A good article - the next time your elected representatives are explaining to you why they need to raise your taxes, remember this ... this isn't about Republicans or Democrats, it about all those people who have the mindset that government can fix things by spending money, it's just that they don't have ENOUGH ...
Our Over-budget Government
Wednesday, September 24, 2003
By By Chris Edwards
In 1985, government officials claimed that Boston's "Big Dig" highway project (search) would cost $2.6 billion and be completed by 1998. The cost ballooned to $14.6 billion and the project is still not finished.
In 1988, Medicare's new home health care benefit was projected to cost $4 billion by 1993; the actual 1993 cost was $10 billion. Congress is now considering a prescription drug bill with a $400 billion price tag. If enacted, the actual cost will almost certainly be much higher.
Large cost overruns are commonplace in government construction projects, procurement and entitlement programs. Officials routinely low-ball costs of proposals to win initial spending approval. When programs go over budget and do not work as promised, politicians place the blame on blunders by the bureaucracy or private contractors. In reality, cost overruns and program failure are not isolated problems but are systematic and widespread across the federal government.
Planes, Trains, and Automobiles
Federally funded projects often turn into debacles. Most famously, the cost of Boston's Central Artery project, the Big Dig, has more than quintupled. One key problem revealed in a Boston Globe investigation is that rather than demanding accountability, the government bailed out bungling Big Dig contractors with added cash 3,200 times when work didn't go as planned.
Large cost overruns occur in many areas of federal activity. In the 1980s, Denver's mayor Federico Pena pushed for a new international airport on the basis of bad cost estimates. The public agreed to a $1.7 billion airport in a 1989 referendum, but the cost mushroomed to $4.8 billion by the time the airport was opened in 1995.
In 1994, government officials claimed that the Springfield highway interchange project would cost $241 million. The cost has now soared to at least $676 million. On the other side of the Potomac river, the $300 million Capitol Hill Visitors Center faces cost overruns, and the cost of a new Kennedy Center parking lot has jumped to $88 million from the original 1998 estimate of $28 million. High above the Potomac, the cost of NASA's Space Station has skyrocketed from $17 billion in 1995 to $30 billion today.
These are just a sampling of cost overruns revealed in reports by the U.S. General Accounting Office. Overspending also permeates Pentagon procurement and Department of Energy contracting. DOE's $18 billion per year of contracting was put on the GAO's watch list for waste (search), fraud and abuse more than a decade ago. But a recent GAO review found that 38 percent of projects examined had more than doubled in cost.
What causes the cost overruns? A study in the Journal of the American Planning Association (search) last year by Danish economists looked at 258 government transportation projects in the United States and abroad. They found that cost overruns stem from government deceit, not honest errors. Nine of 10 projects in their sample had cost overruns, with an average overrun of 28 percent. The study concluded that intentional deception by public officials was the source of the problem: "Project promoters routinely ignore, hide or otherwise leave out important project costs and risks in order to make total costs appear low." Politicians use "salami tactics" whereby costs are only revealed to taxpayers one slice at a time in the hope that the project is too far along when true costs are revealed to turn back.
Salami tactics are just one problem with federal spending. Another is that the states compete with each other to secure federal dollars, and thus they are prone to exaggerate project benefits and minimize costs. Then when cost overruns occur, state officials seek to cover up poor contractor performance to conceal their own bad oversight, as occurred with the Big Dig. To make matters worse, the federal government does not ensure efficient use of funds sent to the states. For example, the GAO found that half of the federally funded highway projects it examined recently had cost escalations greater than 25 percent.
Entitlement Cost Overruns Are Endemic
Federal "entitlement" programs are like nationwide Big Digs. Initially, politicians low-ball costs to gain approval of new benefits for Medicare, Medicaid, farm subsidies (search) and other programs. They do this by putting supposed cost limits into legislation, but the limits either do not work, are evaded, or are later repealed. When costs soar and programs do not work, politicians hold hearings to cast blame elsewhere, such as on drug firms or hospitals. But that is a charade--Congress should know by now that high costs and poor performance are to be expected when central planning, as in Medicare, is substituted for private competitive markets.
When Medicare Part A was enacted in 1965, costs were projected to rise to $9 billion by 1990, but actual costs reached $67 billion by 1990. When the Medicaid special hospitals subsidy was added in 1987 annual costs were projected to be $100 million. By 1992 annual costs had risen to $11 billion. Today, most analysts are projecting that the $400 billion prescription drug plan will end up costing far more than is being claimed. Some drug bill supporters are already saying that they plan to push for further drug spending after any initial bill is passed.
Return Economic Activities to the Private Sector
Governments will always be wasteful users of resources because they tend to replace competition with monopoly and market pricing with bureaucratic regulations. In addition, since public officials do not risk their own personal funds, they are more likely to support unsound schemes and less interested in making sure programs stay on budget. As a consequence, we would be better off if Congress scaled back entitlement programs rather expanded them, privatized infrastructure such as airports and energy projects, and let entrepreneurs put up their own capital for risky pursuits such as space exploration.
Our Over-budget Government
Wednesday, September 24, 2003
By By Chris Edwards
In 1985, government officials claimed that Boston's "Big Dig" highway project (search) would cost $2.6 billion and be completed by 1998. The cost ballooned to $14.6 billion and the project is still not finished.
In 1988, Medicare's new home health care benefit was projected to cost $4 billion by 1993; the actual 1993 cost was $10 billion. Congress is now considering a prescription drug bill with a $400 billion price tag. If enacted, the actual cost will almost certainly be much higher.
Large cost overruns are commonplace in government construction projects, procurement and entitlement programs. Officials routinely low-ball costs of proposals to win initial spending approval. When programs go over budget and do not work as promised, politicians place the blame on blunders by the bureaucracy or private contractors. In reality, cost overruns and program failure are not isolated problems but are systematic and widespread across the federal government.
Planes, Trains, and Automobiles
Federally funded projects often turn into debacles. Most famously, the cost of Boston's Central Artery project, the Big Dig, has more than quintupled. One key problem revealed in a Boston Globe investigation is that rather than demanding accountability, the government bailed out bungling Big Dig contractors with added cash 3,200 times when work didn't go as planned.
Large cost overruns occur in many areas of federal activity. In the 1980s, Denver's mayor Federico Pena pushed for a new international airport on the basis of bad cost estimates. The public agreed to a $1.7 billion airport in a 1989 referendum, but the cost mushroomed to $4.8 billion by the time the airport was opened in 1995.
In 1994, government officials claimed that the Springfield highway interchange project would cost $241 million. The cost has now soared to at least $676 million. On the other side of the Potomac river, the $300 million Capitol Hill Visitors Center faces cost overruns, and the cost of a new Kennedy Center parking lot has jumped to $88 million from the original 1998 estimate of $28 million. High above the Potomac, the cost of NASA's Space Station has skyrocketed from $17 billion in 1995 to $30 billion today.
These are just a sampling of cost overruns revealed in reports by the U.S. General Accounting Office. Overspending also permeates Pentagon procurement and Department of Energy contracting. DOE's $18 billion per year of contracting was put on the GAO's watch list for waste (search), fraud and abuse more than a decade ago. But a recent GAO review found that 38 percent of projects examined had more than doubled in cost.
What causes the cost overruns? A study in the Journal of the American Planning Association (search) last year by Danish economists looked at 258 government transportation projects in the United States and abroad. They found that cost overruns stem from government deceit, not honest errors. Nine of 10 projects in their sample had cost overruns, with an average overrun of 28 percent. The study concluded that intentional deception by public officials was the source of the problem: "Project promoters routinely ignore, hide or otherwise leave out important project costs and risks in order to make total costs appear low." Politicians use "salami tactics" whereby costs are only revealed to taxpayers one slice at a time in the hope that the project is too far along when true costs are revealed to turn back.
Salami tactics are just one problem with federal spending. Another is that the states compete with each other to secure federal dollars, and thus they are prone to exaggerate project benefits and minimize costs. Then when cost overruns occur, state officials seek to cover up poor contractor performance to conceal their own bad oversight, as occurred with the Big Dig. To make matters worse, the federal government does not ensure efficient use of funds sent to the states. For example, the GAO found that half of the federally funded highway projects it examined recently had cost escalations greater than 25 percent.
Entitlement Cost Overruns Are Endemic
Federal "entitlement" programs are like nationwide Big Digs. Initially, politicians low-ball costs to gain approval of new benefits for Medicare, Medicaid, farm subsidies (search) and other programs. They do this by putting supposed cost limits into legislation, but the limits either do not work, are evaded, or are later repealed. When costs soar and programs do not work, politicians hold hearings to cast blame elsewhere, such as on drug firms or hospitals. But that is a charade--Congress should know by now that high costs and poor performance are to be expected when central planning, as in Medicare, is substituted for private competitive markets.
When Medicare Part A was enacted in 1965, costs were projected to rise to $9 billion by 1990, but actual costs reached $67 billion by 1990. When the Medicaid special hospitals subsidy was added in 1987 annual costs were projected to be $100 million. By 1992 annual costs had risen to $11 billion. Today, most analysts are projecting that the $400 billion prescription drug plan will end up costing far more than is being claimed. Some drug bill supporters are already saying that they plan to push for further drug spending after any initial bill is passed.
Return Economic Activities to the Private Sector
Governments will always be wasteful users of resources because they tend to replace competition with monopoly and market pricing with bureaucratic regulations. In addition, since public officials do not risk their own personal funds, they are more likely to support unsound schemes and less interested in making sure programs stay on budget. As a consequence, we would be better off if Congress scaled back entitlement programs rather expanded them, privatized infrastructure such as airports and energy projects, and let entrepreneurs put up their own capital for risky pursuits such as space exploration.
