THE COST OF \u201cFREE MONEY\u201d<\/p>\n
If you give me $1.61, I\u2019ll give you $1.00 and we\u2019ll call that dollar \u201cfree money\u201d!\u00a0 Sound like a good deal to you?\u00a0 – Would you take that deal?\u00a0 That is the \u201cbargain\u201d our local governments are striking every day for us with the federal government.\u00a0 Mayor Scott Smith in Mesa, Arizona is a prime example and classic advocate of local officials buying into this deception of federal \u201cfree money\u201d in exchange for (1) higher taxes; (2) federal control of local government; and (3) federal control of our schools. If we buy in (lucky us) we get 63% of our money back (a $1.00 for every $1.61 we paid in taxes). \u00a0\u00a0Mayor Smith and numerous other mayors recently spoke on national television (at the National Mayor\u2019s Convention) proclaiming the necessity to get federal funding (i.e., free money) for their sacred cow of government block grants.\u00a0 It is the old saw that if we don\u2019t get it (free money) some one else will.\u00a0 The problem is that we had to pay $1.61 to get the free $1.00 back.<\/p>\n
When the federal government creates, finances and of course oversees federally funded projects it is acting in a capacity similar to a general contractor, but with more expenses.\u00a0 Bureaucrats have to be on the federal payroll to come up with ideas for projects to fund, and then they design the projects and draw up their competitive grant parameters, and draft bills for Congress to fund them. Then of course there are the attorneys to draft grant\/funding contracts for local government applicants to comply with when they apply for our \u201cfree money\u201d.\u00a0 There\u2019s another public expense.\u00a0 The local governments have bureaucrats, engineers and attorneys on the local payroll to find the federally proposed projects for funding and then design a project that fits in the federally dictated parameters so it can apply for the \u201cfree money.\u201d\u00a0 Never mind whether it is really the type of project the local government really needs or if the project will truly full fill the community needs \u2013 it\u2019s \u201cfree money!\u201d<\/p>\n
Then, buried in this free money bureaucracy, there is the small federal army of personnel that have to receive, evaluate and decide which of the submitted project applications the federal government wants to fund and who will benefit (from a compliance as well as a political standpoint) by funding those projects.\u00a0 Not the most efficient criteria standard for funding public projects.\u00a0 After the projects are awarded, the bureaucracy remains involved throughout the project as sort of a general contractor or inspector to ensure the \u201cfree money\u201d is well spent and the tax dollars aren\u2019t \u201cwasted\u201d.\u00a0 Depending on the type of project, there may be follow up bureaucracy employees to evaluate and report to Congress how successfully the project was implemented.<\/p>\n
Our government is in effect our designer, seller, buyer and general contractor. Allowing for the costs incurred by the government to provide free money grants including the expenses incurred by the designer (feds), seller (feds), buyer (feds\/local gov\u2019t.), and general contractor (feds & local gov\u2019t.), still falls short of the total costs of our \u201cfree money\u201d. \u00a0For example, if it is a government loan (instead of a grant) it will cost more. \u00a0This means no one knows the total cost of our \u201cfree money,\u201d but I\u2019ll give it a go. Be patient and bear with me in this voyage into our costs to find out how we get less than 2\/3 of our own \u201cfree money\u201d back.<\/p>\n
According to the Independent Government Estimate Preparation Guide (TRADEOC PHAMPHLET 715-6 July 2000) the amount that can be attributed to the costs for a general contractor\u2019s overhead is 15% with a burden of 30% that is associated with employee benefits for a total of \u00a045% of the amount of a federal contract.\u00a0 It has been my experience over the last 20 years of my involvement with federal government contracts that the norm for the average cost allowed for burden has been 27%. \u00a0So, if we consider the government cost analysis in in light of my experience and the federal TRADEOC PHAMPHLET an average of 37% (27% for burden plus 10% for overhead) would be a very conservative cost estimate for the cost to the federal government for administering federal contract services.<\/p>\n
This does not count the cost for the various federal agencies to come up with or evaluate a proposed local project that they deem appropriate for federal funding or the cost of preparing for contracts that will never happen.\u00a0 For the sake of argument let\u2019s assume that the cost for evaluating and\/or creating a locally proposed project for federal funding is 5% of the cost of the project.\u00a0 If the project is one proposed by a local government for funding municipal, county or state building or road projects there is probably another direct local cost of 5% for the investigation, engineering, document preparation and accruing approval for submission of the project.\u00a0 That\u2019s 10% for projects with a local genesis.\u00a0 But for this exercise we will leave it at 5%. \u00a0Given commercial engineering costs that is a conservative estimate.<\/p>\n
After a \u201cgrant\u201d or award of funding for our \u201cfree money\u201d is made, both the federal and local governments still have project oversight responsibility in the same vein as general contractors and inspectors for the administration of the contract to ensure its compliance with the terms and specifications for the project.\u00a0 This oversight responsibility and attendant costs could last for 6 months or 6 years.\u00a0 To simplify this estimate we\u2019ll consider this cost as included in the overhead and burden costs for the project.<\/p>\n
Another significant cost factor for accepting \u201cfree\u201d federal money is the fact that for every dollar we spend, 42 cents are borrowed at an interest rate that currently ranges from 1% to 3% over 30 year bond financing.\u00a0 This rate will increase now that China has reduced its holdings of U.S. treasury bills by 97%, from $210.4 billion to $5.69 billion (http:\/\/cnsnews.com\/news\/article\/china-has-divested-97-percent-its-holdin<\/a>) and is rapidly reducing its holdings of American bonds.\u00a0 The amount of interest paid over the term of our bonds is 33% of the amount financed if financed at 2%.\u00a0 So one third of the 42% of the amount borrowed will be an additional cost to funding federal projects. This equals 14% of the cost for the \u201cfree\u201d federal money for federally funded projects.<\/p>\n To recap our cost for \u201cfree money\u201d – it costs us, because of the expenses of the federal government, 34% of a grant\/contract for overhead and burden; there\u2019s at least a 5% cost for the bureaucracy to create\/develop the project; a cost of 5% for local governments to compete for the \u201cfree money\u2019 grants; and another 14% in interest for financing the project.\u00a0 This adds up to 61% of the cost of every federally funded project.\u00a0 Therefore, for our \u201cfree money\u201d we pay 161% to get the 100% required to actually do the project.\u00a0 All we see reported in the news is a federal government grant for a million dollars, but we are paying at least $1,610,000.00 for that project.<\/p>\n We end up with a total cost of $1.61 for each $1.00 of \u201cfree federal money\u201d we get for local projects. That means we get back 63% of our tax dollars to pay for a \u201cfree money\u201d project. \u00a0What a scam.\u00a0 Politicians have survived for decades by selling us this charade and scam just as 19th<\/sup> century elixir sales men used to for their elixir that will cure all our ills.\u00a0 \u201cFree money\u201d is the federal funding elixir.\u00a0 This cost of providing these federally invented projects, which are often created for the benefit of providing \u201cpork\u201d for local campaign contributors, is never reported.\u00a0 Why should the taxes paid by the tax payers of Mississippi be obligated to pay for a bridge to cross a 20 foot wide creek in Minnesota, or pave a stretch of sidewalk or local road in California, much less a study of shrimp on a tread mill?\u00a0 If the local residents of those communities thought those projects were really necessary, they would have already funded them and since it\u2019s their money, costs would be held to a minimum.<\/p>\n Admittedly this is a crude estimate of our total cost when the federal government funds local projects, but if anything this estimate falls short of the total cost<\/span><\/strong>.\u00a0 It does not include such expenses as the cost for the IRS to collect and disperse tax dollars to the agencies for projects, the cost of the Federal Reserve and Treasury to create each federal bond sale or auction and comply with their federal, SEC and other regulations for financing the bonds to fund the projects, or the additional costs to local communities and contractors for federal regulatory compliance (i.e., higher wages, more paperwork, etc.), especially when federal funds are involved.<\/p>\n The federal bureaucracy exerts enormous resources in justifying its existence and the expenditure of our federal tax dollars.\u00a0 It\u00a0doesn’t\u00a0matter that federal funding is provided for projects beyond the scope of the constitutionally limited function for the \u201cgeneral welfare\u201d or a federal national purpose such as national defense, but rather is for local projects that, if local people really thought were necessary, would have already funded. \u00a0But then that\u2019s how Congressional Pork works.\u00a0 Remember every time a local politician says he just got us a $1,000,000.00 in federal funding it just cost us at least $1,610,000.00! \u00a0If our open and transparent government would let us know all our costs, it would not surprise me if our cost is $2.00 for ever $1.00 we get back.\u00a0 And we should vote for them?\u00a0 Stability will return when we return to our founding principle that local concerns should be taken care of locally – by the local community or government.<\/p>\n","protected":false},"excerpt":{"rendered":" THE COST OF \u201cFREE MONEY\u201d If you give me $1.61, I\u2019ll give you $1.00 and we\u2019ll call that dollar \u201cfree money\u201d!\u00a0 Sound like a good deal to you?\u00a0 – Would you take that deal?\u00a0 That is the \u201cbargain\u201d our local governments are striking every day for us with the federal government.\u00a0 Mayor Scott Smith in… Continue reading THE COST OF \u201cFREE MONEY\u201d<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/billsnotes.net\/index.php?rest_route=\/wp\/v2\/posts\/21"}],"collection":[{"href":"https:\/\/billsnotes.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/billsnotes.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/billsnotes.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/billsnotes.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=21"}],"version-history":[{"count":3,"href":"https:\/\/billsnotes.net\/index.php?rest_route=\/wp\/v2\/posts\/21\/revisions"}],"predecessor-version":[{"id":24,"href":"https:\/\/billsnotes.net\/index.php?rest_route=\/wp\/v2\/posts\/21\/revisions\/24"}],"wp:attachment":[{"href":"https:\/\/billsnotes.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=21"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/billsnotes.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=21"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/billsnotes.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=21"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}