Posts tagged ‘budgeting’

Sequester Madness

If the Republicans are supposed to be the voice of fiscal responsibility in Washington, then we are doomed.  They are absolutely as bad as Obama, running around in panic that the trivial cuts required by the sequester (not 8% this year or 5% or even 2% but 1% of Federal spending).  I have never seen a private organization with a large administrative staff that could not take a 5% reduction and generally be better off for it.   I absolutely guarantee that I could take 5% or more off the top of every agency's budget and you would never notice it.

This includes the military.  In fact, this includes the military in particular.  The military is never asked to prioritize.   We still have armored divisions in Germany.  It is always incredible to me that Republicans, who doubt that the government can ever manage or spend wisely, suddenly cast aside all these doubts when it comes to the military.   I understand the honor that folks accord to front-line soldiers vs., say, DMV workers.  But they are not the ones spending the money.  I am tired of such honor for the troops being used to bait and switch me from a very reasonable focus on DOD spending and waste.

When it comes to the military, Republicans use the same "closing the Washington Monument" tactics that Democrats use for social programs, essentially claiming that a 5% (or 1%) spending cut will result in the cessation of whatever activity taxpayers most want to see continue.  This process of offering up the most, rather than the least, important uses of money when spending cuts are proposed as a tactic to avoid spending cuts is one of the most corrupt practices imaginable.  No corporate CEO would tolerate it of his managers for a micro-second.

About two years ago at Forbes I imagined a hypothetical budget discussion at a corporation that followed Congressional budgeting practices.

Congressional Ethics

I am sick and tired of politicians impugning the ethics of private individuals engaged in commerce.   There are certainly a small minority of fraudsters in the world of business, but there is a supermajority of unethical people in Congress, arguably approaching 100%.

My latest evidence for such is this article in the Washington Post about the ethical bankruptcy of the Federal budgeting process.  It is impossible to excerpt, but here is a representative example:

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

By law, the next census is not until 2020.  There was never, ever going to be a census in 2011.  But Congress claimed $6 billion in savings for not having one none-the-less.  Here is more:

In the real world, in fact, many of their “cuts” cut nothing at all. The Transportation Department got credit for “cutting” a $280 million tunnel that had been canceled six months earlier. It also “cut” a $375,000 road project that had been created by a legislative typo, on a road that did not exist....

Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee.

You can impugn business ethics all you want, and I can add a few stories to yours, but I have worked at fairly senior positions in two Fortune 50 companies and as a worker bee in a third, and in all three it would be a firing offense to engage in this kind of Charlatanism.

More in my Forbes article from 2 years ago.

Only in Washington

Only government workers could consider this proposed spending profile to be a "cut".  Below is Boehner's discretionary spending plan (numbers exclude programmed spending such as entitlements).

This reminds me of my Forbes column a while back comparing the Federal budgeting process with that of a private enterprise.

Imagining Washington Budget Shenanigans Played Out in a Corporate Board Room

For all the criticism by the Left of corporate corruption, nothing that goes on in even the most dysfunctional corporations matches business as usual budgeting in Washington.  This week in my column at Forbes I present a few vignettes imagining Washington budget logic in a corporate board room.  A sample:

Board Member: Let’s get started.  After an absolutely disastrous year, financially, we’re now five months into our fiscal year and you still have not presented us with a budget for this year.  Why?

CEO Obama: My staff was waiting until their employment contracts were renewed before we presented a budget.

Board Member:  Excuse me?

CEO Obama: You remember — many of my associates in the company had their contracts up for review in November.  They were afraid they might lose their job if you did not like their budget work, so they delayed introducing any budgets until after you renewed their 2-year employment contracts.

Board Member: That seems unbelievably deceptive and feckless.  But let’s leave that aside for a moment.  November was still several months ago, why have we seen no budget since then?

CEO Obama: Well, as you know, I have a number of rivals for my job in this company.  I want to force one of them to suggest a budget first.

Board Member: Why is that?  It seems to me it is your job as leader of this organization to define the budget, particularly given the unprecedented fiscal challenges we face.

CEO Obama:  If I propose a budget first, everyone will just shoot holes in it.  If I let someone else come forward with the budget, I can snipe at it and make my rivals look worse.  In particular, I think that Ryan guy down in Finance may be dumb enough to create a plan.  If he does, I can spend so much time making him look bad you will forget I never submitted a plan of my own.

Whatever Is The Most Important to You, We Are Cutting That First

The very essence of business decision-making is prioritization and trade-offs.  The same is true in the government, its just that the objective function is reversed:

GM is warming up the propaganda engine for the next run at Congress. "Look, the first thing we had to cut was our electric car program!".

And here I thought that because GM has still, after 30 years, failed to realize their business model needs to change that maybe management there were slow learners.  But they seem to be very, very adept at learning the government game.

When I was in the corporate world, if I wanted extra funds for my projects, I would have to go in and say "Here are all my projects.  I have ranked them from 1-30 from the most to least valuable.  Right now I have enough money for the first 12.  I would like funding for number 13.  Here is my case."

But the government works differently.  When your local government is out of money, and wants a tax increase, what do they threaten to cut?  In Seattle, it was always emergency services.  "Sorry, we are out of money, we have to shut down the fire department and ambulances."  I kid you not -- the city probably has a thirty person massage therapist licensing organization and they cut ambulances first.   In California it is the parks.   "Sorry, we are out of money.  To meet our budget, we are going to have to close down our 10 most popular parks that get the most visitation."  The essence of government budgeting brinkmanship is not to cut project 13 when you only have money for 12 projects, but to cut project #1.

I can just see me going to Chuck Knight at Emerson Electric and saying "Chuck, I don't have enough money.  If you don't give me more, we are going to have to cut the funds for the government-mandated frequency modification on our transmitters, which means we won't have any product to sell next month."  I would be out on my ass in five minutes.  It just floors me that this seems to keep working in the government.  Part of it is that the media is just so credulous when it comes to this kind of thing, in part because scare stories of cut services fit so well into their business model.

So of course, with billions of dollars of waste, absurdly high labor costs, stupid-large executive compensation, etc., GM chooses to cut funding the project that is most important to Congressional Democrats and the new Obama administration.

Anatomy of an Earmark

I was fooling around with a great web page run by the Sunlight Foundation linking earmarks from a recent Health and Human Services bill to Google maps.  Here are some of the earmarks in the Phoenix area:

  1. $ 400,000 -- Midwestern University for a rural postgraduate educational program at Sierra Vista Regional Medical Center
  2. $ 150,000 -- St. Joseph's Hospital for facilities and equipment for its mobile maternity outreach program
  3. $ 750,000 -- Translational Genomics Research Institute for facilities and equipment
  4. $ 250,000 --  Arizona State University Institute of Civil Rights, for dropout prevention and other education projects
  5. $ 125,000 --  Mesa Community College for nursing recertification curriculum
  6. $ 175,000 --  Mesa Community College for the Enfermeras En Escalera program
  7. $ 200,000 -- Marc Center for job training for adults with disabilities
  8. $ 500,000 -- Scottsdale Healthcare for an electronic medical records system
  9. $ 100,000 -- Arizona Dental Foundation to provide dental services to low-income residents of Arizona

Note that this is just from one narrowly focused bill and for one single metropolitan area.  For this one post, I will not be a libertarian and wonder why the government is spending money on some of this crap.  Instead, for one post, I will be a good little technocrat and assume that the government should be doing all these things and criticize the process.

If I were a technocrat, I would argue that Congress already funds an ENORMOUS beauracracy to route federal money to theoretically the most productive spots.  I mean, that's the whole technocratic argument for all this government spending, isn't it?  That the government run by experts in the field can top-down allocate resources better than some bottom up market process?

Ideally, in any budgeting process, you look at your goals for a pool of money - say to cure breast cancer or to provide worker retraining, and you rank projects and allocations against this goal.  I believe this to be an impossible task for a variety of reasons, some of which are described here.  But even if you buy into this theory of technocratic fascism, you STILL have to be appalled by these earmarks.  Because each and every one are an override of any kind of prioritization and thoughtfullness that might exist in the budgeting process.

Take #9.  So the government has a goal of providing dental services to low-income people.  Fine.  Then shouldn't it take its dental services budget and allocate it on the best cost per patient served basis?  Does the Arizona Dental Foundation fit into this picture?  I bet no one in Congress knows.  In fact, I bet it DOESN'T fit this efficient allocation of funds criteria, because otherwise someone in Congress wouldn't have overrrided the funding process to push $100,000 their way in an earmark.  And even if this is a non-profit, shouldn't this kind of thing be bid on -- say ask for proposals of who can do the most with $100,000?

Some of these others are pretty obscure, and say something in and of themselves about the reach of the federal government these days.  But take #3.  Is the Translational Genomics Research Institute the best place to spend 3/4 million to get the most bang for our health research dollars?  No one probably knows, but what I can tell you is that it is the darling of our local political establishment (just read its history, all about political namedropping, new facilities, and whoring for taxpayer funds without mention of any actual research).  It has political figures such as our current governor on the board, so you might be able to guess how they got their earmark.

Or look at #8.  Scottsdale Healthcare is a private company, though a not-for-profit.  It is a large provider of private, paid medical services in our area.  It, out of all of its competitors in town, both non-profits and for-profits, was chosen by Congress to get its medical records system upgraded by the US taxpayers, why?

Separation of Powers

The separation of powers concept, so fundamental in our Constitution to checking government power grabs, seems to be on life support.  The reason I say this is that for separation of powers to work, each branch of the government has to, you know, actually monitor and try to check power grabs in other branches.   What I see today are three branches that have kind of reached some sort of peace treaty, agreeing to let the others run amok as long as it is allowed to do so itself.  To support this hypothesis, I make the following observations:

  • The executive branch continues to try to accumulate power, adding "indefinite detentions without trial" and "warrantless searches" to its arsenal, justifying nearly anything with the blanket argument that "the world is different post 9/11."  The Supreme Court has generally proved itself unwilling to do anything about it, which should be all the more the case in the future since both Bush appointees seem very comfortable with accretions of executive power.  Even the opposition party, though willing to make verbal assaults, seems unwilling to take any real measures.
  • Congress seems perfectly willing to spend their time wallowing in pork and dreaming up new earmarks to satisfy prominent donors.  The current budgeting process is a fiasco, and the executive branch seems unwilling to exercise any adult supervision, including an incredible record of zero vetos is nearly 6 years.  Congress has shied away from working on any issues of any seriousness (e.g. Social Security) which is perhaps good for us, since their only attempt to fix runaway spending in Medicare resulted in them adding an expensive and ridiculously complex drug benefit.  Congress and the President conspired to pass the egregious McCain-Feingold speech limit bill, which effectively helps protect the job of Congressional incumbents and protects them from 3rd party criticism when approaching an election.
  • With Congress unwilling to address any legislative issues of substance, the judiciary seems perfectly happy to take their place, creating new law in hundreds of areas.  And Congress seems willing to let them.  It can only be dangerous for a Congressperson to deal with hot-button issues like gay marriage and abortion - its much better to let the judiciary do it for you.  Often Congressman can get the outcomes they want, without actually having to create a legislative record on the issue that might come up in a campaign.

The whole situation depresses me just writing about it.