MyGovCost News & Blog

Before we go any farther, no, this isn’t an April Fool’s Day joke….

And while we’re at it, no, we’re not making this up. This really is a real life example of your tax dollars at work:

The State Department wants to plunk down $400,000 in taxpayer money for a camel sculpture at the new U.S. Embassy being built in Islamabad, Pakistan, according to a report Monday.

“Camel Contemplating Needle,” created by American artist John Baldessari, depicts a 500-pound white camel made of fiberglass staring at the eye of an oversized needle, Buzzfeedfirst reported.

Officials explained the decision to purchase the sculpture in a four-page document justifying a “sole source” procurement.

“This artist’s product is uniquely qualified,” the document states. “Public art which will be presented in the new embassy should reflect the values of a predominantly Islamist country.”

Follow this link to see the Napa Valley version of “Camel Contemplating a Needle”.

Now, here’s where we can point out how incredibly stupid the people who work in the U.S. State Department can be. We were particularly curious as to what exactly a camel might symbolize in a predominantly Islamist country like Pakistan, so we did a quick Google search to find out.

It seems that just over a year ago, the Electoral Commission of Pakistan allotted a number of representative symbols to each of Pakistan’s political parties for the country’s general elections – kind of like how the Democratic Party in the U.S. is often represented by the symbol of a donkey and the Republican Party is represented by a symbol of an elephant.

It turns out that the symbol of a camel was assigned to Pakistan’s Balochistan National Party, which the country’s central government favors against separatist elements in the Balochistan province, who have fought to break away from the control of Pakistan’s central government.

By placing the $400,000 “inspirational” fiberglass statue of a camel on the grounds of the U.S. Embassy in Pakistan, the U.S. State Department would effectively be perceived as endorsing the Pakistan central government-supported Balochistan National Party. Because what could possibly go wrong for U.S. interests in Pakistan if it thoughtlessly appears to have taken a side in a long-running political conflict that has frequently been characterized by volatility and violence?

We’re pretty sure that this isn’t the most stupid thing that the U.S. State Department has proposed doing with taxpayer dollars, but we’re pretty sure it ranks pretty high on the list, right after similar exercises of “smart power” and perhaps the all-time classic: former Secretary of State Hillary Clinton’s mislabeled “Reset” button, meant to symbolize a new, friendlier relationship with the expansionist nation, but which when correctly translated from Russian, really said “overcharged”.

Why yes, the American people most certainly were for that boondoggle….

We did say we weren’t making any of this stuff up, right?

Summer will soon be here, and with all the fuss about global warming one would think Americans could avail themselves of the most protective sunscreens, like those used by their counterparts in Europe. They won’t be able to do that because, as this Washington Post report notes, “applications for the newer sunscreen ingredients have languished for years in the bureaucracy of the Food and Drug Administration, which must approve the products before they reach consumers.” Dermatologists find this delay distressing.

Darrell S. Rigel, clinical professor of dermatology at New York University and past president of the American Academy of Dermatologists, told the Post, “These sunscreens are being used by tens of millions of people every weekend in Europe, and we’re not seeing anything bad happening. It’s sort of crazy…. We’re depriving ourselves of something the rest of the world has.”

FDA bosses say the sunscreen issue is a high priority. If so, why must Americans make due with dated, inferior products? Doctors worry that FDA lethargy will have a chilling effect on innovation. Wendy Selig of the Melanoma Research Alliance told the Post, “We have a system here that’s completely broken down, and everybody knows that it has broken down.” And it’s not just broken down on the sunscreen issue.

The meningitis B vaccine Bexsero is approved in Europe, but the FDA approves it only on an ad hoc basis. Limited approval generally comes after an outbreak, such as those last year at Princeton and the University of California at Santa Barbara, where lacrosse player Aaron Loy had to undergo amputation of both feet.

The FDA should immediately approve the widely used MenB vaccine for general use in the United States while final testing proceeds. The FDA should also approve the more effective sunscreens already used in Europe. A pound of prevention is better than an ounce of delayed bureaucratic response.

The Obama administration promised to be the most transparent administration in U.S. history, but according to a recent report by the Associated Press, the reverse might be true. More often than ever, the administration “censored government files or outright denied access to them last year under the U.S. Freedom of Information Act, cited more legal exceptions it said justified withholding materials and refused a record number of times to turn over files quickly that might be especially newsworthy.”

According to the government’s own figures from 99 federal agencies over six years, the administration made “few meaningful improvements in the way it releases records.” Last year the federal government showed the “worst” record on transparency since President Obama took office.

The government cited national security to withhold information a record 8,496 times, a 57 percent increase over 2012 and more than double Obama’s first year. The Defense Department, NSA, and CIA were the worst offenders but hardly alone. As the AP report notes, “the Agriculture Department’s Farm Service Agency cited national security six times, the Environmental Protection Agency did twice and the National Park Service once.”

The EPA denied 458 out of 468 expediting requests, and the State Department 332 out of 334. Homeland Security denied 1,384 such requests, a full 94 percent of the total. And more than ever the government censored materials it turned over or fully denied access to them. That happened in 244,675 cases or 36 percent of all requests. On 196,034 other occasions, “the government said it couldn’t find records,” and in some material it did release the government “completely marked out nearly every paragraph.”

Contrary to claims, the federal government is more opaque than ever, so citizens are less informed. The federal government is more intrusive than ever, but citizens are not more secure.

With all its mass surveillance, and even a tip-off from the Russian government, the U.S. government failed to prevent the attack on the Boston Marathon last April 15. Likewise, the government knew about the deadly plans of Major Nidal Hasan but did nothing to stop his deadly rampage at Ford Hood in 2009.

Nate Silver is perhaps best known for being one of the most accurate election forecasters in the U.S., where he has applied statistical methods originally developed to analyze sports to determining the most likely outcome of elections.

Previously hosted by the New York Times, Silver has recently relaunched his FiveThirtyEight blog with ESPN, where he has also expanded the range of topics he covers. As a case in point, he recently focused on what is driving the growth of government spending over time. Here is what he found after surveying the data from 1972 through 2011:

Spending on infrastructure and government services, excluding defense, has kept pace with gross domestic product growth. (Spending on infrastructure and services by the federal government specifically has lagged gross domestic product growth somewhat, growing at 1.8 percent per year.) Also, most of the subcategories of infrastructure and services spending that usgovernmentspending.com tracks have decreased slightly as a share of the gross domestic product, including spending on transportation, education, science and technology. The major exception is spending on the category they describe as “protection,” reflecting the increase in the criminal justice apparatus, which has grown at 4.8 percent per year.

Another way to view these data is to allocate the increase in spending-to-G.D.P. between the different categories of expenditures. Total government spending — including federal, state and local spending — rose to about 39 percent of the gross domestic product in 2011 from about 30 percent in 1972. So we have a 9 percent increase to account for, which is equal to about $1.3 trillion per year in current dollars.

Spending on entitlement programs was about $500 billion per year in 1972 in today’s dollars. If it had increased at the same rate as the gross domestic product, it would now be about $1.4 trillion. Instead, it is now about $2.9 trillion per year. What this means is that there has been about a $1.5 trillion increase in entitlement spending above and beyond gross domestic product growth. This is actually slightly larger than the overall increase in government spending relative to gross domestic product. This results from the fact that spending on the other categories has been essentially flat relative to the gross domestic product (infrastructure and services), or constitutes a negligible part of the budget for the time being (interest), or actually decreased relative to gross domestic product over the 40-year period (defense).

To clarify: all of the major categories of government spending have been increasing relative to inflation. But essentially all of the increase in spending relative to economic growth, and the potential tax base, has come from entitlement programs, and about half of that has come from health care entitlements specifically.

To put it another way, in order to be able to actually afford the total increase in entitlement spending that occurred, the U.S. economy would have had to grow at a pace nearly twice as fast as it did in the forty years from 1972 through 2011.

Silver then goes on draw a correlation between the increase in the government’s social welfare entitlement spending and the growth of distrust in the government itself:

… the declining level of trust in government since the 1970s is a fairly close mirror for the growth in spending on social insurance as a share of the gross domestic product and of overall government expenditures. We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.

Most of us don’t much care for our insurance broker.

In truth, most of us are really neutral toward our insurance brokers, at least those in the private sector, because unlike the government, we’re free to do business with them or not. The government, and the politicians and bureaucrats who run it, would prefer to deny us that kind of choice.

To actually build trust takes a combination of integrity, sincerity, reliability, consistency, commitment, and competence. All one has to do to understand why Americans have grown to distrust government so much, and are growing even more distrustful of it, is to consider the nearly complete absence of these factors from the President on down in the implementation of the latest expansion of unaffordable entitlement spending: the Affordable Care Act (a.k.a. “Obamacare”).

California governor Jerry Brown is an ardent supporter of the state’s high-speed rail project and as this report shows, he has now come up with a new reason for it. “There’s a lot of old people who shouldn’t be driving,” he recently told some union bosses in Sacramento. “They should be sitting in a nice train car working on their iPad, having a martini.” People of all ages have a problem with that.

The so-called “bullet train” might link cities but won’t take anybody to the local pharmacy, a hospital, Costco, or a high-school football game. California’s high-speed rail will take riders where the government thinks they should go but it’s primary purpose has nothing to do with transportation.

High-speed rail is designed to shore up the prospects of California congressmen by spending money in their districts. That’s why the first stretch of the system, which is supposed to link San Francisco and Los Angeles, is slated for the central valley near Fresno, not exactly the primary hub of activity in the state.

The state’s High Speed Rail Authority serves well as soft landing spot for washed-up politicians. For example, governor Brown appointed board member Lynn Schenck, a former congresswoman who also served as chief of staff for California governor Gray Davis. The Authority also provides a landing spot for state employees of dubious background. Carey Renee Moore, a convicted embezzler, got a job with the High Speed Rail Authority, which covered it up in typical style as a “personnel matter.

High Speed Rail is also a mechanism to reward politicians’ support network. Under project labor agreements and measures such as Davis Bacon, all the work will go to union contractors. A full 93.3 percent of private-sector workers are not union members. They can get no piece of the action even though their taxes support the project.

High Speed Rail also serves as a legacy project for Jerry Brown but it won’t take people where they want to go or get “old people” out of their cars. It is supposed to cost $68 billion but the true cost, in the style of the Bay Bridge, would surely be much higher. That’s why the ruling class is riding the bullet train for all it’s worth.

Normally, whenever the subject of universities and debt comes up, the topic is student loans, which as we’ve previously discussed, have skyrocketed in recent years.

But that problem with debt might not be limited to just students. Forbes‘ Josh Freedman writes about a unique change in the rankings for the University of California (UC):

Last week, the University of California got downgraded. Not in the U.S. News or other college rankings, where six of its campuses rank in the top 15 public colleges in the United States; nor in College Prowler’s list of schools with the most attractive men on campus (where flagship UC-Berkeley clocks in at a measly number 1185). Rather, the UC system has been downgraded in the credit markets: ratings agency Moody’s lowered the UC system’s general revenue bonds from Aa1 to Aa2.

People like to talk about student debt—read, for example, my five part series on the topic. (Ok, I know you’re busy. How about at least one part of it? Do it for me.) But university debt, although rarely discussed, is arguably more important. Schools across the country are borrowing more money, and the increasing reliance on debt-financing at universities is adding logs covered in lighter fluid to an already flammable higher education system. The University of California system, for example, has $14.5 billion in outstanding debt, more than double its level in 2005. The total volume of debt across colleges of all kinds has increased so much that interest payments per student have increased 86% since a decade ago despite low interest rates.

The trend of taking on more debt puts schools’ educational and social mission at odds with their financial needs, making it less likely that colleges will be able to do what they’re supposed to do—which is to provide a high quality education for students of all backgrounds.

What makes the trend for universities particularly troubling is where the money they’ve borrowed is going: to fund things like new sports stadiums and luxurious student housing facilities, which are increasingly viewed as ways to bring in more revenue, say through ticket sales and rent. Many schools are even pledging money they collect for tuition as collateral for these projects, as a way to make them more affordable and save money they would otherwise have to pay in higher interest.

That can lead to some really negative consequences if the universities cannot generate the additional revenue they expect to fund their debt payments without cutting into their basic mission. Freedman shares a horror story from the University of California’s Berkeley campus:

That saved money is now in the form of shifted risk, however. Student tuition, as well as other university finances, are now pledged in case the projects aren’t enough to pay back their cost. In fact, this already happened once: UC Berkeley took out $445 million in bonds from 2009 to 2013 to rebuild its football stadium. (The stadium sits directly on top of the Hayward Fault line and had an earthquake rating of “poor.”) Unfortunately, due to overly optimistic assumptions about how many people like football and how good they are at football, the school has fallen $120 million short. As a result, the Wall Street Journal reported, university officials have admitted that the shortfall will have to be made up for by campus funds.

That decision by the state’s public university administrators is one of many that has contributed to the downgrading of the University’s credit rating. Now they, and everyone who attends a UC campus, will pay a higher price for the bad decisions of the people who are running the UC system. Whose next bad decision will likely involve passing along the cost of their mistakes onto students in the form of higher tuitions and fees.

Since it began its various quantitative easing programs several years ago, the U.S. Federal Reserve has become one of the largest creditors to the United States federal government, funding around half of the massive amount of debt issued by the U.S. Treasury to sustain government spending at greatly elevated levels since 2009.

Having become such a large holder of the national debt, and because the nation’s central bank would be counted upon to be the government’s creditor of last resort, loaning money to the government at low interest rates that no one else will, the Fed has an obvious interest in anticipating how much new debt the federal government will generate in the future.

That’s the subject of the March 2014 Economic Letter produced by the Dallas branch of the Federal Reserve. Jason Saving, a senior research economist for the Fed, describes what the Fed expects will happen under current law, in both the short term and the long:

Over the next 10 years, annual deficits might be expected to gradually decline as the recession’s aftereffects increasingly enter the rearview mirror and the “targeted, timely and temporary” short-term stimulus measures intended to combat the recession fade to insignificance. This expectation would certainly be consistent with both 2013’s marked reduced deficit and expected declines in 2014 and 2015. Further, support for this view would be provided by the pickup in revenue from 60-year lows and measures—such as the recent two-year budget agreement—that, at least ostensibly, reduce annual deficits.

However, this outlook turns out not to be the case. After bottoming out at 2 percent of GDP during 2015–18, annual deficits are projected to rise with each succeeding year, reaching nearly 3.5 percent of GDP by 2023. The primary reasons: the retirement of baby boomers, which raises entitlement outlays (Social Security and Medicare), and an expectation that interest rates will rise sharply over the next decade, dramatically increasing U.S. borrowing costs.

What about further down the road? Under a “current law” scenario (under which Congress makes no adjustments to the existing policy environment), deficits would grow inexorably over time, rising to 6.4 percent in 2038, reaching 14.2 percent of GDP by 2088.

Saving produces the following chart to show how deep the hole dug by running persistent deficits year after year becomes, as a percentage share of GDP:

Saving also identifies the main drivers for those ever increasing annual federal budget deficits:

Entitlement spending would grow at roughly the same pace over that period, driven mainly by the interplay of an aging population with ever-more-expensive medical technology. This is no coincidence, because it is precisely this growth in entitlement programs (and to a lesser extent a sizable increase in interest payments) that causes long-term deficits to soar.

Saving then describes the economic impact of running up the national debt through those ever increasing budget deficits (emphasis ours):

The accumulation of historically high federal fiscal deficits over a prolonged period is significant for at least three reasons. First and perhaps most obviously, large and growing deficits directly increase the interest payments required to service them, requiring sacrifices (or higher taxes) elsewhere. Second, an abundance of economic research illustrates that increased borrowing eventually “crowds out” competing demands for capital from private investment, relegating the economy to a lower growth path. Future generations will face a lower standard of living than they would otherwise experience. Finally, carrying a higher stock of debt makes it more difficult for government to respond appropriately when the next recession occurs. Indeed, this was precisely the situation faced by the U.S. after running historically unprecedented peacetime deficits during 2001–08.

These are all points that we’ve emphasized here at the MyGovCost blog for quite some time. It’s just really nice to see that at least one person at the Fed gets it!

The media love anniversary stories, but last month the fifth anniversary of President Obama’s stimulus package slipped by without much fanfare. Taxpayers might recall how, in 2008, spending on the order of $800 billion was urgently called for and delivered. But it failed to stimulate much economic growth.

In the last three months of 2013 the U.S. economy expanded at 3.2 percent, down from 4.1 percent in the previous quarter. The growth rate for all of 2013 was 1.9 percent, down from 2.8 percent in 2012, not exactly something to crow about. Obama’s stimulus package did help increase the national debt from $10.6 trillion to 16.7 trillion in late 2013. But that’s hardly something to commemorate, and a contrast to other federal spending programs.

During the Great Depression the nation spent $49 million, some $833 million in current dollars, on the Hoover Dam, which President Franklin Roosevelt dedicated in 1935. The dam is still there, generating 4.2 billion kilowatts of power per year. During the 1950s President Eisenhower launched the interstate highway system, which cost more than $400 billion in current dollars. The highways are still there and Americans are still driving on them.

Recall that Obama’s stimulus gave a federal loan of $529 million to produce the $100,000 Fisker Karma hybrid. Remember too that the car was built not in America by American workers but in Finland by Finnish workers. Then Fisker went bankrupt.

The solar energy firm Solyndra bagged $535 million in loans from the Obama administration but duly went bankrupt, shutting down operations and laying off all employees in August, 2011. The wreckage included, among other things, millions of glass tubes Solyndra used in solar panels.

As we noted, architects Ronald Rael and Virginia San Fratello used more than 1000 of the tubes in the SOL Grotto, an “architectural sculpture” at the University of California Botanical Garden in Berkeley. So five years down the road the SOL Grotto is the closest thing to a monument for Obama’s stimulus package.

As we have noted, the new eastern span of the Bay Bridge cost $6.4 billion, $5 billion more than the original estimate, and came in ten years late. Despite the prodigious waste and delay state politicians and Caltrans bosses hailed the new span as a great victory. But problems quickly arose. Steel rods broke and sections of the bridge filled with water.

In a January 24 hearing in the State Transportation and Housing Committee several witnesses testified that Caltrans bosses compromised quality by ignoring problems with welds, bolts and rods. They also opted for a kind of steel prone to embrittlement, and that is why a number of rods cracked. Caltrans bosses downplayed these costly problems, reassigned the whistleblowers, and even told engineers not to write things down to avoid public disclosure. Senator Mark DeSaulnier, who conducted the hearing, cited “a deliberate and willful attempt to obfuscate what is happening to the public.” But he did not follow up on one whistleblower’s call for a “criminal investigation,” a perfectly reasonable request.

Now the California Highway Patrol is looking into the welding problems on the bridge but state officials call this “an administrative inquiry, not a criminal probe.” The CHP deals with crimes committed on state property but is a strange choice to investigate malfeasance on the bridge.

DeSaulnier backs the CHP inquiry and says “the intention of the Senate investigation was always to turn it over to the governor’s office and the attorney general’s office for a criminal investigation to make sure people are held accountable.” But no criminal investigation is in fact taking place and that is something of a giveaway.

In the January hearing 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 said would promote economic growth. He gave no examples but the prime candidate is surely the state’s $68 billion high-speed rail project.

Meanwhile, the CHP “administrative inquiry” gives the appearance of accountability but taxpayers may be forgiven for seeing it as a coverup. Politicians and bureaucrats are hoping the inquiry makes Californians more open to new and higher taxes to fund future boondoggles.

Vallejo, California is a small city of over 115,000 people located on San Pablo Bay at the north end of the San Francisco metropolitan area, with a long history of providing lavish benefits for elected officials and government employees. So lavish, in fact, that the city was forced to file for bankruptcy back on May 23, 2008 because it could no longer pay for essential services for the public and the pensions of its public employees.

In response to the bankruptcy filing, the city’s public employee unions fought back in court to prevent any cuts to their pensions, but surprisingly, lost.

In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies.

Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers’ union contracts

Legally, that March 13, 2009 decision freed the city to make much needed reforms to its public employee contracts and benefit plans, but such was the political power of the city’s public employee unions that the city’s elected officials, many of whom owed their positions to the support of the government employee unions, declined to act in the people’s best interest.

Instead, they chose to slash the city’s services, but never really touched the generous pensions paid to established members of the city’s public employee unions. The city went on to restructure its other spending and emerged from bankruptcy in August 2011.

But because its elected officials refused to be fiscally responsible in restructuring benefits for the city’s bureaucrats to be fiscally sustainable, the city of Vallejo is now headed back to bankruptcy:

The California city of Vallejo emerged from bankruptcy just over two years ago, but it is still struggling to pay its bills.

The main culprit: Ballooning pension costs, which will hit more than $14 million this year, a nearly 40% increase from two years ago.

Amid threats of legal action from the state’s pension giant, CalPERS, Vallejo did little during its nearly three-year stint in bankruptcy to stem the growth in its pension bills.

As a result, Vallejo continues to dole out large sums of money for retirees. Except for new hires, Vallejo’s police and firefighters can retire at age 50 with as much as 90% of their salary — for life. Public safety workers who retired in the last five years have average annual pensions of more than $101,000.

And the pension costs are expected to continue to rise, with a projected increase of up to 42% over the next five years.

That increase, combined with the declining fortunes of Vallejo’s citizens, ensures that bankruptcy proceedings will once again be in the city’s future, as the city will not be capable of either taxing or borrowing its way to solvency.

Denied their preferred approach to solving a fiscal crisis at the expense of others, the city’s elected officials owe it to the citizens of Vallejo to face up to the fiscal reality of their situation and begin acting in the general public’s best interest. Ending their crony relationships with the city’s public employee unions will be a good first step to a brighter future.