Category Archives: Federal Budget

Government Spending

My strongest ability is my knack for finding patterns and using those patterns to solve problems. I’m the guy you want in the back of your moving truck deciding what box goes where.

I have two “big picture” ideas on how to improve government spending.

Decentralization

Right now, almost all federal government agencies are headquartered in Washington, DC. There are several very good reasons for this:

  1. Congress is close to the agencies they fund.
  2. Businesses working with multiple agencies can easily provide goods and services.
  3. Government workers can easily move from one agency to another as staffing needs change.

The problem is that these have led to serious negatives as well.

  1. Having everything located in one place makes that place vulnerable to attack.
  2. It is easy and inexpensive for lobbyists to visit multiple agencies and members of Congress.
  3. Living expenses in Washington are now the fourth-highest in the U.S.
  4. Washington has the third-highest cost for commercial real estate.
  5. Washington has the third-longest commute time of major U.S. cities.

What I propose is a gradual decentralization of federal government agencies. Every two years, we would have a bidding process, where cities around the U.S. could bid to be the new headquarters for a government agency. For example, if we started with Oak Ridge, Tennessee, bidding to be the new headquarters for the Department of Energy, they could promote the fact that, according to Bankrate.com, their cost of living is 41% less than Washington, and that their new headquarters is near one of their main facilities.

By doing the decentralization slowly, we would minimize the job impact on the Washington metropolitan area while also reducing the operating costs for the agencies that remained. Eventually, Washington would be in a position to competitively bid to keep some agencies, and cheaper real estate would make Washington a desirable market for private enterprise.

In addition, I would also like to encourage the federal government to use more telecommuting, including Congress. There’s no reason members of Congress shouldn’t be able to do 95% of their jobs from their home districts. Voting, committee meetings, and even debates should be easily manageable online. I know, for example, that the mortgage on my two-bedroom house in Chattanooga is about one-third less than the rent on a two-bedroom apartment in the less fashionable areas in Washington. I would much rather see members of Congress spend a few days in a hotel and a few plane flights each year than flights home every other weekend and having to maintain two homes. We should be able to cut Congressional pay and staff sizes significantly, since they would only have to maintain one office in their district instead of one in the district and one in Washington.

After the costs of relocation, we should save about 30% per year on the operating costs for the federal government while also improving government services by moving headquarters facilities closer to the people and businesses they serve. We should also make a positive impact on the environment by reducing commutes, flights, and households.

Budgeting Like a Business

I always see government budget numbers looking at the cost side of the equation. For example, NASA’s budget is $19.3 billion dollars this year. What I don’t see without doing some significant digging is what the benefit side of the equation is. With a little digging, I can find out that NASA generates ten dollars of economic activity for every dollar spent. So, what I don’t understand is this:

  • We spend $19.3 billion dollars on NASA.
  • That generates $193 billion dollars in economic activity.
  • If that $193 billion is taxed at the average federal tax rate of 17.6%, this generates tax revenue of $34 billion.
  • So, $19.3 billion in spending results in a profit to the government of $14.7 billion.
  • Why aren’t we spending more money on NASA?
The International Space Station over Algeria (NASA photo)

The International Space Station over Algeria (NASA photo)

I know the National Park Service has similar numbers, and I am certain that, with some research, we could find out which government programs operate at a net profit, or, at least, at breaking even. With this knowledge, we could target some discretionary spending in an effort to increase government revenues, allowing us to spend on programs that we want but don’t pay for themselves or to reduce taxes. What research I have done suggests that, in general, research and infrastructure funding results in medium-term profits for the government, but I would like to confirm that.

Please note that I am not an economist, and I only had one economics class in college. There could be something wrong with my understanding of things. Obviously, there may be diminishing returns with some government investment–if we doubled NASA’s budget, the return might only increase by half. I would want to discuss these ideas with economists and running test programs before implementing these ideas across the whole federal government.


As always, if you have any ideas that you think would improve the way the government works, send them my way. I will be happy to steal them.

Thanks for reading, and have a good weekend! If you’re local, I hope to be at the Chattanooga FC women’s game tonight and the men’s game tomorrow night, sitting in or near the front of section 207.

Advertisements

2 Comments

Filed under Federal Budget

Saving Money Through Decentralization

Currently, there are 320,000 federal employees in the Washington, D.C., metropolitan area. The average federal worker makes $123,049 in salary and benefits. As such, my calculator tells me that–if DC-based employees were making the average–we’re spending  about $39 billion dollars annually on government salaries in the Washington area.

Twenty years ago, there was a very good reason to have government departments centrally located: It just made communication that much easier–and cheaper. You could probably justify having these employees in one place by the savings in long distance phone calls alone. Today, however, we have the Internet. Video calls through Skype are free as long as you have an internet connection. Most cell phone plans have unlimited long distance. Email and instant messaging are essentially instantaneous. People working on the same project no longer need to be in the same room, building, state, or even country to work together effectively.

So what happens if we were to move a government agency from DC to somewhere else? For selfish reasons, let’s take the Department of Energy Headquarters and move it from Washington to Oak Ridge, Tennessee. The Department of Energy has 19,000 employees. I couldn’t find a number for how many of these employees are in Washington, but since 15% of all federal employees are in Washington, I’ll use that number, giving me 2,850 employees. Now, if I plug the $123,049 figure into a cost-of-living calculator, I can see that one of these employees could have the same standard of living in Oak Ridge with a salary and benefits cost of $79,964. Multiplying that savings out, I get a savings of over $122 million dollars per year. Please note that this is only the savings in salary and benefits. It does not include facilities expenses or the cost of civilian contractors, and I’d bet some serious money that we’d help the environment a bit because people in Oak Ridge have shorter commutes than people in the DC area.

There are many places that have a similar cost-of-living to Oak Ridge. If we were able to, over time, so as to not completely destroy the Washington economy, move half of the employees currently located in Washington to less costly places, the salary and benefits savings would be nearly $7 billion dollars annually. Once you include other expenses, it would not surprise me in the least if the annual savings ended up being double that. Now, $15 billion is only a little over one percent of the current annual budget deficit, but every little bit helps, right?

I have another little twist to add: What if we open up these relocation plans to a competitive bidding process? Let communities around the country compete to have these departments move to their back yards, in a manner similar to when a company like Volkswagen was deciding where to build a U.S. factory. To get these high-paying stable jobs, cities would likely jump through some pretty big hoops, offering things like infrastructure and construction credits. The cost of moving the facilities might be negligible, depending on the level of competition.

Finally, there may be one additional “stealth” savings. If it is more difficult for federal employees to meet legislators face-to-face, it might be more difficult for them to argue to preserve some costly programs. If Members of Congress have fewer government employees and contractors as neighbors in DC, making decisions that impact their jobs will be less personal and, hopefully, more pragmatic. It may be a case that the Internet limits this impact, because long-distance communication is incredibly convenient, but I think it would be interesting to see.

 

I had a good time talking with Andraé McGary on Live and Local this afternoon, and I hope that some of you had the opportunity to listen to what I had to say. If you would like to contact me directly, please don’t hesitate to send me an email, or, if you prefer, you can call me on my cell at 423-933-4855. If I don’t answer, please leave a voice mail and I will return your call as soon as possible.

Thanks for reading.

Leave a comment

Filed under Federal Budget

The Federal Budget

The U.S. Federal Budget for 2011 had a deficit of over one-and-a-quarter trillion dollars ($1,296,000,000,000). In simpler terms, that’s an overrun of over four thousand dollars for every man, woman, and child. This only tells part of the story, since this overage is only for 2011. The overall U.S. public debt is over fifteen trillion dollars ($15,356,000,000,000), or about $49,000 for every man, woman, and child. It would take the entire gross domestic product for over a year to pay for this.

In the words of astronaut Jack Swigert, “Houston, we’ve had a problem here.”

Now, some naïvely think that an across-the-board cut in the budget will solve the problem. This is wrong on several levels. First, an across-the-board cut can’t happen, because many payments are fixed, such as interest payments (unless you want the government to default), Social Security, Medicare/Medicaid, defense spending, and other “mandatory” programs. Discretionary spending only makes up $646 million dollars. In other words, cutting all discretionary spending would only cover half of the budget deficit. If you do put mandatory programs on the table, then you’re cutting someone’s Social Security and Medicare, and you’re cutting the defense budget–which means you’d better have a foreign policy to match. Finally, making these cuts quickly will cause the short-term loss of many government jobs at a time when the private sector can’t absorb them.

What Do We Need To Do To Fix This?

Simply put, we need to bite the bullet and make some difficult choices.

Health Care

We need to get Medicare and Medicaid under control. Medical spending price increases have outpaced inflation for many years. I would argue that a big reason for this is that there isn’t free market competition helping to keep prices down. In an earlier post, I suggested the following:

  1. Laws prohibiting insurers from operating across state lines repealed, leading to higher levels of competition.
  2. People required to purchase minimum health insurance policies in a manner similar to people being required to have car insurance, with government subsidies where necessary.
  3. All insurers being required to provide these minimal policies, with restrictions on how much profit they can make from these. I don’t find prohibiting profit appealing, because the profit motive often drives efficiency, but it does need to be reasonable.
  4. When employers no longer have to provide health care to their workers, they need to pass this savings to them in the form of increased pay. These companies should make more due to improved international competitiveness, not by passing this savings onto their shareholders.

My hope is that by introducing competition into the non-Medicare/Medicaid market, the prices the government has to pay for Medicare procedures will drop as well. If not, we will have to explore more drastic measures…

Social Security

People freak out whenever someone talks about raising the Social Security retirement age or reducing benefits. I’m sorry, but one or the other has to happen if we don’t want to see a tax increase of over $10,000 per household. I don’t like it, and I’m sure you don’t like it, but this isn’t a likable prospect–it’s a necessity.

When the original Social Security legislation was enacted in 1935, about 57% of those who lived to age 21 lived until age 65. Today, that number is closer to 80%. The average number of years collecting Social Security has also increased by about three years. The obvious, if unwelcome, solution, is to gradually increase the Social Security retirement age until the system is rebalanced. The Urban Institute says that the current retirement age would have to be 73 to have the same expected years in retirement as in 1940. I don’t think we can move the finish line that much for people currently approaching retirement, as many have planned for this income at retirement, but for those further away, we need to readjust. It’s either that or raise taxes.

Defense spending

Simply put, as a nation we need to decide whether we want the U.S. to continue to be the world’s de facto policeman, or if we are willing to share this responsibility with other countries. Right now, the U.S. spends more on its military than the next seventeen countries combined. Personally, I think we should share more of this responsibility. Combined Task Force 151 has successfully reduced piracy off the coast of Somalia, and similar efforts could and should be used to patrol the high seas around the world to keep trade routes open and the world economy chugging along. The multinational effort in Libya worked to remove Gadhafi from power. The question really boils down to, “Are we willing to share the power that comes from being the world’s main military power?”

In my opinion, we don’t really have a choice.

 

Of course, there is some discretionary spending that can and should be cut. I would move much of the Department of Education’s duties back to the states and I’d take a good, long look at agricultural subsidies, just to name two examples.

One thing I wouldn’t do is make a hare-brained proposal to cut the pensions of future Congressmen when simultaneously explaining that I wouldn’t cut the pension of a family member who happened to serve in Congress before me. I promise that I will never propose or vote for decreases in benefits for your family unless those cuts, or related cuts, also affect mine.

 

Reminder: I will be on Andraé McGary’s Live and Local on WGOW-FM 102.3 tomorrow at 1:00. You can listen to the stream here.

Leave a comment

Filed under Federal Budget, Health Care, Social Security