MyGovCost News & Blog

As John Tozzi and Michelle Cortez of Bloomberg report on the stem cell front, “press releases, popular media, and even some journal articles routinely inflate expectations for future therapies based on early findings that probably will never turn into cures.” Now the International Society for Stem Cell Research, representing more than 4,100 researchers, wants to tone down the hype. The number of approved stem cell treatments is “pretty darn small,” and claims about cures, researchers say, “must be accurate, circumspect and restrained.”

That is good advice, but it comes a little late for California researchers, patients and taxpayers alike.

As we noted, California’s $3 billion Stem Cell Research and Cures Act, Proposition 71, promised life-saving cures and therapies for a host of afflictions, including heart disease, diabetes, Alzheimer’s and Parkinson’s. Celebrity promoters included Christopher Reeve, Michael J. Fox and Arnold Schwarzenegger. In 2004 voters approved the measure, which created the California Institute for Regenerative Medicine. CIRM drew down the money and spent lavishly, but ten years later in 2014 not a single cure or therapy had reached the clinic, and none was likely to do so. By late 2015, according to David Jensen of the California Stem Cell Report, CIRM had produced no cures but sought to spend $620 million on clinical work and translational research, including $50 million for “educational programs” and another $50 million for “infrastructure.” CIRM plans a number of “translating” centers, at $15 million a pop, “to negotiate federal rules and regulations, and win ultimate approval of a therapy.”

In practice, this state agency has always functioned as the California Institute for the Redistribution of Money. Heavily insulated from legislative oversight, CIRM awarded huge salaries and provided a soft landing spot for over-the-hill politicians. CIRM bosses are certain to don the white coat of medical science and seek more money from the people. Taxpayers might keep in mind their actual record: $3 billion spent without any of the promised cures or therapies.

When counting the cost of government, taxpayers should pay close attention to OPEB, the “Other Post-Employment Benefits” of government employees aside from their pensions but including their health care costs. Now taxpayers have a calculating tool, State Retiree Health Plan Spending: An examination of funding trends and plan provisions, a new report from the Pew Charitable Trusts. As the report notes, only 28 percent of large U.S. employers offer retiree health benefits, but “49 states continue to include these benefits as a key part of state compensation programs.” The retiree health benefits, in turn, “account for the majority of states’ OPEB obligations” and many states have implemented policy changes to address “looming OPEB obligations.”

In 2013, the combined OPEB liability was $627 billion, and the report finds much of this liability concentrated in 13 states: Alaska, California, Connecticut, Georgia, Illinois, Maine, Michigan, North Carolina, New Jersey, New York, Ohio, Pennsylvania and Texas. In 2013 these 13 states represented about half of the U.S. population but “accounted for 81 percent of the total OPEB liabilities for all 50 states.” To meet these obligations requires ARC or “annual required contributions.”

According to the Pew Report, California will have to spend an annual $6.6 billion, to cover in full the current unfunded liabilities of $80.3 billion. As Dan Walters of the Sacramento Bee notes, that would be more than three times the $2 billion a year California currently spends, and that number, according to Gov. Brown’s budget, is up more than 80 percent in the last decade. Walters also recalls that, until recently, California was one of just 18 states that have “set aside nothing to cover those future obligations.”

When they use the Pew report to run the numbers for their state, taxpayers should keep in mind that these “looming” obligations are aside from government pension costs. For an assessment of government pension obligations, now more than $4 trillion nationwide, see California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, by Lawrence J. McQuillan.

How has the national debt burden per typical U.S. household changed during the last 8 years?

To answer that question, it might help to know what a typical U.S. household is. For our purposes, a typical American household is one that earns the median household income, which means that 50% of U.S. households earn more than that amount and 50% earn less.

The national debt burden then can be calculated as the ratio of the entire national debt per household to the median household income.

Political Calculations did that math for each year from 1967 through 2015, and graphed the results:

Through the end of Fiscal Year 2015, back on 30 September 2015, we estimate that the ratio of the United States’ total public debt outstanding to the nation’s median household income is approximately 263%. While down slightly from its peak of 267% in 2014, that figure is up considerably from the 170% of median household income that was recorded at the end of Fiscal Year 2008.

Rising from 170% of the median household income to 263% of median household income means that the U.S. national debt per household went up nearly by the amount of the annual income earned by a typical American household in the years from 2008 through 2015.

How many American households do you suppose could actually afford to take on that additional amount of debt?

As the story goes, somebody opened a restaurant with politicians and bureaucrats as waiters but it failed because they kept serving the food under the table. In the real world, likewise, politicians and bureaucrats strive to keep things out of sight from taxpayers. As Taryn Luna writes in the Sacramento Bee, one way they do that is through “ex parte communication,” private communications between state agencies, boards and commissions, and those they purport to oversee.

In the interest of public transparency, such secret communications are banned, but lawmakers have carved out exceptions. Officials of the Public Utilities Commission, Coastal Commission, Board of Equalization, the Public Employee Relations Board and the California Air Resources Board, among others, “are allowed to communicate with groups behind closed doors and in private emails.” State legislators who don’t rule on specific regulatory cases “also can discuss their business privately.” Ex parte communications, however, are hardly the limits of government secrecy.

Luna’s veteran colleague Dan Walters observes that every year thousands of bills wind up in “suspense files” because they would create government expense. Though sometimes valid, the process allows legislators “to decide in secret which bills will be allowed to proceed and which will not, for reasons known only to themselves.” Walters contends this secrecy should stop, and notes that a pending ballot measure would require “sneaky trailer bills” to be in print 72 hours before votes. That would still leave politicians with ample opportunity for mischief.

In 2012 voters faced four ballot measures on taxes and spending. The Senate Governance and Finance Committee held hearings on these measures, and the California Channel gave taxpayers statewide a chance to gain insights from the testimony. Unfortunately, senate President pro Tem Darrell Steinberg blocked citizens’ access by killing the live broadcast, and followed by making this claim: “I pride myself on being open and transparent.”

Steinberg’s action to block the live broadcast prompted objections from the media, but journalists and editorial writers quickly forgot about it. Steinberg is now running for mayor of Sacramento, and the Sacramento Bee endorses him as the “clear choice” for the office.

As we observed in “Financial Crisis and Leviathan,” a deep recession, widespread unemployment, and fathomless debt were the prevailing conditions when the Obama administration created the federal Consumer Financial Protection Bureau in 2011. The CFPB was based on the premise that consumers were unable to look out for themselves without help from the federal government. CFPB defender Paul Krugman captured this sentiment when he wrote, “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.”

As the New York Times reports, the CFPB now proposes a rule that would allow customers to bring class-action lawsuits against financial firms. Opponents of the rule told the Times it would lead to an upsurge in litigation and spell the end of arbitration, which businesses tend to favor. The U.S. Chamber of Commerce said in a statement that “The proposed rule is a wolf in sheep’s clothing,” and that “the agency designed to protect consumers is proposing a rule that will end up hurting them.” If so, it wouldn’t be the first time, and taxpayers might note the irony. Those well-educated and informed consumers supposedly too dim to protect themselves from financial fraud are now fully qualified to launch complex legal actions and competent to assess the risks and payoffs.

Taxpayers might also recall that the CFPB was 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 law, with its promotion of lax lending standards, was a key part of the problem. The CFPB thus confirms the federal government’s zeal for expansion at any time, at any cost, and without any regard for need or performance. No new federal agency, however useless, is ever temporary. And as the CFPB class-action caper suggests, such agencies tend to become more troublesome and wasteful, not less.

When a government’s public debt grows too large, so much so that it needs to be bailed out in order to continue functioning, who do you suppose benefits the most from the bailout?

If you said “the government”, or “the people”, you’re wrong. In reviewing the series of bailouts of Greece from 2010 through 2015, a recent study by the European School of Management and Technology (ESMT), a business school based in Berlin, found that nearly all of the money that was spent by the European Central Bank, the International Monetary Fund, and the European Commission (together called the “Troika“) to bail out the Greek government as it repeatedly defaulted on its national debt obligations in 2010, 2012 and again in 2015, went to the big European banks that had loaned it money. Via Global Research, Greek news outlet Ekathemerini reports:

Some 95 percent of the 220 billion euros disbursed to Greece since the start of the financial crisis as loans from the bailout mechanism has been directed toward saving the European banks. That means about 210 billion euros was eventually channeled to the eurozone credit sector while just 5 percent ended up in state coffers, according to a study by the European School of Management and Technology (ESMT) in Berlin.

“Europe and the International Monetary Fund have in previous years mainly saved the banks and other private creditors,” concluded the report, published yesterday in German newspaper Handelsblatt. ESMT director Jorg Rocholl told the financial newspaper that “the bailout packages mainly saved the European banks.”…

The economists who took part in the study have analyzed each loan separately to established where the money ended up, and concluded that just 9.7 billion euros – less than 5 percent – actually found its way into the Greek budget for the benefit of citizens.

“This is something that everyone suspected, but few people actually knew. That has now been confirmed by the study: For six years Europe has tried in vain to put an end to the crisis in Greece through loans, and keeps demanding ever harder measures and reforms. The cause of the failure obviously lies less on the side of the Greek government and more on the planning of the bailout programs,” the German daily concluded.

There’s an old saying about debt that was immortalized by billionaire oil baron J. Paul Getty: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

That saying has just been proven true with the identification of the primary beneficiaries of the Troika’s multiple Greek government bailouts.

The reason it is important to recognize this today is because, once again, Greece is approaching fiscal and economic ruin. The Wall Street Journal describes why all of the previous actions that Greece has taken on the behalf of its lenders have failed:

Back in May 2010, a heavy austerity program in Greece was inevitable. The country had lost control of its finances. No lender was willing to finance the status quo. Greece’s primary budget deficit, which excludes interest, was over 10% of its gross domestic product.

Over the next five years, Greek governments enacted spending cuts and tax increases worth a total of 32.3% of GDP, a scale of austerity far beyond that seen in any other European country during the financial-crisis era. The budget recorded a small primary surplus of 0.7% of GDP in 2015, an improvement of nearly 11 percentage points since the dawn of the crisis.

But two-thirds of the fiscal effort was needed just to offset the impact of Greece’s collapsing economy, which crippled tax revenues. The IMF said in 2013 that creditors had underestimated how hard the radical austerity plan would hit the economy. As GDP shriveled, Greece’s debt burden rose, keeping the country from regaining solvency.

What is important to recognize here is that one of the actions that the Troika demanded from Greece – sharp increases in the nation’s top income tax and value added tax rates – is primarily responsible for most of the nation’s collapsing GDP. The Troika’s “solution” has ensured that Greece’s debt problems can never, ever be truly resolved.

At this point, only one member of the Troika, the International Monetary Fund (IMF), recognizes that the main beneficiaries of the Greek government bailout are the ones in most need of sharing the pain. The Financial Times reports on a leaked letter sent by IMF head Christine Lagarde to Europe’s finance ministers, which the FT‘s Peter Spiegel describes as being the equivalent of the IMF putting “the gun on the table” in demanding that European banks finally accept losses on their failed loans. Here’s the section of Lagarde’s letter that drives home that reality (emphasis ours).

I understand the urgency of the situation in the case of Greece and Europe as a whole, and our common objective is to quickly agree on a way forward. This requires compromises from all sides, and we have contributed our part by focusing conditionality on what we see as the absolute minimum, leaving important structural reforms to a later stage. However, for us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them. We insist on such assurances in all our programs, and we cannot deviate from this basic principle in the case of Greece.

The IMF’s Lagarde is telling the biggest beneficiaries of all the Greek government bailouts that her organization will not participate in another bailout unless they write off significant portions of the bad loans they made, and thereby reduce Greece’s debt burden. Not just because they are just as responsible for the existence of those bad loans, but also because of their bad decisions in ensuring that Greece could never regain its solvency.

Or rather, because they have been made whole by the Troika’s bailouts while Greece has been left in ruins.

The shell game is officially over – today, the U.S. commonwealth government of Puerto Rico will default on making $442 million in payments to its creditors. USA Today reports the news:

Puerto Rico Gov. Alejandro García Padilla said Sunday afternoon in a televised address that he had ordered the island’s Government Development Bank not to make certain payments owed Monday, stacking another round of missed payments on multiple previous defaults.

“This was a painful decision. We would have preferred to have had a legal framework to restructure our debts in an orderly manner,” García Padilla said. “But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.”

Puerto Rico was expected to default on about $422 million in bonds Monday, plunging the U.S. territory deeper into arrears, Moody’s Investor Service said last week in a report.

The article goes on to summarize the current debate in the U.S. Congress on how to address the issue:

Generally, Republicans are opposing anything that sniffs of a bailout without concessions on pensions, while Democrats are pressing for greater protections for unions.

Last week, Washington Post columnist George Will described the positions being taken by the opposing sides in that legislative debate.

Puerto Rico’s approximately 18 debt-issuing entities have debts — approximately $72 billion — they cannot repay. The Government Development Bank might miss a $422 million payment due in May, and the central government might miss a $2 billion payment in July. Congress will not enact a “bailout,” meaning an infusion of U.S. taxpayers’ money.

But some Democrats — perhaps anticipating a day of reckoning for their one-party state of Illinois, and nurturing their indissoluble marriage to government employee unions, some of which have helped reduce Puerto Rico to prostration — want to reward the San Juan government’s self-indulgence. They favor pouring more Medicare, Medicaid and other benefits into the island. They also favor giving protection of unionized government employees’ pensions priority over payments even to holders of general obligation bonds guaranteed by the territory’s constitution. Although Puerto Rico’s per capita income ($11,331) is about half that of the poorest state (Mississippi, $20,956), Democrats oppose allowing Puerto Rico to lower the hourly minimum wage. A full-time job at the U.S. minimum, $7.25, which applies to the island, is two-thirds of the average islander’s wage, which increases unemployment and hence immigration to the mainland. Some Democrats even want the earned-income tax credit and child tax credits paid to Puerto Ricans even though they do not file personal federal income tax returns.

Sen. Orrin Hatch (R-Utah) may also have his eye on Illinois and other states subjugated by the axis of the Democratic Party and government employee unions. He wants legislation for Puerto Rico to require U.S. state and local governments, almost 60 percent of which last year failed to make full pension contributions, to honestly state their pension liabilities. Puerto Rico has a $44 billion unfunded pension liability.

In these debates, it is important to remember that what is happening in Puerto Rico today is the result of the previous actions of the politicians and bureaucrats who have allowed Puerto Rico’s solvency problems to escalate to the level they have. Everybody has known this day was coming for a long time. The tragedy is that the people in charge all these years never seriously prioritized instituting the reforms that could have averted the growing crisis that they instead kept trying to put off just a little farther into the future.

California is a high-tech state and that leads Zócalo Public Square columnist Joe Mathews to wonder: “Why, in this Internet age, doesn’t my state offer a one-stop shop where I can renew my driver’s license, register to vote, pay my taxes and buy passes to a state park?” This one-stop shop, says Mr. Mathews, is “one of the oldest ideas in California governance” and pops up in commission reports. One, from the Little Hoover Commission, wants a one-stop shop that would enable Californians “to manage all their business with the state.” For Mr. Mathews, however, “the effective California one-stop shop exists only in the realm of myth,” and he knows why this is so:

“California has too many governments – literally thousands of them – that demand compliance with their own separate rules as a way to protect their very existence. Indeed, our governing system seems designed with the opposite of one-stop shopping as its guiding principle. California has more permitting and licensing agencies than most other states, all sorts of regional bodies and the California Environmental Quality Act, which can kill almost any worthwhile project.” Mr. Mathews decries government “dysfunction” and laments “the very inefficiencies that make one-stop shops nearly impossible here.” On top of all that, California politicians and bureaucrats, “have no real interest in doing the hard work of consolidating agencies and making things clearer for taxpayers.”

Those taxpayers should not conclude that Mr. Mathews is an advocate of limited government. He is co-author with Mark Paul of California Crackup: How Reform Broke the Golden State and How We Can Fix It. As a review by Lauren Kaye noted, the author’s solutions are for the most part “conventionally liberal and statist,” and “their stock villain” is Proposition 13, which they claim “unhinged California.” Actually, the 1978 voter-approved measure limited government’s ability to hike taxes but did not mandate any government spending or create any new government agencies.

Six years after California Crackup, Joe Mathews laments that California has too many governments, state agencies, and regional bodies, but he fails to call for the elimination of a single one. He shares the ruling-class view that government can always get bigger but never smaller. That is why dysfunction and inefficiency prevail, and why the government one-stop shop “exists only in the realm of myth.”

A very cool YouTube video from Burton Folsom on why private investors are so much more successful at realizing technological achievements than are the kinds of schemes that are subsidized by the government:

In addition to being very personally invested in the outcome of their endeavors, there is also a big difference in the skills of the people who work toward great achievements between private investors and government funded one. The kinds of skills it takes to get government subsidies, whether in the form of grants, tax credits or special protection from real world competition, are very different from the kinds of skills that are actually needed to be genuinely successful in business, invention and real life.

As we noted in March, the Sacramento headquarters of the California State Board of Equalization, known among reporters as a “24-story money pit,” sprung two leaks during heavy rains. Floors 10 and 22 both had a history of leaks and other troubles, but these were apparently unaddressed, despite more than 20 reports calling for action. Even those fixes, however, would have been insufficient. In addition to leaky windows, the building features mold, burst pipes, falling glass, a bat infestation, and traces of toxic substances. Over two decades bureaucratic bosses have spent some $60 million on the building, but in 2014 the cost to fix everything was another $30 million – excluding the cost of moving employees during repairs. Now the intrepid Jon Ortiz of the Sacramento Bee shows how the BOE problems have led to even more waste.

The BOE board had their offices on the 23rd floor of the structure, but in 2007 water leaks forced a cleanup of floors 22 and 23, so the board had to leave the building. Jerome Horton, BOE chairman, moved to the ninth floor of the U.S. Bank Tower. Then last fall Horton moved to the 21st floor, which offers a view of the Capitol Mall and full-length glass walls bearing the BOE seal. Horton took the opportunity to redecorate. As Mr. Ortiz notes, he packed the lavish suite with more than $118,000 of designer furniture including 24 white leather chairs, 21 cabinets with glass doors and “top-silver undertrim,” eight metal coat racks. “With delivery and installation of $12,000,” Mr. Ortiz explains, “taxpayers spent slightly more than $130,000 to outfit Horton’s office.” Other board members were much less extravagant but Ortiz finds it unlikely that any of it would have been necessary if the board members still had offices in the BOE headquarters.

The $60 million to fix that building would not have been necessary if the building had been properly constructed. It wasn’t, because politicians were looking the other way, and there’s no recourse because politicians were asleep at the switch, allowing the statute of limitations on defective construction to run out in 2002. Assembly members have considered a new facility costing $500 million, plus the debt on the BOE building, in the range of $70 million. As this disaster confirms, government money pits have a way of getting deeper and wider.