Monday, July 27, 2009

A Cost Savings is not a Budget Cut

Included in Friday's lengthy post was an item about President Obama and his cabinet having missed the 90-day deadline for finding a whopping $100 million in budget cuts, as the President ordered at his first cabinet meeting in April. Well, in the name of fairness and completeness I want to note that the White House has finally released the list of so-called "budget cuts" submitted by the various Federal agencies.

The White House announcement is here. The list of "cuts" is here.

Bottom line: There is no $100 million in budget cuts. It's all a big con game. Rather than "cuts" the list identifies a long list of recommended "savings" that each of the agencies will achieve by operating more efficiently or at least less stupidly. But with the exception of a couple of instances where I would need more information, nobody's budget is being cut, nobody is returning any money to the Department of the Treasury, nobody's taxes are being reduced. Instead, cost "savings" are being realized in one area, and the agency will then turn around and spend those "saved" funds on something else.

By way of absurd hypothetical illustration, it is the equivalent of an agency saying they are going to save $10,000 by canceling all orders for the purchase of red jelly beans. Good for them! But what happens to the money? If they send the money back to the Treasury to pay down the national debt, then that's a real budget cut. But if they instead take the $10,000 they "saved" by not buying red jelly beans and issue a purchase order for $10,000 worth of Reece's Peanut Butter Cups, that's not a "cut." That's a re-allocation or a re-programming of funds. That's just choosing to spend the money available to you more wisely.

In personal terms, if my paycheck is reduced by $100, I have to figure out a way to meet all my needs, wants, and desires for $100 less than I did last pay period. That's a cut. But if I choose to instead cancel my newspapers and my premium cable channels in order to save $100, so that I can spend that $100 playing poker, that isn't a cut. That's simply spending smarter or changing priorities.

In quickly looking over the listing of $100 million in "savings" it is very clear that almost all of the list consists of decisions to spend available money more wisely or on a different set of priorities. There very few real "cuts" described.

Here are the only examples of actual cuts I found:

  1. The Federal Crop Insurance Board voted to terminate the Citrus Dollar Pilot Insurance Program in fiscal year 2010. I have no idea on earth what that is, but it was going to cost approximately $1 million in 2010 and now it will cost $0.
  2. The Federal Crop Insurance Corporation will delete for FY 2010 forty-four county crop insurance programs at a savings of $963,000.
I'm still not 100% sure these are actual cuts, because I don't know if the agencies involved have the authority to spend the saved money on other programs or if they have to give the money back to the Treasury. I also have a suspicion that these "savings" will never be realized because once the affected congressional representatives and senators find out that farmers in their districts are being hurt, they will engage in some legislative ju jitsu to force the agencies to spend that money anyway. It's likely that these agencies have been trying to terminate these programs for years, but that Congress won't let them.

As for the rest of the so-called "cuts," they fall pretty squarely within my jelly bean hypothetical. Millions and millions of dollars will be saved by "reducing travel costs" to specific meetings and having video teleconferences instead. Of course, the "saved" money will be used to travel to other meetings instead.

The Department of Commerce will save $131,000 by placing a moratorium on "unnecessary" office renovations. Wow. No word on why they were doing unnecessary office renovations in the first place, or who gets to decide which renovations are necessary. But rest assured that the saved $131,000 will get spent somewhere else, hopefully on something necessary.

HUD will save $1 million by removing 60 kiosks that have outlived their usefulness. The savings will come from reduced maintenance costs. I have no idea what a HUD kiosk is, but they apparently cost $16,000 a piece in maintenance costs per year. No doubt HUD will find a more compelling use for the money, but they won't see their budget cut.

Millions of dollars will be saved by reducing printing and mailing costs of various publications and reports and posting them instead on-line.

HUD will save $500,000 in FY 21010 by turning off the lights during non-working hours. That's gonna really pinch.

The Department of Justice is going to save over $500,000 in 2009 & 2010 by making two-sided copies instead of one-sided copies, sometimes.

The Treasury Department will save $40,000 in FY 2009 by recycling.

The Air Force thinks it will save $72,000 in 2009 & 2010 by installing Compact Fluorescent Lightbulbs (CFLs) at select locations.

Are you impressed by how much money President Obama and his cabinet are going to save in 2009 & 2010? They scrubbed the Federal budget line-by-line and were able, in just over 90 days, to squeeze out almost $100 million in efficiencies!

The point of my original post on this subject was that there is no way President Obama and a Democrat-controlled Congress are going to fashion a reformed health care system for the entire nation that can be two-thirds paid-for with "increased efficiencies." The exercise described above is a vivid demonstration of what "increased efficiencies" look like to a government bureaucrat. Two-sided copying, Compact Flourescent Lightbulbs, and turning off the lights when they aren't needed are not going to balance the budget, and they are not going to pay for a socialized health care system. The reality is, the private sector is way ahead of the government in recycling, two-sided copying, and turning off the lights. There is almost no way that any process will be made more efficient and more cost-effective by having the government take it over.

The government can give you less for less. But they simply cannot give you more for less.


Anonymous said...

Superb post.
I enjoyed the jelly beans vs: the peanutbutter cups example.
I suggest there is no healthcare problem in America just a jelly bean/peanut buttercup issue.
There are 43,000,000,000 according to the current administration, people with out insurance in the US. May I offer a fact finding poll (of the uninsured) with the following questions:
1. Do you have internet in your home/blackberry?
2. Do you subscribe to a mobile phone service?
3.Do you smoke?
4. How many alcoholic drinks do you consume per week?
5. Do you have a car payment?
6. How many times per week do you eat meals outside your home?
7. Do you have a second mortgage?
8. Do you have a balance greater than $5,000.00 on a credit card?

Jelly beans vs: Peanutbutter cups.

There are choices to made, for example in Michigan a male 32 years of age may be covered by Blue Cross/Blue Shield with a $1,500.00 deductable and 100% coverage and 2 preventaive doctor office visits per year, for $85.00 per month.
We have a choice problem not a healthcare problem.

OC Domer said...

Thanks TBone!

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