Wednesday, April 05, 2006

Supplementals Are Real Money

The story behind the headline in the New York Times April 4, “Senate Pushes War, Hurricane Bill to $100B,” continues the all-too-familiar saga of poor estimates by the current and past administrations of the financial costs of policies and programs. It also points to the unwillingness – because of a lack of expertise on congressional staffs or the political need to “bringing home the bacon” – of Congress to exercise fiscal control over spending.

The FY2006 Supplemental Appropriations Act (H.R. 4939) is but the latest example. Supplemental appropriations, because they are not counted as part of the regular appropriations cycle that involves budget reconciliation – that is, balancing income and expenditures in the same way individuals balanced their checkbooks before e-bills – originally were conceived as a method to speed congressional action after unforeseen calamities, man-made or natural.

One way to grasp the idea of supplemental appropriations is to think of them as a form of catastrophic insurance. The problem is that those who act in the capacity of claims adjusters and relay to the home office (Congress) the estimate of the dollar loss consistently underestimate that loss. Unlike the Pentagon’s cost overruns for weapons systems, which can be tracked over the 15-20 years a weapon is being procured through the Selected Acquisition Reports – disasters are usually forgotten by most people except those directly involved.

For example, President Bush pledged the federal government’s support of efforts to rebuild Louisiana and Mississippi in the aftermath of Hurricanes Katrina and Rita. Last year, estimates for repairing the levees damaged or destroyed came in at $2 billion, which Congress appropriated. The 2006 supplemental contains another $2 billion based on an assessment that the original sum would leave parts of the system unrepaired or under-repaired, at best, to cope with a Category 3 hurricane. Now, according to the Times article, the administration projects that the final cost will approach $10 billion – that’s five times the original appropriation. The amount of the discrepancy ought to trigger questions about the process followed in arriving at the $2 billion estimate so that, in the wake of the inevitable next major natural catastrophe, enough aid can be provided to state and local governments early enough to have critical infrastructure repaired or restored in less than 12 months.

Although it would be an extraordinary occurrence today, supplemental appropriations theoretically could be a rational course to take should a “once in a nation’s lifetime” opportunity come along. The U.S. has had two such events. One was the Louisiana Purchase (1803) for $11.5 million (plus another $3.5 million in claims against the French government) and Seward’s Folly – the purchase from Russia of Alaska (1868) for $7.2 million. As a historical note, the national debt increased only $9.4 million between 1803-04 before declining for the next eight years up to 1812 and war with Britain. Alaska did not increase the national debt between 1868-69; at most it helped slow the pace of debt reduction following the Civil War, dropping only $23 million whereas the differences between 1867-68 and 1869-70 were reductions of $66 million and $92 million, respectively.

There’s another, growing systemic problem with post-1990 supplementals. Why 1990? Because that was the year the new Budget Enforcement Act formally exempted supplementals from the budget ceiling. This opened the door, as the Government Accountability Office, the Congressional Budget Office, and numerous non-governmental organizations have noted frequently, for multiple millions if not billions of dollars for non-emergencies to be added either in the request from the White House or as part of the final legislation approved by Congress.

For instance, one wonders why, under Title II of H.R. 4939 – “Further Hurricane and Disaster Relief” – there are funds allocated for ammunition procurement. There is another entry for $10 million for a “Democracy Fund” aimed at advancing democracy in Iran even though human rights advocates in Iran have pleaded for the United States not to make their situation more perilous by implicit association. Why is the supplemental being used for procuring C-17 transport and V-22 tilt-rotor aircraft, items that should be in the regular appropriations request for the military?

In the end, the April 4 estimate of $100 billion for the 2006 supplemental going into the Senate Appropriations committee came out at $106.5 billion.

As Everett Dirksen would say, that’s real money.


Anonymous Matt said...

$100 billion is indeed real money, and as you point out, politicians are subverting the appropriations process, and the vetting and calculating that goes along with it, by using supplementals. The Bush Administration is also using supplementals to meet budgetary and funding committments. The Administration pledged a 50% increase for humanitarian demining several years ago and has not met that through budget requests and the normal appropriations process. They now say that if you include emeregency and suplemental appropriations for Iraq and Afghanistan, they are keeping their commitment. Should demining -- clearning the way for permanant bases in Iraq -- be counted as meeting the commitment for humanitarian demining?

11:02 AM  

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