Things you think are treats but really are tricks

by Amanda Griffin-Johnson This time of year, children go door-to-door dressed in costumes to ask their neighbors for treats. Throughout the year, governments at the federal, state and local level provide services and programs that many look upon as treats. But considering the cost and inefficiency of some of these programs and services, are these...

by Amanda Griffin-Johnson

This time of year, children go door-to-door dressed in costumes to ask their neighbors for treats. Throughout the year, governments at the federal, state and local level provide services and programs that many look upon as treats. But considering the cost and inefficiency of some of these programs and services, are these really tricks dressed up as treats? Let’s take a closer look.

Federal

It can be easy to think of federal money as “free,” with a mad dash for each state to get as much as it can. But that money never is “free.” It comes from taxpayers in all the states. According to the Tax Foundation, Illinois consistently has ranked as one of the lowest “donor” states, receiving only 75 cents of federal funding for each dollar of federal taxes paid. In the rush to be a “beneficiary” state rather than a “donor” state, the merits or necessity of specific programs and grants often are lost in the shuffle.

National School Lunch Program

The National School Lunch Program (NSLP), run by the U.S. Department of Agriculture (USDA), is a federally assisted meal program for school children, which is meant to provide free or reduced-cost meals to low-income students. But how effective is the program?

According to the USDA and author David Bass, in 2010, the program cost $9.8 billion, making it the second largest food entitlement program in the U.S. behind the food stamp program, now known as Supplemental Nutrition Assistance Program (SNAP). With so much money going toward the program, a lack of eligibility verification is a significant concern. The USDA only requires school districts to try to verify 3 percent, or 3,000, whichever is less, of “error prone” participants, who are within $100 of the monthly income eligibility limits. While that might seem like a small sample size, Bass cites that the USDA strongly discourages school districts from verifying more or less than this amount. But Mathematica Policy Research published a study in 2009 which found that 15 percent of students received more benefits for which they were eligible, while 7.5 percent received fewer benefits for which they were eligible. They estimated the cost of the errors to be about $1 billion a year.

This lack of precision in accounting particularly is problematic because the NSLP data are used as proxies for poverty levels for other programs, such as allocation of federal Title I money. Some worry that this creates financial incentives for schools and school districts to register as many children as possible, which could cause skewed funding across many federal, state and local programs.

Weatherization projects

As part of the 2009 federal stimulus bill, the American Recovery and Reinvestment Act (ARRA), states were given $5 billion for weatherization projects for low-income residential homes. Illinois received $242 million over three years from the federal government. An audit of Illinois’ program by the Department of Energy found “substandard performance in weatherization workmanship, initial home assessments, and contractor billing.” The problems were so severe, that the auditors believed “they put the integrity of the entire Program at risk.”

Unfortunately, Illinois was not alone in this problem. The Department of Energy also found fraud and waste in Delaware, Florida, Pennsylvania, Tennessee, Virginia, Texas and New Jersey. When national politicians look to “stimulate” the economy by flooding states with money without strong accountability, it is the taxpayer who loses.

Job training

According to the U.S. Government Accountability Office, in 2009, the federal government spent $18 billion on 57 job training programs for unemployed and disadvantaged workers. As well intentioned as the programs might be, it’s not at all clear they achieve their aim. Job training programs have been around for decades, and research from DownsizingGovernment.org consistently shows that the federal programs have little to no lasting effect on workers or the economy.

Additionally, the lack of transparency in these programs has led to significant waste and abuse of funds. Because federal funds often are treated as “free money,” there is little incentive for state and local officials to ensure the money is efficiently and appropriately spent. In February 2011, Sen. Tom Coburn detailed some recent examples of waste in federal job training programs including:

• A federal Job Corps program in Los Angeles spent $82 million securing a multi-year lease for facilities when building its own would have cost $31 million less.
• A Montana trade union misspent $1.1 million in federal training grants. Auditors found that for every dollar it spent helping workers, it spent $4 on its own staff salaries and perks.
• The University of Iowa spent $730,000 of federal Rehabilitation Training money so that a select group of graduate students learning to become rehabilitation counselors “don’t leave the university with debt.” The Rehabilitation Training program is meant to facilitate effective participation by individuals with disabilities in the workforce.
• A government agency in Tampa, Fla., inappropriately spent tens of thousands of federal job training money on perks for managers including lunches, hotels, flowers and event tickets.

Why do these federal programs continue even though they aren’t successful and riddled with waste? The programs persist because they sound like treats. When unemployment is high, politicians on both sides of the aisle want the public to see them “doing something,” but it turns out that “something” is a waste of taxpayer dollars. As Milton Friedman famously said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”

State

Even after a record tax increase in January (read Ted Dabrowski’s story on this “treat” in the October edition of Compass), Illinois ended fiscal year 2011 with $8 billion in unaddressed obligations, according to the Illinois Office of the Comptroller. Illinois has a spending problem, not a revenue problem. Yet year after year, the state burdens taxpayers with unnecessary programs and expenditures.

Health insurance mandates

Illinois has higher-than-average monthly premiums for private small group health insurance. According to America’s Health Insurance Plans, the 2010 average monthly premiums for private small group insurance in Illinois for a family of four and an individual were $1,173 and $447, respectively. Comparatively, the national average was $1,117 and $426, respectively.

According to the Illinois Department of Insurance, the state has 47 coverage and benefit mandates including alcoholism and substance abuse, contraceptives and infertility. But these additional services come at added cost to policyholders.

The cost of each mandate relatively is small, but when states have 40 or more mandates, the cumulative cost has a significant effect on the price of health plans. The Council for Affordable Health Insurance (CAHI) estimated that on average, mandated benefits raise the cost of basic health coverage 10 percent to 50 percent, depending on the number and types of mandates. While state lawmakers might think they’re helping residents, more expensive health insurance means fewer people are able to buy it. CAHI summarizes the policy best: “Mandating benefits is like saying to someone in the market for a new car, if you can’t afford a Cadillac loaded with options, you have to walk.”

Grants to nonprofits

Are you a member of your local YMCA? Do you donate to the Lincoln Park Zoo? Are you a season ticket holder to the Springfield Municipal Opera? Thanks to the state of Illinois, you might be contributing without even knowing. Each year, the state gives millions of dollars to nonprofit organizations across the state.

While these might be worthwhile causes, the state government should not be a middleman collecting tax dollars to dole out to charities as it sees fit. Instead, those dollars should be left in the pockets of individuals and businesses to decide which charities they would like to support with their private dollars.

According to the state of Illinois website, recent state grants to nonprofits include:

• $15.6 million for capital improvements to the Chicago Zoological Society, which had a fund balance of $134.9 million on Dec. 31, 2008;
• More than $5 million to various YMCAs and YWCAs around the state for renovations, pools, lighting upgrades and other building improvements;
• $1.6 million for capital improvements to the Lincoln Park Zoo, which had a fund balance 
of $41.6 million as of March 31, 2010;
• $1 million for the construction of a Green City Market structure for the Peggy Notebart Nature Museum;
• $100,000 to the Anderson Japanese Gardens for the construction of a new pavilion;
• $100,000 to Healthcare Alternatives Systems Inc. for façade renovations;
• $50,000 to the Springfield Municipal Opera for infrastructure improvements.

Grants to local governments

Various state agencies provide grants to local governments for projects and programs. Although this might seem like a great way for local communities to get more money, the process is not transparent and it often is not clear why a project is necessary or a priority while the state is facing significant financial problems. For example, this year McHenry County Conservation District received a $400,000 grant, as reported by the Northwest Herald, from the Illinois Department of Natural Resources even though the district ended fiscal year 2011 with a general fund balance of $3.8 million and recently gave employees pay raises totaling almost $200,000.

According to the State of Illinois, other grants to local governments include:

• Millions for parking lots and garages including $500,000 to the village of Downers Grove, $300,00 to the city of Dixon and $150,000 to the city of Palos Heights;
• $500,000 to the village of McCook for the development and construction of the Chicago Baseball Museum and Stadium;
• $295,000 to the city of Chicago for decorative street lights in eight blocks;
• $125,000 to the village of Elmwood Park for a decorative lighting project and other capital improvements;
• $100,000 to Chicago Public Schools for the construction of hydroponics rooftop greenhouses and conservatory at a Chicago high school;
• $100,000 to the city of Chicago for the “clean up of the Eagle Monument, new lighting, and other updates in Logan Square.”

Local

Although budgets at the local level are smaller than those on the state and federal level, they are not without tricks of their own. With about 7,000 local taxing districts in Illinois, transparency of expenditures can be a significant problem and citizens might not realize where their tax dollars are going. But the smaller size of these governments also creates the opportunity for individuals to make a bigger difference. By demanding transparency and accountability at the local level, you can limit taxpayer-funded “tricks” that are masquerading as “treats.”

Special events

Each year local governments put on special events for residents, and these costs can add up. In Chicago, the city annually spends millions on special events. Between 2007 and 2010, the city lost $6.9 million on the Taste of Chicago and other summer festivals, according to the Chicago Tribune. In reaction to those losses, the city is cutting back on some events and reworking others.

As other local governments face similar budgetary pressure, they have found innovative ways to continue their local traditions. In 2009, volunteers in Park Ridge strung Christmas lights around downtown trees, saving the city $47,000, according to NBC Chicago. This year in East Peoria, volunteers are stepping up to help continue the Festival of Lights, according to the Pekin Daily Times. Local events and traditions are a great way to build community, but they are a low priority for government services. Strong volunteer participation shows events that the community values will continue with or without government money.

Promotional items

While businesses often use promotional items to advertise their services, is the same necessary for governments? The town of Cicero spent $600,000 from 2005-11 on promotional items such as rubber chickens, back scratchers and beach balls, according to the Chicago Sun-Times. Many of the promotional items contained the name of the town president or other officials.

The state suffers a similar plague of promotional items. According to CBS Chicago, in past years, the state has paid hundreds of thousands of dollars on promotional items such as pocket knives, stress balls, lipstick holders and key chains. The issue was so problematic that the General Assembly passed a law in 2010 prohibiting the use of general funds to buy promotional items. But state agencies continue to use federal and other state money to buy the items.

Tax-increment financing

There are few things for which politicians enjoy taking credit more than improving economic development. One of the ways they hope to provide a local boon is through Tax Increment Financing (TIF) districts, which creates an economic development zone in a blighted area where all existing property taxes in the area are frozen to regular taxing bodies such as schools and parks. The incremental increases in property taxes in the district go to the TIF, and in theory are supposed to be used for development of the district. But the lack of transparency in these programs makes them rife with corruption and dubious expenditures.

In October 2011, Chicago’s inspector general found that some TIF contracts mandated that the recipient make contributions to nonprofit organizations. The Chicago Sun-Times reported that the IG’s investigation found that a higher than expected number of contracts listed a nonprofit organization with ties to former Mayor Richard M. Daley, suggesting preferential treatment. Chicago’s inspector general previously has found other impropriety in the program including deceptive billing practices, $329,000 in TIF money used to buy artwork and $85,000 improperly used outside a TIF district.

Without more transparency and accountability for how money is spent, taxpayers cannot gauge whether TIFs are a sensible policy achieving the desired aims.

Conclusion

As government at all levels grows and interacts with more aspects of life, it’s important to think about what the function of government should be. Rather than accept the status quo, question the burden of taxation, the efficacy of programs and the necessity of the expansion of government power. The next time the government wants to provide a “treat,” consider the cost and purpose. It might be a “trick” in disguise.

A condensed version of this article was originally published in the October edition of Compass, the quarterly publication of the Illinois Policy Institute. If you would like to receive a complimentary subscription to the Compass, please click here.