Posts tagged ‘budget’

Iron Law of Bureaucracy

Last week I wrote:

One can build a very good predictive model of government agency behavior if one assumes the main purpose of the agency is to maximize its budget and staff count.  Yes, many in the organization are there because they support the agency's public mission (e.g. protecting the environment at the EPA), but I can tell you from long experience that preservation of their staff and budget will almost always come ahead of their public mission if push comes to shove.

Despite being a Jerry Pournelle fan, I had never heard his Iron Law of Bureaucracy, but it certainly fits my observations

Iron Law of Bureaucracy

In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.

Congress Almost Always Rewards Failed Government Agencies. Here is Why

One can build a very good predictive model of government agency behavior if one assumes the main purpose of the agency is to maximize its budget and staff count.  Yes, many in the organization are there because they support the agency's public mission (e.g. protecting the environment at the EPA), but I can tell you from long experience that preservation of their staff and budget will almost always come ahead of their public mission if push comes to shove.

The way, then, to punish an agency is to take away some staff and budget.  Nothing else will get their attention.  Unfortunately, in most scandals where an agency proves itself to be incompetent or corrupt or both (e.g. IRS, the VA, more recently with OPM and their data breaches) the tendency is to believe the "fix" involves sending the agency more resources.  Certainly the agency and its supporters will scream "lack of resources" as an excuse for any problem.

And that is how nearly every failing government agency is rewarded for their failure, rather than punished.  Which is why our agencies fail so much.

Note that organizations in the private world are not immune to similar incentives.  A company's marketing staff will work hard to get more people and resources for marketing, and in good times their staff and budget may balloon.  The difference is that in the private world, there is competition.  Other companies are trying to sell similar products and services.  And if the marketing department is screwing up a lot, or those resources spent on it are not being used productively, the company is going to lose sales and thus resources.  To survive, massive changes will be made, including likely some deep cuts and large restructurings in marketing.

It is frustrating to work in corporations that seem to lurch from growth periods to cutbacks in an endless cycle.  But it beats the alternative where the organization always grows and never is forced to confront the value of how it spends its resources.

Overwrought Language of the Day

Our Overwrought language award this week comes from Kevin Drum of Mother Jones, writing about Paul Ryan's budget plan.  Drum calls Ryan's budget a "Vision of a Dickensian Hellhole".  He quotes Jonathon Chait as saying, "Its enactment would amount to the most dramatic rollback of government since the New Deal."

All this for a budget that proposes to reduce government spending to about 19% of GDP, a level that we have not seen since the Dickensian Hellhole of ... the Bill Clinton Presidency.  During the New Deal, spending hovered around 10% of GDP.

This is the ratchet effect that big government lovers are so adept at employing.  Under President Obama (with a lot of help from George Bush and a Democratic Congress) spending has skyrocketed to an unprecedented-except-in-WWII level of over 25% of GDP.  But suddenly Drum and Chait and company want to define that level as the new baseline, below which any drop is now "Dickensian."  Which is another reason that we should never, ever create a new government spending program because once established they are impossible to eliminate, no matter how stupid and wasteful.

 

Question: Name An Activity The Government is Better At Than the Private Actors It Purports to Regulate

I am serious about this.  We saw in an earlier story that the government is trying to tighten regulations on private company cyber security practices at the same time its own network security practices have been shown to be a joke.  In finance, it can never balance a budget and uses accounting techniques that would get most companies thrown in jail.  It almost never fully funds its pensions.  Anything it does is generally done more expensively than would be the same task undertaken privately.  Its various sites are among the worst superfund environmental messes.   Almost all the current threats to water quality in rivers and oceans comes from municipal sewage plants.  The government's Philadelphia naval yard single-handedly accounts for a huge number of the worst asbestos exposure cases to date.

By what alchemy does such a failing organization suddenly become such a good regulator?

Update:  On the topic of cyber security competence or lack thereof, there is this:

In mid-May, the Federal Bureau of Investigations lost control over seized domains, including Megaupload.com, when the agency failed to renew a key domain name of its own. That domain, which hosted the name servers that redirected requests for seized sites to an FBI Web page, was purchased at auction—and then used to redirect traffic from Megaupload.com and other sites to a malicious site serving porn ads and malware. Weeks later, those sites are still in limbo because somehow, despite a law enforcement freeze on the domain name, the name servers associated with Megaupload.com and those other seized sites were changed to point at hosts associated with a domain registered in China.

Yep, that is the lead government agency tasked with investigating hacking and cyber security breaches.

Connecticut Taxing Corporations on their Worldwide Income

This is absolute madness.  

The last time we visited the formerly great state of Connecticut, Democrats were preparing to raise taxes again after promising not to when they ran for re-election in 2014. This week they did the deed, and the politicians seem shocked that the business community is in revolt.

The blue-state paragon’s two-year budget of $40.3 billion includes a $1.5 billion net increase in taxes and fees. The top marginal individual tax rate rises to 6.99% from 6.7%. But the biggest blow is making permanent a 20% surtax on a company’s annual tax liability—a tax on a tax—and for the first time taxing Connecticut companies on their world-wide income, rather than what they earn in the state.

The high marginal rates are bad enough, but it is an astonishing overreach to tax corporations headquartered in your state based on their worldwide income.  This leads to a huge double taxation problem for any company dumb enough to stay.   Paraphrasing Keith Richards, that is the equivalent of being told to leave the state.

Lack of Hotel is Not a Market Failure -- It Was a Market Success

For some reason, it appears that building hotels next to city convention centers is a honey pot for politicians.  I am not sure why, but my guess is that they spend hundreds of millions or billions on a convention center based on some visitation promises.  When those promises don't pan out, politicians blame it on the lack of a hotel, and then use public money for a hotel.  When that does not pan out, I am not sure what is next.  Probably a sports stadium.  Then light rail.  Then, ?  It just keeps going and going.

I thought we in Phoenix took some kind of prize with this:

The city-owned Sheraton Phoenix Downtown Hotel has lost so much money — more than $28.2 million total — that some city leaders say the hotel must be put in the hands of the private sector.

They also worry that the hotel, Arizona's largest with 1,000 rooms, could harm other projects in the downtown core.

When Phoenix leaders opened the Sheraton in 2008, they proclaimed it would be a cornerstone of downtown's comeback. They had one goal in mind: lure big conventions and tourism dollars. Officials argued the city needed the extra hotel beds to support its massive taxpayer-funded convention center a block away.

But apparently things are even worse in Baltimore:

The city-owned Hilton Baltimore convention center hotel lost $5.6 million last year — a worse performance than 2013 despite its close location to Camden Yards and the Orioles' playoff run.

It was the seventh consecutive year that the hotel has underperformed financially, according to an audit of financial statements presented Wednesday to the city's Board of Estimates. Under the deal's initial projections, the hotel was supposed to be making $7 million in profit by now — pumping that mone into the city's budget....

The hotel has lost more than $70 million since it opened.

I am sure that politicians in both cities called the lack of a hotel a market failure.  But now we see that it was a market success.  All the companies who chose not to build a hotel with private money obviously knew what they were doing, and only the political benefits of pandering the the public at large and a few special interests in specific made it seem like an attractive investment to city politicians.  Which is all pretty unsurprising, since hotels have pretty much been built off every exit ramp in this country, so there seems to be no private inhibition towards building hotels -- just towards building hotels in bad locations.

Nestle: Private Company Getting Blamed for Government Incompetence

The story begins with a discovery that the permit under which Nestle's Arrowhead Water has been collecting water in the San Bernardino National Forest expired in 1988.  LOL, oops.  Environmental and other Leftish sites are calling for Nestle's head and somehow blaming Nestle for this.

As a permittee with the US Forest Service (USFS) in California and across the country, I can guess with pretty high confidence exactly what happened here.  For years I was head of a trade group of recreation concessionaires (think lodges and guides and such) who do business in the USFS under permit.  Most of these were located in California.  For years, the biggest problem we have had with the USFS in California is that they are years and years behind in nearly all their permit renewals.  There are literally hundreds of expired permit in the USFS in California alone.

For reasons that probably go to bureaucratic incentives, despite the Forest Service's huge budget, they are loath to allocate resources to renewing these permits -- they want to fill their organization with biologists and archaeologists and arborists, not contracts people.  Making the situation worse, Forest Service and other Federal rules have burdened the permit renewal process with so many legal requirements that each one, even if trivial in size and impact, is absurdly time-consuming to complete.

This is not a new situation -- it has obtained for years.  Almost five years ago I met personally with the Chief of the Forest Service in DC and begged for more resources to be assigned to permit renewals, but to no avail.   I did the same in a meeting barely a month ago with the head of the USFS's Region 5 (basically California).   All of us permittees have been vociferously complaining about this for years.

When you look at these situations, then, what you will see is not some evil private business trying to get over on the public, but a business that is literally screaming in frustration, year in and year out, begging the US Forest Service to address its permit renewal.   Generally, local Forest Service staff will give the company verbal assurances that they should keep operating, so they do, continuing to pay their fees and operate within the guidelines of the old, expired contract.

I would be willing to bet a fair amount of money that this is exactly what happened to Nestle.

By the way, the usual groups seem to be piling on Nestle about bottled water from the Sacramento tap water system.  A couple of comments:

  • Environmentalists seem to obsessively hate bottled water, but ignore what a trivial, trivial percentage of total water use is bottled.
  • Critics are accusing Nestle of making obscene profits on Sacramento tap water.  But if they really think the spread between tap water and bottled water is too large, isn't the real issue that Sacramento is under-pricing its tap water?  After all, Nestle is paying what everyone else in the town is paying for water.
  • Environmentalists have a misguided fetish for local foods, often ignoring that transportation costs and energy are a tiny percentage of most food production costs  (a percentage small enough to be dwarfed by differential productivity of soils and climates).  But here, all they can possibly accomplish is to chase Nestle's bottling plant out of California and then have the water trucked back into the state.  This might be a net gain depending on the differential value of California water vs. fuel, but we can't know that because California water pricing is so screwed up.

Government's Systematic Indifference to Capital Maintenance

There is one thing you can almost always assume with government managed land and infrastructure -- facilities will likely have a large deferred maintenance backlog.  Two examples:

These problems are ubiquitous.  You can point to any government parks agency, and most any transit agency, and you will find the same problems.

Why?  Well, I have not studied the problem in any academic sense, but I am face-to-face with the problem every day in parks.

Let's start with the reason that is not true -- that somehow budgets can't support capital maintenance.  I know for a fact that this is not true in parks.  We operate over 100 public parks and are totally up to date with all maintenance and have no deferred maintenance backlog.  This is despite the fact that we work with only the fees paid by visitors at the gate.  Government agencies typically supplement fees at the gate with an equal amount of tax money and still don't keep up with maintenance.  So the issue may be costs or priorities, but the money is there to keep parks fixed up.  (I am willing to believe the same is not true of large transit projects, but these projects are known in advance not to be able to cover their lifecycle costs with revenues, and simply hide that fact from taxpayers until it is too late.  Thus the sales tax increase that is being requested in Phoenix to keep our new light rail running).

I think the cause lies in a couple areas related to government incentives

  1. Legislatures never want to appropriate for capital maintenance.  If the legislature somehow has, say, $100 million money it can spend on infrastructure, their incentives are to use it to build new things rather than to keep the old things in repair (e.g. to extend a rail line rather than to keep the old one fixed).
  2. If you want to understand a government agency's behavior, the best rule of thumb is to assume that they are working to maximize the headcount and the payroll budget of their agency.  I know that sounds cynical, but if you do not understand an agency's position or priorities, try applying this test:  What would the agency be doing or supporting if it were trying to maximize its payroll.  You will find this explains a lot

To understand #2, you have to understand that the pay and benefits -- and perhaps most important of all -- the prestige of an agency's leaders is set by its headcount and budgets.  Also, there are many lobbying forces that are always trying to pressure an agency, but no group is more ever-present, more ubiquitous, and more vocal than its own staff.   Also, since cutting staff is politically always the hardest thing for legislators to do, shifting more of the agency's budget to staff costs helps protect the agency against legislative budget cuts.  Non-headcount expenses are raw meat for budget cutters, and the first thing to get swept.  By the way, this is not unique to public agencies -- the same occurs in corporations.   But corporations, unlike government agencies, face the discipline of markets that places a check on this tendency.

This means that agencies are loath to pay for the outside resources (contractors and materials) that are needed for capital maintenance projects out of their regular budgets.  When given the choice of repairing a bathroom at the cost of keeping a staff person, agencies will always want to choose in favor of keeping the staff.  They assume capital maintenance can always be done later via special appropriation, but of course we saw earlier that legislators are equally unlikely to prioritize capital maintenance vs. other alternatives.

The other related problem faced is that this focus on internal staff tends to drive up pay and benefits of the agency workers.  This drives up the cost of fundamental day to day tasks (like cleaning bathrooms and mowing) and again helps to starve out longer-horizon maintenance functions.

As proof, you only have to look at the mix of agency budgets.  Many parks agencies (e.g. New Jersey state parks, which I have studied in depth) have as much as 85% of their budget go to internal staff.  My company, which does essentially the same thing (run parks) has about 32% of our budget go to staff.  State parks agencies have 50% or more of their staff in headquarters or regional offices.  In my company, 99% of the staff is in the parks.

I don't think that these incentives problems can be overcome -- they are simply too fundamental to how government works.  Which is why I spend my working hours trying to convince states to privatize the operation of their recreation facilities.

The Face of Cronyism

Via Reason:

Billionaire John Catsimatidis is NY: Geraldo Rivera Hosts Wife Erica's 40th Birthday Partyworking to slip a biofuel mandate that would add $150 million to New Yorkers’ heat expenses into the state budget just as a company he owns completes construction of the largest biofuel plant in the region.

The New York Post reports that Catsimatidis’ lobbyists are putting the pressure on State senators to slip a provision that would require all heating oil sold in New York to contain “2 percent or more of soybean oil and/or spent vegetable oils.”

He is a close friend of the Clintons.  Expect a total crony feeding fest should Hillary get elected President,

Republicans Are Crazy for Wanting Dynamic Scoring at the CBO

Dynamic scoring of budget proposals has been on the Republican wish list for decades.  They have always been frustrated that tax cut proposals look like such budget losers with static scoring.  In their supply-side bones, Republicans know that tax cuts will stimulate economic activity and thus increase future tax revenues.  Taking this second order effect into account is what they mean by dynamic scoring (see: Laffer Curve).

I have some sympathy for this argument, but in making it Republicans are falling for the "this will work great when our guys are in charge" fallacy  (I need to find a name for that).  Democrats fall into this all the time, expanding government power only to be shocked at what their political enemies do with this power once in charge.

Because it is pretty clear what dynamic scoring will mean in a Democratic Congress.  Remember that stimulus bill?  Democrats all thought that expanded the economy, so its costs would, by their Keynesian assumptions, appear much lower under dynamic scoring.  The Left thinks the auto bailout was stimulative.  They even think that Obamacare was stimulative.  Do you really want some BS Keynesian fudge factor obscuring the true cost of such proposals in the future?

Related:  Greg Mankiw discusses why, if I read him right, dynamic scoring is impossible to do correctly

 

"Dysfunctional Congress"

This weekend I went to a one-day university and saw four different lectures (as usual, about half were good, one was OK, and one was a soft-of WTF).  In one of those lectures, a Brown professor kept talking about Congress being "dysfunctional".

It strikes me that it is time to demand that people define what they mean by this.  A lot of people, I think, would answer that they mean that Congress is dysfunctional because it has not passed X, where X is immigration reform or climate change legislation or a repeal of Obamacare or a list of many other things.  But in these cases, I am not sure it is fair to say that lack of Congressional action really represents dysfunctionality when the public itself is sharply and somewhat evenly divided on the issues themselves.

No one can best me in a competition of disdain for elected officials.  But I am always suspicious that folks using the whole dysfunctional Congress meme are really using it as a proxy for a strong desire to keep expanding government.  After all, are we really facing a shortage of laws that Congress desperately needs to address?  Is Congress somehow greedily hording laws in a time of need?

In the spirit of defining terms, I will say what I think is dysfunctional about Congress:  When it fails to fulfill its Constitutionally-mandated roles.  It is not required to pass immigration legislation, but it is required to pass a budget and give up and down votes on appointments.  Neither of these tasks have been accomplished very well over the last few years.   Again, Congress is not required to give the President what he wants (as the media seems to imply, at least when the President is a Democrat), but they are required to pass some sort of budget and take a vote in a reasonably timely manner on appointments.

And The Highest-Paid US Government Employee is....

...Probably Nick Saban, coach of the University of Alabama football team at around $7 million a year.  But Jim Harbaugh, recently hired by the University of Michigan for a $5 million base salary, apparently has incentives that can take that up to $9 million a year.

Apologists will argue that this is all OK and shouldn't worry taxpayers at all because these guys are paid out of the college athletic budget which is generated from sports revenue rather than taxes.  Hmm.  Any state parks agency probably generates millions or tens of millions each year in user fees.  Should we be OK with the state employee who runs those agencies making $5 million because it comes out of user fees rather than taxes?  Money is fungible.  $5 million more spent on a football coach is $5 million less that can fund other University services.

(PS - in the US Today ranking of college football coach salaries, 19 of 20 are at public institutions).

Arrogance of the Elite

I am pretty freaking cynical about the political process, so it takes something pretty bad to catch my attention.  This attitude by Obamacare architect Jonathon Gruber, which is likely shared by most of the Administration, simply makes me sick:

An architect of the federal healthcare law said last year that a "lack of transparency" and the "stupidity of the American voter" helped Congress approve ObamaCare.

In a clip unearthed Sunday, Massachusetts Institute of Technology Professor Jonathan Gruber appears on a panel and discusses how the reform earned enough votes to pass.

He suggested that many lawmakers and voters didn't know what was in the law or how its financing worked, and that this helped it win approval.

"Lack of transparency is a huge political advantage,” Gruber said. "And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for the thing to pass."

Gruber made the comment while discussing how the law was "written in a tortured way" to avoid a bad score from the Congressional Budget Office. He suggested that voters would have rejected ObamaCare if the penalties for going without health insurance were interpreted as taxes, either by budget analysts or the public.

"If CBO scored the [individual] mandate as taxes, the bill dies," Gruber said.

"If you had a law that made it explicit that healthy people are going to pay in and sick people are going to get subsidies, it would not have passed," he added.

By the way, Jonathon Gruber was the one in 2012 who said over and over that the limitation of subsidies to state-run exchanges was not a drafting error, but was an intentional feature meant to give incentives to states to create exchanges.  Now that it is clear that incentive did not do its job, and a case is in front of the Supreme Court attempting to enforce the plain language of the law, Gruber is now saying that he mispoke (over and over again) in 2012 and it was a typo.  Given the fact that he has now admitted he would gladly lie (and has) to the public to defend Obamacare, how much should we believe his current claims?

So In The End, The VA Was Rewarded, Not Punished

Remember the whole VA thing?  It has mostly been forgotten, though we will all remember it again, or more accurately get to experience it ourselves, once the Democrats manage to get single payer passed.

People talk about government employees being motivated by "public service" but in fact very few government agencies have any tangible performance metrics linked to public service, and when they do (as in the case of the VA wait times) they just game them.   At the end of the day, nothing enforces fidelity to the public good like competition and consumer choice, two things no government agency allows.

I will admit that government employees in agencies may have some interest in public welfare, but in the hierarchy of needs, the following three things dominate above any concerns for the public:

  • Keeping the agency in existence
  • Maintaining employment levels, and if that is achieved, increasing employment levels
  • Getting more budget

But look at the VA response in this context:

  • The agency remains in existence and most proposals to privatize certain parts were beaten back
  • No one was fired and employment levels remain the same
  • The agency was rewarded with a big bump in its budget

The VA won!  Whereas a private company with that kind of negative publicity about how customers were treated would have as a minimum seen a huge revenue and market share loss, and might have faced bankruptcy, the VA was given more money.

Murry Rothbard via Bryan Caplan:

On the free market, in short, the consumer is king, and any business firm that wants to make profits and avoid losses tries its best to serve the consumer as efficiently and at as low a cost as possible. In a government operation, in contrast, everything changes. Inherent in all government operation is a grave and fatal split between service and payment, between the providing of a service and the payment for receiving it. The government bureau does not get its income as does the private firm, from serving the consumer well or from consumer purchases of its products exceeding its costs of operation. No, the government bureau acquires its income from mulcting the long-suffering taxpayer. Its operations therefore become inefficient, and costs zoom, since government bureaus need not worry about losses or bankruptcy; they can make up their losses by additional extractions from the public till. Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a mere annoyance to the government someone who is "wasting" the government's scarce resources. In government operations, the consumer is treated like an unwelcome intruder, an interference in the quiet enjoyment by the bureaucrat of his steady income.

It's Not A Just Revenue Problem in Arizona Parks, It's A Cost Problem

Former Arizona State Parks director Ken Travous takes to the editorial page of our local paper to criticize current park management and the Arizona legislature for not sending enough money to parks"

Things were looking pretty good, and I guess that’s the problem. In some odd kind of way, employing some type of sideways logic, the Legislature deemed that if State Parks is getting along well, it must be out of our control. So, after 15 years of parks acting like a business, the Legislature decided to act like a government and take their money. A little bit here and there in the beginning, to test the public reaction, and then in breathtaking swaths.

Heritage Fund ... gone. Enhancement fund ... swiped. General fund? No way. A $250,000 bequest? Oops, they caught us; better put it back.

State Parks now has a mountainous backlog of maintenance projects all because the Legislature would rather wholly own a failure than share a success. We need to put people in the halls that care about those things that we want our children to enjoy, and a governor who will stand in the breach when the next onslaught appears.

I agree with Travous that our parks could use some more funds.  But what Mr. Travous ignores is that the seeds of this problem were very much sown on his watch.

Travous points out that revenues in the parks expanded to nearly $10 million when he was in charge.  But left unsaid is that at the same time agency expenses on his watch ballooned to a preposterous $33 million a year**.  At every turn, Travous made decisions that increased the agency's costs.  For example, park rangers were all given law enforcement certifications, substantially increasing their pay and putting them all into the much more expensive law enforcement pension fund.  There is little evidence this was necessary -- Arizona parks generally are not hotbeds of crime -- but it did infuriate many customers as some rangers focused more on citation-writing than customer service.  There is a reason McDonald's doesn't write citations in their own parking lot.

What Mr. Travous fails to mention is that the parks were falling apart on his watch - even with these huge budgets - because he tended to spend money on just about anything other than maintaining current infrastructure.  Infrastructure maintenance is not sexy, and sexy projects like the Kartchner Caverns development (it is a gorgeous park) always seem to win out in government budgeting.  You can see why in this editorial -- Kartcher is his legacy, whereas bathroom maintenance is next to invisible.  I know deferred maintenance was accumulating during his tenure because Arizona State Parks itself used to say so.  Way back in 2009 I saw a book Arizona State Parks used with legislators.  It showed pictures of deteriorating parks, with notes that many of these locations had not been properly maintained for a decade.  The current management inherited this problem from previous leaders like Travous, it did not create it.

So where were those huge budgets going, if not to maintenance?  Well, for one, Travous oversaw a crazy expansion of the state parks headquarters staff.    When he left, there were about 150 people (possibly more, it is hard to count) on the parks headquarters staff.  This is almost the same number of full-time employees that were actually in the field maintaining parks.  As a comparison, our company runs public parks and campgrounds very similar to those in Arizona State Parks and we serve about the same number of visitors -- but we have only 1.5 people in headquarters, allowing us to put our resources on the ground in parks serving customers and performing maintenance.  None of the 100+ parks we operate have the same deferred maintenance problems that Arizona State Parks have, despite operating with less than a third of the budget that Travous had in his heyday.

I am not much of a political analyst, but my reading is that the legislature cut park funds because it lost confidence in the ability of Arizona State Parks to manage itself.   Did they really need to cut, say, $250,000 from parks to close a billion dollar budget hole?  Arizona State Parks had its budgets cut because the legislature did not think it was acting fiscally prudent, like cutting off a child's allowance after he has shown bad judgement.

I have met with current Director Bryan Martyn and much of the Arizona State Park staff.  Ken Travous is not telling them anything they do not know.  Of course they would like more funds to fix up their parks.  But they understand that before they can expect any such largess, they need to prove that Arizona State Parks will use its funds in a fiscally sensible manner.  And I get the impression that they are succeeding, that the legislature is gaining confidence in this agency.  The irony is that  Arizona State Parks will be able to grow and get more funds only when it has overcome the problems Travous left for them.

 

 ** Footnote:  Getting an actual budget number for ASP is an arduous task.  I once talked to a very smart local consultant named Grady Gammage who worked with parks and finally despaired of accurately laying out the budget and allocating it to tasks.  What this achieves is that it allows insiders to criticize anyone they want as being "misinformed" because almost any number one picks is wrong.   The $33 million figure comes from outside consulting reports.  The headcount numbers come from numbers the ASP information officer gave me several years ago.  Headcount numbers are different today but the ones above are relevant to the agency as it existed when Travous left.

A Proposal For Better Management of the (Soon to Be) California Climate Slush Fund

California is about to implement a new climate tax via a cap and trade system, where revenues from the tax are supposed to be dedicated to carbon reduction projects.  Forget for a moment all my concerns with climate dangers being overhyped, or the practical problems (read cronyism) inherent in a cap-and-trade system vs. a straight carbon tax.  There is one improvement California can and should make to this system.

Anyone who can remember the history of the tobacco settlement will know that the theory of that settlement was that the funds were needed to pay for additional medical expenses driven by smoking.  Well, about zero of these funds actually went to health care or even to smoking reduction programs  (smoking reduction programs turn out to be fiscally irresponsible for states, since they lead to reduced tax revenues from tobacco taxes).  These funds just became a general slush fund for legislators.   Some states (New York among them, if I remember correctly), spent the entire 20 year windfall in one year to close budget gaps.

If California is serious that these new taxes on energy should go to carbon reduction programs, then these programs need to be scored by a neutral body as to their cost per ton of CO2 reduction.  I may think the program misguided, but given that it exists, it might as well be run in a scientific manner, right?  I would really prefer that there be a legislated hurdle rate, e.g. all programs must have a cost per ton reduction of $45 of less -- or whatever.  But even publishing scores in a transparent way would help.

This would, for example, likely highlight what a terrible investment this would be in reducing CO2.

 

Newsflash: Apparently, Obamacare will Reduce Full-Time Employment. Who Would Have Guessed?

The Washington Post reports on an updated CBO report:

The Affordable Care Act will reduce the number of full-time workers by more than two million in coming years, congressional budget analysts said Tuesday in the most detailed analysis of the law’s impact on jobs.

After obtaining coverage through the health law, some workers may forgo employment, while others may reduce hours, according to a report by the Congressional Budget Office. Low-wage workers are the most likely to drop out of the workforce as a result of the law, it said. The CBO said the law’s impact on jobs mostly would be felt after 2016.

This almost certainly underestimates the impact.   Why?  Well, one reason is that a lot of full-time jobs were switched to part-time jobs way back in late 2012.  That is what our company did.  Why so early?  Because according to rules in place at the time (rules that have since been delayed at least a year) the accounting period for who would be considered full-time for the purpose of ACA penalties would be determined by an accounting period that started January 1, 2013.  So, if a business wanted an employee to be considered part-time on January 1, 2014 (the original date employer sanctions were to begin), the changes to that employees hours had to be put in place in late 2012.  More on this here in Forbes.

In addition, this CBO report is  a static analysis of existing business.  It does not seem to include any provisions for businesses that have dialed back on investment and expansion in response to the ACA (we have certainly cut back our planned investments, and we can't be the only ones.)  This effect is suggested (but certainly not proven) by this chart.

click to enlarge

The sequester and government shutdown were cited by the Left as reasons for a sluggish economy.  Which government action seems most correlated with a flattening in job growth?

 

Confused About Argument by Anecdote

Politicians frequently argue by anecdote.  I don't generally find this compelling -- after all, one can find an anecdote about just about anything among 300 million people.

But for those who do believe that an anecdote proves their case -- doesn't a reversal of fortune within that anecdote then disprove their case?  How can a particular person's experience be entirely generalizable, and then suddenly not be so when the facts change?

Back in October, Sanford had written a letter to the White House to share her good news. The 48-year-old single mother of a teenage son diagnosed with ADHD had just purchased what she considered to be affordable insurance on the Washington state exchange....

Her heartfelt letter made it to the President's hands and then into his October 21 speech.

"'I was crying the other day when I signed up. So much stress lifted.'" Obama said, reading from Sanford's letter.

The president said Sanford's story was proof, despite the technical problems with the healthcare.gov website, that the Affordable Care Act was working....

But then, after Obama mentioned her story, Sanford started having problems. Sanford said she received another letter informing her the Washington state health exchange had miscalculated her eligibility for a tax credit.

In other words, her monthly insurance bill had shot up from $198 a month (she had initially said $169 a month to the White House but she switched plans) to $280 a month for the same "gold" plan offered by the state exchange....

Last week, Sanford received another letter from the Washington state exchange, stating there had been another problem, a "system error" that resulted in some "applicants to qualify for higher than allowed health insurance premium tax credits."...

The result was a higher quote, which Sanford said was for $390 per month for a "silver" plan with a higher deductible. Still too expensive

A cheaper "bronze" plan, Sanford said, came in at $324 per month, but also with a high deductible - also not in her budget.

Then another letter from the state exchange with even worse news.

"Your household has been determined eligible for a Federal Tax Credit of $0.00 to help cover the cost of your monthly health insurance premium payments," the latest letter said.

It Turns Out That Democrats Were Responsible for the Watergate Coverup

The Washington Post has a very good article on failures of Obamacare exchange implementation.  The Left is finding the article to be convincing evidence that the failures were all ... wait for it .. the Republican's fault.

Every single failure, save one, in the article (we'll come back to that one in a minute) was due to the Administration's fear of Republican criticism.  So results were hidden, bad decisions were made, and key steps were delayed until after the last election.  All because the Obama Administration appears to incredibly thin-skinned about criticism.

But blaming these decisions on Republicans and other Obamacare opponents is absurd.  One could easily say that the bad decisions made by the Nixon administration to cover up Watergate and other campaign shenanigans were driven by a fear of political reprisals by Democrats, but no one would be crazy enough to blame the Democrats for them.  It reminds me of the folks who wanted to blame failures in the Vietnam war on the anti-war movement.  But that is exactly what is going on here, and the amazing thing is just how many people seem willing to enable and support this incredible evasion.

The one other example that Republicans are supposedly to blame is latched onto by Kevin Drum, among others, quite eagerly.  Apparently, the PPACA legislation, which was written entirely by Democrats and passed without a single Republican vote, failed to actually provide financing for an enormous new organization to build and run the exchanges.  And, amazingly enough, Republicans refused to fix the Democrat's problem with the Democrat-written legislation in a law they hated and wanted repealed.  So the Obama Administration had to build the exchanges within the existing CMS organization, which botched the implementation.  And for THAT, apparently Republicans are to blame for it all.

Of course, beyond the just bizarre "buck stops anywhere but here" mentality, there are other problems with this logic.  First, it is hard to believe that a brand new greenfield organization run entirely by Obama's policy folks and completely without any systems experience would have done better than an organization that at least has some health care systems experience.  Further, would the schedule really have been aided by having to start an entirely new organization from scratch?  Finally, it is clear from the article that a large part of the reason for moving the work to CMS was not just money but a desire to avoid transparency, to bury and hide the work.  Even had the financing mistake** not been made, one gets the sense that Obama might have buried the effort inside CMS anyway.

In fact, this is the overriding theme from the entire article.  Every decision made for the Obamacare implementation seemed to be driven by political expediency first, avoiding transparency and accountability second, and actual results last.  It is well worth reading yourself to see what conclusions you draw.

 

** I am not entirely convinced it was a mistake.  Remember, the Democrats were scrambling to make the PPACA seem budget neutral.  They might easily have left out key bits of financing they know they needed, thinking they could hide the appropriation later.   A plan that died when Scott Brown was unexpectedly elected.

 

Obama Administration Proposes to Increase the Amount of Land that Can Be Used As A Pawn in the Next Budget Fight

Via the ARRA:

On October 31, Interior Secretary Sally Jewell said in a speech at the National Press Club, "If Congress doesn't step up to act to protect some of these important places that have been identified by communities and people throughout the country, then the President will take action. There's no question that if Congress doesn't act, we will."  Jewell was referring to designating huge swaths of public lands as National Monuments.  When she calls on Congress to “step up,” she may be ignoring that local citizens, including some recreationists and businesses near public lands where Wilderness or other special designations are being considered, may not support such action.

Just what we need - even more land that the Department of Interior can block with gates and guards next time they are unhappy with their budget.

Why The Administration Could Not Delay the Exchanges, Even When They Clearly Did Not Work

I think it is now clear why the Administration could not delay the exchanges, even when Republicans essentially cast them a lifeline during the budget debate by trying to delay the mandate by a year:  I think the Administration knew that a massive wave of insurance policy cancellations were already in the mail, and that the recipients of these letters would be facing huge price increases for their policies.

It is telling that the one thing you are NOT hearing from Administration officials in response to the policy cancellations is surprise.  If they were surprised, they would be yelling stuff like, "what the hell are those insurance companies doing?"  They knew this was coming, and you get the sense they were grimly bracing for it to be made public, hoping that perhaps their friends in the media would not make a big deal about it.

The minimum requirements on health plans that is driving these cancellations cannot at this point be cancelled.  Or, put more precisely, they could be cancelled but the act would be meaningless, because insurance companies have no way to suddenly go back to the old policies and pricing.  It takes too much planning to work out their product line and they can't just switch back on a dime.

So the huge wave of cancellations and price increases in the individual market was unstoppable.  That being said, the Administration has to be able to offer an alternative, and the only one they have is the hope one might get his or her new policy subsidized by other taxpayers.  But that is only possible through the exchanges.  So that had to be allowed to go forward and made to work, somehow.

There is no fix to this mess.  This is an avalanche that was loosed three years ago and cannot be stopped.

The Difference Between Private and Public Governance, Part Number Whatever

Let's suppose a Fortune 500 company went through a rancorous internal debate about strategic priorities, perhaps even resulting in proxy fights and such (think Blackberry, HP, and many other examples).  The debate and uncertainty makes investors nervous.  So when the debate has been settled, what does the CEO say?  My guess is that he or she will do everything they can to calm investors, explain that the internal debate was a sign of a healthy response to adversity, and reiterate to the markets that the company is set to be stronger than ever.  The CEO is going to do everything they can to rebuild confidence and downplay the effects of the internal debate.

Here is President Obama today, talking about the budget battle

“Probably nothing has done more damage to America’s credibility in the world than the spectacle we’ve seen these past few weeks,” the president said in an impassioned White House appearance.

Good God, its like he's urging a sell order on his own stock.   I was early in observing the Republican strategy was stupid and doomed to failure, but you have to show a little statesmanship as President.

Postscript:  

Standard & Poor’s estimated the shutdown has taken $24 billion out of the economy.

If this is true, this number is trivial.  0.15% of GDP (and this from someone hurt more than most) loss from a government shutdown about 4.4% of the year (16/365)

In the Budget Battle, Only Face-Saving Still Drives Republicans

I generally take the Republican side in budget battles.  I have no problem shutting down the government as part of a fight to reduce the size of government.

But the Republicans are lost and without a goal of any sort.  I follow the budget battle closely and even I can't tell you what the Republicans are trying to get any more.  They never got their messaging in place, and have leaped almost at random from issue to issue trying to get something out of the shutdown.  First it was defunding Obamacare, which was never going to fly, and then it was an Obamacare delay, and then it was.... whatever it is now.  I have no idea.

The Republicans are just hanging on trying to save face.  Time to cut bait and move on.  In fact it was time to do this last week.  Take your lumps, let the Left and the media count coup and dance on your grave for a few days, and move the hell on.  Gear up to start highlighting the failures in Obamacare.   These are so bad they could have people forgetting the budget fight within days.

Should I Resort to Civil Disobedience And Re-Open Our Privately-Funded Parks?

I have gotten a lot of mail with moral support from readers as we try to deal with the fact that the White House has ordered privately-funded parks in the National Forest to close, flying in the face of all precedent and budget logic.

Many, many emails have encouraged me to disobey the order and keep the parks open for the public.  There are three reasons why I have chosen not to do so.

1.  Respect for Contract:  In my 25 or so lease contracts with the US Forest Service (the USFS insists on calling them "special use permits" but legally they are essentially commercial leases), the contract language gives the Forest Supervisor of each Forest the right to suspend or terminate the contract for virtually any reason.  Yeah, I know, this is a crappy lop-sided contract provision, but welcome to the world of working with the Federal government.  So each Forest Supervisor has the right to suspend our lease.  BUT....

The real question here is whether they have proper justification for doing so, or whether their suspension is arbitrary.  In another post I discuss why this action is arbitrary and unjustified:

Historically, the USFS has only rarely used this contract power, and its use has generally been in one of two situations:  a) an emergency, such as a forest fire, that threatens a particular recreation area or b) a situation where the recreation area cannot physically be used, such as when it has been destroyed by fire or when it is being refurbished.  Never, to my knowledge, has the USFS used this power to simultaneously close all concession operations, and in fact in past shutdowns like 1995 and 1996 most all concessionaires stayed open.

Budget considerations alone cannot justify the closure order, as USFS concessionaires do not use Federal funds and in fact pay money to the Treasury.  Closing us actually reduces the income to the Treasury as we pay our concession fees as a percentage of revenues.  Further, the USFS does not have any day-to-day administration responsibilities for these parks.  The only semi-regular duty is sometimes to provide law enforcement backup, but USFS law enforcement officers are still at work (we know this because they showed up to post our operations as closed).

The Administrative Procedure Act makes it illegal for a government agency to make a decision that is arbitrary, capricious or an abuse of discretion.  To this end, the USFS has not actually closed the Forests and still allows camping in the Forests.  Thus, the USFS considers it safe for people to be camping in the Forests and that doing so during the shutdown creates no risk of resource or property damage.  In contrast, the USFS has made the decision that it is not safe to allow camping in developed campsites run by private concessionaires.  The decision that developed campgrounds run by private companies must close, but undeveloped camping can continue, makes no sense and is arbitrary, capricious and an abuse of discretion.  If anything, closing developed areas but allowing dispersed camping increases risks to public safety and for resource damage as developed concession areas are staffed and trained to mitigate such risks (that's the whole point of having developed recreation in the first place).

While we feel good we have a winning argument, this is a complicated point that does not lend itself well to civil disobedience, but we are taking it to court and seeking an injunction to the closure.

2.  The wrong people would go to jail.  Civil disobedience has a long and honorable history in this country.  But the honor of such an act would quickly go out the window if I were to commit an act of defiance but others would have to go to jail.  We run over a hundred sites.  Telling my people to remain open would simply lead to getting my employees thrown in jail for trusting me and following my instructions.  That would be awful.  Just as bad, we can see from examples in the National Park Service that such disobedience would potentially subject my customers to legal harassment.  It's not brave or honorable for me to be defiant but to have others pay the cost.

3.  I could lose everything.  I don't want to seem weak-kneed here, but I would be dishonest not to also raise the small but critical point that I have almost every dollar I own tied up in this company, which does over half its business in the National Forest**.  My retirement and all my savings are in this one basket.   I would likely risk an arrest and a few hours in jail plus the price of bail and months of court appearances to make a point here.  I am not ready to go all-in with everything I own, not when there are other legal avenues still available.  If that makes me a wimp, so be it.

 

** you can be assured that the moment I have one minute of extra time we are going to be working on diversifying away from the US Forest Service as much as possible.

Why The Shutdown of Concessionaires is Arbitrary and Capricious

We are preparing to go to court to reopen privately-funded parks in the US Forest service that take no Federal money, yet have recently been closed due to budget shortfalls.

Our USFS contracts give the local Forest Supervisor the right to suspend the contract.  However, historically, the USFS has only rarely used this contract power, and its use has generally been in one of two situations:  a) an emergency, such as a forest fire, that threatens a particular recreation area or b) a situation where the recreation area cannot physically be used, such as when it has been destroyed by fire or when it is being refurbished.  Never, to my knowledge, has the USFS used this power to simultaneously close all concession operations, and in fact in past shutdowns like 1995 and 1996 most all concessionaires stayed open.

Budget considerations alone cannot justify the closure order, as USFS concessionaires do not use Federal funds and in fact pay money to the Treasury.  Closing us actually reduces the income to the Treasury as we pay our concession fees as a percentage of revenues.  Further, the USFS does not have any day-to-day administration responsibilities for these parks.  The only semi-regular duty is sometimes to provide law enforcement backup, but USFS law enforcement officers are still at work (we know this because they showed up to post our operations as closed).

The Administrative Procedure Act makes it illegal for a government agency to make a decision that is arbitrary, capricious or an abuse of discretion.  To this end, the USFS has not actually closed the Forests and still allows camping in the Forests.  Thus, the USFS considers it safe for people to be camping in the Forests and that doing so during the shutdown creates no risk of resource or property damage.  In contrast, the USFS has made the decision that it is not safe to allow camping in developed campsites run by private concessionaires.  The decision that developed campgrounds run by private companies must close, but undeveloped camping can continue, makes no sense and is arbitrary, capricious and an abuse of discretion.  If anything, closing developed areas but allowing dispersed camping increases risks to public safety and for resource damage as developed concession areas are staffed and trained to mitigate such risks (that's the whole point of having developed recreation in the first place).