October 11, 2015

Where All The Government Money Went

As stories appear day after day about the dire financial positions of state and local governments, the question that pops up is: where did all our tax money go? I would suggest three answers:

  • Excessive benefits for government employees and their families;
  • Excessively high payments to vendors; and
  • Excessively high welfare payments.

I would also suggest that states, over time, because of well-intended, but poorly conceived, laws, substituted unproductive clerical and bureaucratic rules-oriented employees for those who did productive work. For example, governments today very likely have more clerical and administrative employees, but lack skilled professionals of all kinds to manage projects and programs. In schools, there are many more administrators and service employees relative to teachers than there were a generation ago.


Let’s look at each of these quickly. Retirement benefits ballooned out of sight everywhere in government for a simple reason: they largely escaped capture in a current budget year’s presentation. The private sector has had to account for the totality of pensions and retiree medical obligations on its income statement since 1992, but government, to this day, only has to account for the current year’s costs, not any portion of future year obligations. Like the stock option grants given to executives of large companies, which appeared to be “free,” and which were abused as a result in the 1990’s and in the first half of the past decade, current year salary increases could be traded off for future year retirement benefits, and politicians could look good for “balancing the budget.” In effect, they were mortgaging the future.

For example, in Connecticut, a state with about 52,000 state government employees, our future retirement obligations are over $40 billion, or almost $800,000 per employee, and the collective bargaining agreement that granted these excessive benefits started in 1997 and runs through 2017. Governor Rowland was irresponsible in doing this, but few members of the public knew about it at the time because it did not show up in any income statement.

Vendor Costs

State and local governments routinely pay more for goods and services, despite their larger purchasing power. The reason is that they have so much bureaucratic process built into procurement that many potential vendors refrain from doing business with them, and those that do add significant dollars to the bids to cover the additional costs of doing business.

When I chaired the Governor’s Reform Commission on the Connecticut Department of Transportation, we did a confidential survey of vendors, who told us that they routinely added about 25% to their normal prices when doing business with the State because they were paid later and had to spend more money complying with useless processes and rules.

Many of these processes exist either because of pressure from special interests, or because the State has been forced by its legislators to put into place processes to insure “fairness” in contracting.

Welfare Payments

I strongly believe that government needs to help its poorest citizens, but I also believe that governments do a very poor job managing the welfare payment and service processes. I was on the board of directors of a small social services organization last year, and I was amazed at the degree to which the State government loaded this organization with requirements that added cost and actually made service delivery more difficult.

State Workforces

If I think back to the early 1990’s and my dealings with the State of Connecticut, it had highly competent employees. Even today, those who work for the State are driven to do the right things for the public. The difference is the mix of workers the State has today, versus what it had a generation ago.

My interactions with the State in the last few years in serving as a volunteer on transportation and health boards have caused me to interact in a different way from the way I did 10-15 years ago. At that time, when I was dealing with the Department of Transportation, the people with whom I dealt were subject matter experts who were focused on the core mission.

Today, I am more likely to work with lawyers and other clerical and administrative people who are assigned to enforce compliance with an administrative process. In my current assignment as Co-Chair of a Prevention Advisory Committee, I have observed many dedicated and highly intelligent State employees reduced to communicating frequently with highly energized and very smart volunteers about process requirements. Whereas these employees used to be able to help, they are now forced into roles that turn them into a hindrance.