Billion-Dollar Budgeting Demands Oversight

National Journal

February 5, 2009 – Linda Bilmes served as an assistant secretary in President Clinton’s Commerce Department and has written extensively about government budgets and the costs of the Iraq War. It’s Professor Bilmes these days, as she teaches advanced budgeting courses at Harvard University and consults with local governments on how to become more efficient.

Bilmes spoke with’s Lucas Grindley about how to ensure that the economic stimulus can avoid some of the problems that plagued Iraq reconstruction funding. Check next week for the second half of the interview, during which Bilmes outlines the findings of her upcoming book, The People Factor, (co-authored with W. Scott Gould) and how investing $10 billion in federal employees could yield a $300 billion return. Edited excerpts follow. Visit the Insider Interviews section for previous discussions in this series.

NJ: You focus on the Iraq reconstruction effort as a recent example of how vast expenditures with little oversight can result in government waste. President Obama has suggested an independent review for the economic stimulus funds in order to avoid some of those problems. Is that sort of independent panel the right way to monitor whether the stimulus money is being spent effectively?

Bilmes: I think that is one way, and I think something along those lines is certainly necessary…. We absolutely understand that large-scale projects, particularly infrastructure projects, are prone to waste, fraud, mismanagement, profiteering, inefficiency. And there is a certain trade-off between how fast you get the money out and how much these problems occur. So the challenge with the infrastructure component of the stimulus package, thinking about the lessons of Iraq, is that we need to find ways to mitigate against these risks at the same time that we try and put money into job creation quickly.

So I would say that there certainly needs to be oversight. There also needs to be very careful prioritization, clear performance measures, clear criteria for awarding contracts and a way to deal with the varying needs of different communities by having a kind of sliding scale of federal matching funds. Not all communities are the same; more affluent communities and poorer communities will have different needs. So if you look through the 15,000 projects on the national conference of mayors Web site that they have identified, you see everything from providing basic drinking water to relandscaping golf courses and everything in between. So I think that one of the challenges of the stimulus package, where you have of course many members of Congress who want money going to their districts and so forth, is to make sure those needier communities have a fuller federal match than communities that may have a project which is maybe a good project but maybe they get a 10 percent federal match as opposed to 100 percent or 90 percent.

NJ: Should that sort of regulation be built into the stimulus now or can it be assigned to an entity to do later?

Bilmes: The stimulus is a very rapidly moving target right now, and I am not familiar with every detail of the House and particularly the Senate bill, which is moving as we speak. But I would say that whether that is written in or whether that is something the oversight board designs or that is done through the regulation of the stimulus, it is going to need some clear oversight and guidelines.

NJ: As Congress sets out to create jobs with the economic stimulus, there’s been some debate about whether it should focus on the private or public sector. How should those be balanced?

Bilmes: I think what’s important in the stimulus package is to create jobs on the things that really matter that stimulate the economy, whether they are public or private sector jobs. But most of the jobs being created — as opposed to saved — will be private sector jobs. Let me give you an example. I’m on the National Parks’ Second Century Commission… and so I’ve become very familiar with the maintenance backlog at the parks. This is basic maintenance like maintaining trails, cutting down trees that need to be cut, painting visitor centers and keeping the toilets working. The backlog of basic maintenance is 8.4 billion dollars, and they’ve had virtually no investment in the past decade.

Now, the stimulus package is hopefully going to put in about a billion dollars or so of work to try and get some of this maintenance done. But who is going to do those jobs? Well, the Park Service doesn’t have the capacity to do all of that work, so to a large extent they will need to hire [private sector] people to do a lot of the work. But they will also need to have the right resources within the park service to be supervising the work and doing the contracting correctly and doing the oversight and the performance measures, so that means you will have a primarily private-sector focus, but there may be some government jobs created as well to make sure that this is done properly.

NJ: In your book, The People Factor, you note how long it normally takes the government to hire people, at least compared to the private sector. Are they going to have to speed that up?

Bilmes: There are many things that could be done to make that faster. I think that they will hopefully be able to use some of the existing facility for hiring temporary employees to bring some people in for managing some of the infrastructure projects. But I think it’s important to recognize that the stimulus package is, in terms of jobs, not just about creating private sector jobs, but it’s about preserving public sector jobs at the state and local level. I can give you an example. …My students are involved… in the budget office at the City of Boston, trying to help them with some of their financial dilemmas. And the City of Boston right now — which has been a city with a good financial track record, good stewardship, it has a good rainy day fund — even so, it has a shortfall this upcoming year of $140 million, which means there is absolutely no way, unless they get money from the stimulus package, that they are going to be able to avoid layoffs.

Now, the layoffs of people who are employed at the city level — these are people like teachers and policemen and social workers and sanitation workers and emergency medical personnel and so forth. And these are the people that are the most important people in terms of what the public gets from government, in my opinion. And so to not lay them off is the most important first order of business of the stimulus. And probably there are some, you know, 200,000 or 250,000 people around the country who are state and local employees whose jobs will be preserved as a result of the stimulus.

NJ: How can other parts of the country, in much worse economic shape, stay afloat?

Bilmes: Right now, state governments are primarily dependent on income taxes and sales taxes, and so they have very much seen the hit already because both those revenues are dropping this year. But most cities are dependent primarily on property taxes, and since property tends to be reassessed every year, or every other year, they may see a much bigger hit next year when property tax revenues fall as property values are reappraised downward…. They are not allowed to spend in deficit; many of them have very large pension obligations, many of them have got very active unions who may or may not have a good relationship with the city, and the city management may be of variable quality. So I think that a top priority for the stimulus is to make sure that we don’t hemorrhage frontline workers and services at the state and municipal levels.

NJ: There have been some recent pushes for increased transparency of budgeting at the state and local levels because they are posting all of this government contract spending information on Web sites such as Do you see that sort of increased transparency for the public as actually helping to identify inefficiencies or ways to improve things?

Bilmes: I am in favor of really fundamental reform in the way budget information is reported and displayed…. When you look at budgets in this country, whether it’s the federal budget or state budget or whatever, what you are seeing is historical spending patterns. You’re not seeing how much it actually costs to provide a service. And so in order to really improve transparency and improve service delivery, I believe — and I have a book called Budgeting For Better Performance, a forthcoming book for next year, which is on this topic — I believe budgeting needs to be redone so that it is more of an activity-based budget — in other words, you can really understand where money is spent to deliver a certain service…. But budgets do not provide us with the information that we need to govern wisely, and this is the kind of transparency reform that we need.

NJ: So in an effort for more transparency you actually have to provide more context to the numbers being posted on the Internet right now?

Bilmes: Right. We really have to look at it as, what service are we providing, how much is it costing to provide this service? Looking at cost is different than looking at spending. If you try and understand how much it costs to fight a fire, fighting a fire actually has a certain amount of cost from the fire department, of course, but it also has a police component. It has an emergency medical component. It has a public utilities component. It may have a component of the public works department or other departments. So the actual full cost of fighting a fire may be very different than looking at the fire department budget. Looking at the fire department budget doesn’t really help you to understand what it costs to do things.

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