid spending to increase at a much more steady and sustainable rate. Here are the main spending trends noted on the chart:
More importantly, the numbers contained in President Trump’s first budget proposal directly contradict much of the media’s reporting of the changes in federal Medicaid spending as cuts. But then, that’s Washington D.C.-style thinking for you.
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