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Backgrounder #2837 on Budget and Spending

August 29, 2013

Tight Budget? Congress Can Save $42 Billion by Eliminating Bad Government Programs

By

Abstract

With another budget confrontation looming in September 2013, some Members of Congress have already stated that they cannot meet the impending tight spending limits for FY 2014. They could do so, of course—if they eliminated a range of unnecessary, poorly run, or even harmful federal programs. These long-overdue terminations would save $42 billion in the coming fiscal year—more than is needed to reach 2014 spending targets. The Heritage Foundation’s Patrick Louis Knudsen lists and explains which programs should be cut, and why.

As another budget confrontation looms in September, some on Capitol Hill are already contending they cannot possibly meet the tight spending limits Congress faces in fiscal year (FY) 2014. Yet they could—if they are willing to seize the moment and eliminate a range of non-defense programs that the government should not be running, that it runs poorly, or that may be harmful to individuals and society. These long-overdue terminations would save $42 billion in the coming fiscal year—more than is needed to reach 2014 spending targets.

If adhered to, the discretionary spending “sequestration” cuts scheduled for 2014 will reduce “base” discretionary spending to $967 billion (excluding emergencies, disasters, and operations in Iraq and Afghanistan). That would constitute a real reduction of $35 billion from the current year’s level, not just from a “baseline” projection with inflation increases already built in.[1]

Instead of balking at the prospect, however, Congress should take the opportunity to slice away myriad programs that have failed or should not be funded by the federal government anyway. A sampling of such programs is presented in this Backgrounder. Eliminating them would be an important first step in reducing overall spending to meet the sequestration levels, while protecting national defense from the most damaging cuts.

Terminations, Not Reductions

The $42 billion in potential savings presented here are tightly focused. They would come solely from terminations of non-defense discretionary programs. They do not count other savings that could be achieved from spending reductions, or from needed entitlement reforms.[2]

Further, this discussion does not attempt to pick and choose among the government’s numerous anti-poverty programs, which cost close to $1 trillion a year (including state funds), and hence does not recommend which should continue or at which levels. Such choices would only perpetuate the fragmented and ineffective approach to programs for the poor that exists today. Instead, total welfare spending should be capped, and programs reformed in a comprehensive way:

Sound policies to aid the poor must be developed holistically, with decision makers and the public fully aware of the magnitude of overall spending. Additionally, welfare should be reformed to ensure that it promotes self-sufficiency rather than government dependency by promoting provisions such as work requirements for able-bodied adults.[3]

Clearly, such an approach could yield substantial savings beyond those identified in this paper, while improving government efforts to assist the poor.

Also not counted here is the effect of terminating funds for the distinctly unaffordable Patient Protection and Affordable Care Act (PPACA). The principal focus for opponents of the PPACA should be to stop the entire law from taking effect. Not only does the PPACA’s massive expansion of the federal government’s control of health care harm patients and consumers, but taxpayers will pay nearly $1.8 trillion for its insurance subsidies and Medicaid expansions—plus billions to create and maintain the bureaucratic structure that supports the health care takeover. Because the entire law needs to be overturned, this paper will not parse the various streams of potential discretionary savings for 2014.

Meanwhile, House appropriators should consider the terminations identified here—most of which should have occurred long ago—to help reach the $967 billion figure. Their resolve is uncertain,[4] as the Senate has adopted a higher level for its spending bills—$1.058 trillion—and is aiming to abandon sequestration. In the past, House leaders ultimately have given in to the Senate’s higher number. They should not do so this time.

A complete list of potential program eliminations appears in the appendix. The narrative below highlights a set of representative programs.

International Affairs

The U.S. government makes contributions to a range of international organizations whose purported benefits are outweighed by the financial and legal resources needed for membership. Even the names of the organizations raise questions about which vital national interest they can possibly serve, and why they are not financed by private sources. They include the International Coffee Organization, the International Copper Study Group, the International Cotton Advisory Committee, the International Grains Council, and the International Lead and Zinc Study Group. Although the savings from withdrawing U.S. funds from these activities would be modest, the action would represent a commonsense step toward focusing on more substantial diplomatic needs.

Beyond these, there are two prominent, representative agencies the U.S. government should cease funding: the Overseas Private Investment Corporation (OPIC) and the Export-Import Bank (Ex-Im Bank).

The Overseas Private Investment Corporation. OPIC began operating in 1971 with the ostensible mission of supporting U.S. investment in developing countries through loans and investment insurance. Over the years, OPIC expanded its claimed mission to include creating jobs in the United States, helping small businesses invest overseas, and correcting “market failure” in developing countries. Research has provided little evidence of success in these areas.[5]

Although OPIC’s profits allow it to operate at no net cost to U.S. taxpayers, it receives operating subsidies from Congress, and its government backing exposes taxpayers to financial risks. The U.S. should stop subsidies to OPIC and let the corporation be self-financing.

The Export-Import Bank. The Ex-Im Bank, created in 1934 to promote U.S. trade, has become a poster child for cronyism. Its loans inevitably tend toward politically favored companies. As Senator in 2008, even Barack Obama termed the bank “little more than a fund for corporate welfare.” Some of its loans also go to competitors of U.S. companies. Further, like OPIC, the Ex-Im Bank puts U.S. taxpayers at risk for any loans that go bad.[6] The Government Accountability Office (GAO) recently cited problems in the bank’s risk-management practices.[7] As with OPIC, Congress should terminate subsidies to the Ex-Im Bank and allow it to be self-sustaining.

Energy

The Department of Energy has long strayed from its legitimate mission of promoting energy security and environmental management, venturing beyond basic research into attempts at commercializing preferred technologies—a practice far better left to the private sector.

The Heritage Foundation has identified numerous examples of programs that the Energy Department should leave to the private sector.[8] Among them:

Commercial Deployment and Technology Development. This is an example of a program that can actually slow progress toward implementing viable clean energy technologies. In an effort to reduce carbon dioxide emissions, the government funds a range of activities, including carbon capture and sequestration, development of natural gas, and new vehicle technologies. Such technologies are already available, but are burdened by regulation or are too expensive to be commercially viable at this time. Yet by funding such efforts, the government misallocates resources that might otherwise fund technologies with better prospects of success.

The Office of Energy Efficiency and Renewable Energy. This office reflects how the Energy Department has reached beyond basic research and into commercialization of “clean-energy technologies,” such as hydrogen, wind, solar, and biofuels. Most of these technologies have existed for decades and do not need a commercial boost from the federal government.

Energy Frontier Research Centers. Since 2009, the Energy Department has run nearly four dozen of these centers, intended to advance research and development and close the separation between basic and applied research. They are merely another example, however, of the government’s attempt to pick winners and losers in the energy field. They should be eliminated.

Small Business Innovation Research and Small Business Technology Transfer. These programs were originally intended to promote private-sector commercialization of government-funded research and development, but they have drifted into more direct commercialization activities themselves. As a result, they have exposed taxpayers to greater risks for any failures, while private-sector companies gain the benefits of any successes. The programs should be eliminated.

Agriculture

As demonstrated by the most recent farm bill, the government’s agriculture costs are dominated by mandatory spending, mainly for food stamps and agriculture subsidies. The programs are rooted in anachronistic policies of the 1930s, long since made irrelevant by today’s farm technology.[9] The key to reducing agriculture spending is to substantially reform these programs.

Still, the Agriculture Department runs a number of unnecessary discretionary-spending programs that ought to be eliminated as well. Among them:

The Market Access Program. This program helps producers and private companies to promote their agricultural products in foreign markets. As a result, taxpayers pick up the tab for companies that are fully capable of marketing their products abroad. This is corporate welfare for agriculture companies that even President Obama has recommended cutting.[10] Better still, Congress should simply eliminate the program and let American companies compete in global markets on their own.

The Foreign Agricultural Service. The service provides subsidized assistance to private entities, such as export assistance and foreign market analysis. It also uses American taxpayer dollars to improve agriculture in developing countries and inefficiently runs food aid programs.[11] The service does help with trade policy as it relates to enforcing international agreements, but this function is already handled by the U.S. Trade Representative.[12] Hence, this agricultural service could be eliminated.

Transportation

Since completion of the Interstate Highway System in the early 1980s, advocates for continuing Washington’s outsize role in transportation policy have invented new missions to justify further federal spending on highways and transit. It is long overdue for Congress to return most of these activities, and the associated resources, to states and localities, where they once were lodged. Put another way, it is time for governors to take back these responsibilities. “[T]urnback advocates believe it is time to declare victory and shift the resources back to the states, recognizing that today’s surface transportation problems are largely local or regional in nature and that a Washington-based, centrally planned, command-and-control program has little to offer in the way of solutions.”[13]

This strategy would need to be phased in over a number of years, but ultimately would reduce federal spending by appreciable amounts, and empower states to meet their respective transportation needs in cost-effective ways. The latest version of federal highway legislation would cost about $41 billion a year.

While pursuing this transition, Congress could achieve immediate savings by simply eliminating certain unneeded programs. This would include such steps as privatizing Amtrak[14] and eliminating the non-essential Essential Air Services Program. In the ground transportation category, options for elimination include the following:

The New Starts Transit Program. Federal transit programs drain as much as 20 percent of the revenue from the Highway Trust Fund, which in recent years has had to tap general revenues to remain solvent. These transit programs are extremely expensive and generally fail to reduce congestion or improve air quality. They also commit state and local taxpayers to future operating costs they might not be able to afford. Congress can start the process of phasing out the inefficient transit spending by eliminating this program.[15]

Intercity Rail Subsidies. Part of Washington’s excessive role in transportation is providing subsidies for rail service between cities. Transit itself is not really a national program; transit services are concentrated in six “legacy cities”—Boston, Chicago, New York, Philadelphia, San Francisco, and Washington—which have large, dense, downtown areas. Thus, transit is not a national program and does not merit federal subsidies.

Economic and Regional Development

Like many federal government activities, “economic development” has a worthy sounding label, and advocates can readily generate talking points to justify each of their favored programs. In reality, however, such programs rarely achieve their goals and survive on weakly supported claims of economic growth and job creation. Two excellent examples are the following:

Community Development Block Grants. This program is a classic temptation for pork-barrel spending. It was originally intended to provide housing assistance for low-income families. The grant formula, however, has no exclusion for high-income communities. As a result, wealthy suburbs are just as eligible for funds as low-income localities. Nor is there any persuasive evidence that these grants actually improve the economies of low-income localities. Naturally, the program is popular with lawmakers because it allows them to steer “free” federal dollars to their districts. The most straight forward way to eliminate this irresistible temptation is to eliminate the program.[16]

Economic Development Administration. Based on the dubious notion that Washington can somehow boost local economies through targeted “investments,” the Economic Development Administration (EDA) has largely become a slush fund for Members of Congress to enhance their popularity back home. The program may do more harm than good: “[T]he idea that federal funding can help boost local economic growth might be exactly wrong. It might be that regions which become dependent on government subsidies lose their productive edge and suffer decline.”[17] The EDA is long overdue for termination.

Education

Even more than transportation, education is a quintessentially state and local priority. The federal government’s domineering approach since 1965 has imposed costs and regulatory burdens on school systems while doing little to raise the quality of education. There are many education programs that should be consolidated or reduced, but some should be eliminated outright.

Competitive Grants Under the Elementary and Secondary Education Act. The federal government runs about 60 competitive grant programs under the Elementary and Secondary Education Act (ESEA), totaling about $1.6 billion per year. These grants tend to fixate schools on Washington’s homogenizing standards for education, smothering the innovation of local school districts. Instead of responding to the needs of students, parents, and teachers, school districts focus on the demands of Washington to gain access to the federal funding stream. Administrators also waste time on lengthy applications. One estimate found that the requirements of the No Child Left Behind Act increased the paperwork burden of local education agencies by about 6.7 million hours a year, at a cost of $141 million. All that administration saps time and resources that might otherwise go toward learning. In other words, these grant programs are not only not helping, they are harming education in America.[18]

Reducing the federal government’s imposition does not reduce the priority status of education in America—just the reverse. The A-PLUS strategy—the Academic Partnerships Lead Us to Success Act—allows states to lead education reform by directing how their dollars are spent.[19] It takes advantage of the natural diversity and competition among school districts, and the creativity of local educators, to make education reform a dynamic reality.

Congress should eliminate the ESEA’s competitive grants.

Head Start. Studies in 2010 and 2012 reflected the decided failure of this early childhood education program. “Both studies show similar results: Not only does Head Start have no impact on children’s academic outcomes, but it also has little to no impact on other measures of child well-being and, in some cases, even has some negative impacts.” The studies showed little or no benefits in cognitive development, child health outcomes, and parenting outcomes. There were only slight improvements in child behavior, and in some instances a decline in peer relations.[20] The federal government should take the long overdue step of terminating this failed program.

Eliminate Government Funding for Cultural Agencies. The arts and humanities are a vital and indispensable component of American culture, worthy of support. The government, however—especially the federal government—is precisely the wrong patron. Public funding of the arts will always be subject to political considerations, leading artists themselves to complain of “censorship,” and pushing the arts toward stultifying, politically correct standards, stifling creativity. By eliminating funds for the Corporation for Public Broadcasting, the National Endowment for the Humanities, and the National Endowment for the Arts, Congress can encourage the healthy pursuit of diverse private funding far better suited to artistic endeavors.

Labor

The federal government operates roughly four dozen overlapping and duplicative job training programs with massive administrative waste.[21] It is more than reasonable to question Washington’s outsize role in job training, most of which would be much better delivered by state and local governments or, better still, private-sector employers themselves. These entities are far more adaptable to changing job-skill requirements and diverse regional employment needs. Besides, the best form of job training is a job. In any case, whatever job training programs the federal government does retain should be consolidated.

Job Corps. Meanwhile, some programs, such as Job Corps, are ripe for outright termination. It simply has failed to yield significant benefits to its participants. For example, an impact study showed that Job Corps participants were less likely to earn high school diplomas than non-participants and no more likely to attend or complete college. Their earnings were only $22 a week, and 22 cents an hour, higher than those of a control group.[22] While reassessing federal job training programs in general, Congress should eliminate this one.

Corporation for National and Community Service. Apart from creating the oxymoronic “paid volunteer,” programs funded by this agency represent another example of federal overreach into local and community activities. Nor is the distribution of funds based on need. Besides, the federal government already funds aid for low-income students. This program should be eliminated.

Health

Title X Family Planning Grants. A substantial portion of these funds go to Planned Parenthood. Although the government funds are supposedly fenced off so that they cannot help finance abortions, money is fungible: Even if government funds are not directly used for abortions, they do free up other resources that can be. The surest way to avoid such a dilemma is to get the government out of the family planning business.[23]

Administration of Justice

Federal funding in this area should focus solely on activities that are the federal government’s responsibilities. Yet here as elsewhere, Congress has created a number of grant programs to dole out funds to states and localities, which then become addicted to the additional support. Washington should eliminate state and local law enforcement grants. Beyond that, some other specific programs that should be terminated include:

Community-Oriented Policing Services. This Clinton-era program originally was intended to provide temporary assistance to localities to hire additional police officers. Eventually the localities would have to take over the costs of the additional personnel. Yet subsidizing local police departments essentially federalizes something that constitutionally falls squarely on state and local governments. Moreover, this program has not delivered results.[24] Localities should make their own decisions about their law enforcement needs and prioritize their own funding to meet them.

The Legal Services Corporation. This corporation’s ostensible mission is to provide legal assistance to the poor. Instead, its lawyers have tended to engage in politically sensitive lawsuits, involving drug-related public-housing evictions, welfare reform, abortion, and even congressional redistricting cases. The corporation also has been criticized by the GAO for poor control over its grant awards, and for over stating its caseloads. Besides, studies have shown that most legal assistance to the poor comes from private organizations not funded by the Legal Services Corporation.[25] Congress should terminate this funding.

Time to Re-Evaluate Government’s Role

The recently reported improvements in the near-term deficit outlook are temporary. Projected federal spending continues to run toward record levels as a share of the economy, and deficits are expected to increase toward the end of the decade. Under optimistic scenarios, debt held by the public will remain in the unusually high range of three-fourths of the economy, and could surge above 80 percent of gross domestic product if Congress spends more than projected.[26] The pressure on spending will continue to grow beyond the next 10 years as the baby boomers retire and the cost of federal entitlement programs swells. Beyond that, discretionary spending—for which Congress is now writing appropriation bills—has swelled more than 50 percent since 1993 after adjusting for inflation.[27]

In addition to adopting significant entitlement reforms, Congress must begin the process of re-evaluating the government’s functions, and terminating programs that government should not fund, that it runs poorly, or that may even be harmful. The programs identified in this Backgrounder offer an initial sampling of those that can be eliminated in the FY 2014 appropriations bills now being considered.

—Patrick Louis Knudsen is a Visiting Fellow in American Studies at The Heritage Foundation.

Show references in this report

[1] According to the most recent figures from the Congressional Budget Office (CBO), “base” discretionary budget authority for FY 2013—excluding, emergency, disaster, and overseas contingency operations funding—will total $1.002 trillion. This is higher than previous estimates in part because “about $19 billion in savings from changes to mandatory programs included in the final appropriation act were credited against discretionary spending when the legislation was enacted; in CBO’s baseline, those savings appear in their normal mandatory accounts.” In other words, the use of mandatory savings masked the true level of discretionary spending. See CBO, “Updated Budget Projections: Fiscal Years 2013 to 2023,” May 2013, Table 3, http://www.cbo.gov/sites/default/files/cbofiles/attachments/44172-Baseline2.pdf (accessed August 13, 2013).

[2] Patrick Louis Knudsen, “$150 Billion in Spending Cuts to Offset Sequestration,” Heritage Foundation Backgrounder No. 2744, November 15, 2012, http://www.heritage.org/research/reports/2012/11/150-billion-in-spending-cuts-to-offset-defense-sequestration; Brian M. Riedl, “How to Cut $343 Billion from the Federal Budget,” Heritage Foundation Backgrounder No. 2483, October 28, 2010, http://www.heritage.org/research/reports/2010/10/how-to-cut-343-billion-from-the-federal-budget.

[3] Robert Rector and Rachel Sheffield, “How to Get Welfare Spending Under Control,” Heritage Foundation Issue Brief No. 3874, March 11, 2013, http://www.heritage.org/research/reports/2013/03/how-to-get-welfare-spending-under-control.

[4] “Hal Rogers, a Republican Team Player, Chides His Own,” The Wall Street Journal, August 2, 2013, http://online.wsj.com/article/SB10001424127887323997004578644351084788038.html?KEYWORDS=hal+rogers (accessed August 19, 2013).

[5] Ian Vasquez and John Welborn, “Reauthorize or Retire the Overseas Private Investment Corporation?” CATO Institute Foreign Policy Briefing No. 78, September 15, 2003, http://www.cato.org/publications/foreign-policy-briefing/reauthorize-or-retire-overseas-private-investment-corporation (accessed August 13, 2013).

[6] Brian Darling, “An Offense Against Free-Market Capitalism: The Export-Import Bank,” Heritage Foundation Commentary, May 1, 2012, http://www.heritage.org/research/commentary/2012/05/the-export-import-bank?ac=1.

[7] U.S. Government Accountability Office, “Export-Import Bank: Recent Growth Underscores Need for Improvements in Risk Management,” March 2013, http://www.gao.gov/assets/660/653373.pdf (accessed August 13, 2013).

[8] Nicolas D. Loris, “Department of Energy Budget Cuts: Time to End the Hidden Green Stimulus,” Heritage Foundation Backgrounder No. 2668, March 23, 2012, http://www.heritage.org/research/reports/2012/03/department-of-energy-budget-cuts-time-to-end-the-hidden-green-stimulus.

[9] Daren Bakst and Diane Katz, “A Farm Bill Primer: 10 Things You Should Know About the Farm Bill,” Heritage Foundation Backgrounder No. 2797, May 14, 2013, http://www.heritage.org/research/reports/2013/05/a-farm-bill-primer-10-things-you-should-know-about-the-farm-bill.

[10] News release, “CAGW Issues Spending Cut Alert on Market Access Program,” Citizens Against Government Waste, November 17, 2010, http://cagw.org/media/press-releases/cagw-issues-spending-cut-alert-market-access-program (accessed August 13, 2013).

[11] U.S. Government Accountability Office, “Foreign Assistance: Various Challenges Impede the Efficiency and Effectiveness of U.S. Food Aid,” April 2007, http://www.gao.gov/new.items/d07560.pdf (accessed August 13, 2013).

[12] Office of the U.S. Trade Representative, “Trade Topics: Agriculture,” http://www.ustr.gov/trade-topics/agriculture (accessed August 13, 2013).

[13] Ronald D. Utt, “‘Turn Back’ Transportation to the States,” Heritage Foundation Backgrounder No. 2651, February 7, 2012, http://www.heritage.org/research/reports/2012/02/turn-back-transportation-to-the-states.

[14] Ronald D. Utt, “Chairman Mica’s New Amtrak Proposal Would Use the Private Sector to Reform Passenger Rail,” Heritage Foundation WebMemo No. 3290, June 13, 2011, http://www.heritage.org/research/reports/2011/06/amtrak-privatization-proposal-to-reform-passenger-rail-service.

[15] Emily Goff and Alison Acosta Fraser, “Transportation Conference Bill: Some Good Reforms, But Too Much Spending,” Heritage Foundation Issue Brief No. 3652, June 28, 2012, http://www.heritage.org/research/reports/2012/06/transportation-conference-bill-some-good-reforms-but-too-much-spending.

[16] Kathryn Nix, “Community Development Block Grants: Waste the Continuing Resolution Should Cut,” The Heritage Foundation, The Foundry, February 16, 2011 ,http://blog.heritage.org/2011/02/16/community-development-block-grants-waste-the-continuing-resolution-should-cut/.

[17] Tad DeHaven, “Economic Development Administration,” CATO Institute, Downsizing the Federal Government, February 2009, http://www.downsizinggovernment.org/commerce/eda (accessed August 13, 2013).

[18] Lindsey M. Burke, “Reducing the Federal Footprint on Education and Empowering State and Local Leaders,” Heritage Foundation Backgrounder No. 2565, June 2, 2011, http://www.heritage.org/research/reports/2011/06/reducing-the-federal-footprint-on-education-and-empowering-state-and-local-leaders.

[19] Ibid.

[20] Rachel Sheffield, “Another Study Confirms: Head Start Doesn’t Work,” The Heritage Foundation, The Foundry, January 13, 2013, http://blog.heritage.org/2013/01/13/another-study-confirms-head-start-doesnt-work/.

[21] U.S. Government Accountability Office, “Multiple Employment and Training Programs: Providing Information on Colocating Services and Consolidating Administrative Structures Could Promote Efficiencies,” January 13, 2011, GAO-11-92, http://www.gao.gov/products/GAO-11-92 (accessed August 13, 2013).

[22] David Muhlhausen, “Sequestration: Plenty of Room to Cut Ineffective Programs,” The Heritage Foundation, The Foundry, February 28, 2013, http://blog.heritage.org/2013/02/28/sequestration-plenty-of-room-to-cut-ineffective-programs/.

[23] Sarah Torre, “Obama Budget Increases Taxpayer Funding of Abortion,” The Heritage Foundation, The Foundry, April 11, 2013, http://blog.heritage.org/2013/04/11/obama-budget-increases-taxpayer-funding-of-abortion/.

[24] David Muhlhausen, “Defunding COPS: Eliminating a Wasteful and Ineffective Grant Program,” The Heritage Foundation, The Foundry, July 22, 2013, http://blog.heritage.org/2013/07/22/defunding-cops-eliminating-a-wasteful-and-ineffective-grant-program/.

[25] The National Legal and Policy Center, “What the Legal Services Corporation Doesn’t Want Congress to Know,” March 22, 2012, http://nlpc.org/stories/2012/03/22/what-legal-services-corporation-doesn%E2%80%99t-want-congress-know (accessed August 13, 2013).

[26] Romina Boccia, “Quiet Before the Storm: CBO Reports $642 Billion Deficit in 2013,” The Heritage Foundation, The Foundry, May 14, 2013, http://blog.heritage.org/2013/05/14/quiet-before-the-storm-cbo-reports-642-billion-deficit-in-2013/.

[27] Romina Boccia, Alison Acosta Fraser, and Emily Goff, “Federal Spending by the Numbers 2013,” Heritage Foundation Special Report No. 140, August 20, 2013, http://www.heritage.org/research/reports/2013/08/federal-spending-by-the-numbers-2013.

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