Wasteful Government Spending: Highlights of the Grace Commission Report

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William R. Kennedy Jr. and Robert W. Lee have summarized the Grace Commission Report in an easy-to-read 160-page paperback. Here are some highlights.

On February 18, 1982, President Reagan announced the formation of the Private Sector Survey on Cost Control, to be chaired by entrepreneur J. Peter Grace. The commission was to attempt to scrutinize government spending through the eyes of private-sector business … in effect, to study the government as if it were a firm with which commission members were considering merger. The Grace Commission (as it came to be known) worked on its study for about 18 months and turned in a comprehensive report consisting of 47 volumes that document nearly 2,500 specific recommendations. It has been estimated that, if implemented, the actions proposed by the commission would result in a reduction in the federal deficit of 424 billion dollars over a three-year period and would do so, in the commission’s words, without “weakening America’s needed defense build-up, and without in any way harming necessary social welfare programs.” 

And that may well be the case, but precious few of us “little guys” are likely to be willing or able to wade through 36 major reports and 11 special subject studies to find out! That’s why we were glad to see that William R. Kennedy Jr. and Robert W. Lee have summarized that monumental publication in an easy-to-read 160-page paperback. The following excerpt from the first chapter of that booklet, which encapsulates a few of the commission’s recommendations, can serve as a sample of what Kennedy and Lee have to offer, and provide examples of the sort of governmental waste that’s at the heart of the federal deficit now threatening to strangle the economic futures of our children and grandchildren. None of us are likely to agree with all of the proposals made by the Grace Commission, but most of us would agree that some of these recommendations could go a long way toward restoring a little much-needed sanity to the American economy. 

Foreign Loan Subsidies

Potential Savings: $360 million

The Grace Commission discovered that taxpayers are subsidizing foreign borrowers. Interest rates in 1970 on Official Development Assistance (O.D.A.) loans, for instance, were 69 percent of the Treasury bond rate (the price at which the federal government borrows money). But by 1981, that foreign rate had plummeted even further, to a mere 27 percent of the T-bond rate. Which means, in the Grace Commission’s words, that “foreign borrowers were getting loans from American taxpayers at 2.5 percent.” If the foreign rate could once again be raised to at least the 1970 average of 69 percent, taxpayers would realize a savings of $360 million — an amount equal to the federal income taxes paid by 162,308 median-income families in 1983.

Parole Review

Potential Savings: $256,200 per year

A prisoner who appeals an unfavorable parole decision is presently entitled to a two-step review of the decision. Incredibly, the same official who initially ruled on the appeal is also assigned to conduct the second review. In the eyes of the Grace Commission, this would make the first examination entirely redundant. Scrapping it would save an estimated $256,200 annually. (If the two-step review is not abandoned, it should certainly be conducted by two different officials! — MOTHER EARTH NEWS)

Abuse of Legal Services

Potential Savings: in the millions

The Criminal Justice Act authorizes free legal representation for defendants unable to pay the costs themselves. For 1981, the bill was $28 million. A judge’s decision regarding a defendant’s eligibility is based primarily on the (usually unverified) financial information which the latter supplies the court. One “unemployed” recipient of free legal counsel cited by the Grace Commission “turned out to own $4,000 … in traveler’s checks, two race horses, a pair of Mercedes and a motor home.” It is difficult to know the full extent of this sort of taxpayer-funded rip-off, but it undoubtedly runs into the millions of dollars.

ACTION Agency Staffing

Potential Savings: $26.7 million over three years

The independent ACTION agency is the federal government’s umbrella organization for sundry domestic volunteer activities. It was designed to advocate, promote and support the voluntary efforts of citizens and organizations working to help alleviate problems confronting the poor, the disabled, the elderly and youth with special needs. In the fall of 1981, ACTION carried through a 20 percent reduction-in-force (R.I.F.), eliminating 187 of its own employees from a total of 996. In 1982, when the Peace Corps was removed from the ACTION umbrella and made a separate entity, the ACTION staff fell by another 258 persons. Even so, the Grace Commission concluded that the agency is still heavily overstaffed and recommends that its roster be trimmed from 603 to 358 full-time and temporary workers. Although the cutbacks would entail significant percentage reductions in many areas, the Commission “firmly believes they can be accomplished without jeopardizing the agency’s ability to fulfill its mission and carry out its programs effectively.” Reduction of the ACTION staff as proposed would save $26.7 million over three years.

Parenthetically, in Fiscal Year 1983, ACTION incurred nearly $26 million in administrative costs while disbursing $92 million in grants. That is a 22-cents-per-dollar administration expense — sharply higher than the 12-cents-per-dollar for administration spent by the private-sector United Way.

Annual Leave

Potential Savings: $3.8 billion over three years

The average private-sector worker accumulates four days of vacation after six months on the job. In contrast, a federal government worker earns 6.5 days after six months, or 62.5 percent more than the private-sector worker. Adjusting federal vacation policy to fit the pattern in the private sector would save taxpayers $3.8 billion over three years.

Consolidating Air Traffic Control Centers

Potential Savings: $418.4 million over three years

There are presently 22 Air Route Traffic Control Centers (A.R.T.C.C.s) located throughout the nine Federal Aviation Agency (F.A.A.) regions. The 350 employees at the centers are mostly teams of air traffic controllers, and regulate traffic within specified geographic boundaries. Based on its review, the Grace Commission concluded that the number of A.R.T.C.C.s “can be reduced to no more than 15 using available technology and equipment.” The change would reduce administrative and supervisory staffing by 60 people per center, while increasing operational staffing by 250 to 300 persons. The consolidated facilities would provide the same level of air traffic control service and safety and, over three years, would result in savings of $418.4 million.

Closing Air Traffic Control Towers

Potential Savings: $59.9 million over three years

The Federal Aviation Administration owns and operates 440 control towers at airports throughout the nation. The Grace Commission suggests that “it is feasible to close towers at many existing locations,” since 57 towers have for three consecutive years fallen below F.A.A. retention criteria. The Commission notes that 3,208 of the nation’s 3,648 landing areas do not have airport towers. And, 220 of those towerless air fields have scheduled air carrier service, including jets. “Yet,” the Commission observes, “over 20,000 events occur per week at these airports, which nevertheless maintain an outstanding safety record and … [handle] other essential air services, such as weather observation …”

Prior to the 1981 air controllers’ strike, 184 towers operated 24 hours a day. At present, 87 operate 24 hours a day, while 97 get by on reduced hours. Also, some towers have been “defederalized” as communities have taken control, with no evidence of impaired effectiveness — and with lower costs.

Closing the 57 below-standard towers could save $45.4 million over three years. And, reducing operating hours of the 50 or 60 towers deemed by the F.A.A. to merit permanently reduced hours would increase the savings by another $14.5 million.

Cargo Preference

Potential Savings: $15.6 million

Federal law presently requires that at least 50 percent of the agricultural commodities sold or donated to needy countries by the United States under the “Food for Peace” program must be shipped on U.S.-flag vessels. During Fiscal Year 1981, $250 million was spent on the transport of such commodities. The Grace Commission calculates that eliminating the cargo preference requirement would have saved as much as $15.6 million, by permitting the substitution of foreign flagships for U.S. flagships and the consolidation of liner shipments on cheaper foreign-flag tramps, which are irregularly scheduled ships transporting cargo wherever contracted to do so.

Paper Shuffling

Potential Savings: $7.1 million

Big corporations can usually respond to correspondence within five days or so, even when the volume of mail is large. Not so in the federal government. Based on a sample of correspondence arriving at the office of the Secretary of Health and Human Services, the Grace Commission reports that “21 people … handle the drafting and clearance of a secretary-signature response” and, if you also include “typists, messengers and other clerical support personnel,” then the “actual H.H.S. number would increase to between 55 and 60. “Sixty people to answer one letter! The Commission found the H.H.S. review process to be repetitive as well as inefficient, while the clearance process is “redundant, cumbersome and time consuming.” The “extensive time required and the complicated process involved in completing responses to letters received by the O.S. (Office of the Secretary) is symptomatic of H.H.S.’s organizational layering duplication problem. The numerous levels of review, the multiple clearances and the delays in processing (47 days is the average), all indicate too many people with similar responsibilities performing the same function. “If the handling of correspondence at H.H.S. could be brought to the level of most other federal agencies and departments, the three-year savings to taxpayers could total $7.1 million.”

Disaster Relief

Potential Savings: in the billions

Congress usually funds federal disaster relief programs in advance, with annual lumpsum appropriations going to agency disaster accounts. Such advanced funding does not earmark money for a specific disaster, so agencies may allocate the funds at their own discretion. In 1980, Congress reacted to the Mount St. Helens disaster in Washington state with a $946 million relief appropriation. But, as summarized by the Grace Commission: “Due to the phrasing of the regulation … the money could be used in other areas. In fact, only $386 million of the $946 million (41 percent) was spent on the Mount St. Helens disaster. The balance of $560 million was spent on other disasters and could not be traced because it ‘lost its identity.'” [Emphasis added.]

Conserving Energy in Hospitals

Potential Savings: up to $55 million a year

The Grace Commission referred to a General Accounting Office study revealing that private sector hospitals used more than twice the number of conservation measures as are used in government facilities. “If federal hospitals were brought up to the standards of their counterparts in the private sector,” the Commission asserts, “an estimated $16 million to $55 million could be saved each year in excessive energy costs.”

Glut in Energy Department Management

Potential Savings: $19 million over three years

The Department of Energy (D.O.E.) has twice the number of supervisors per employee as does the federal government as a whole (one for every three employees compared to one for seven government-wide). If that D.O.E. figure could be brought into line with the rest of the government, at least 120 unnecessary supervisory and management positions could be scrapped, resulting in a three-year savings of $19 million.

Block Grants by Fish and Wildlife Service

Potential Savings: $9.6 million over three years

Adoption of a block-grant program of aid to the states by the Fish and Wildlife Service could save approximately $9.6 million over three years. Under the law, such savings would be passed along to the states. With a block grant, regional office staffs could be permanently reduced by about 150 people.

Freight Discounts

Potential Savings: $530 million over three years

The government presently spends $4.6 billion annually on freight, but does not negotiate volume discounts with suppliers. The reason? There is a serious lack of centralized freight information from the various federal agencies. The Grace Commission asserts that an “automated freight management system would save taxpayers $530 million over three years.”

Job Overgrading and Misclassification

Potential Savings: $682 million a year

Under the Government Service (G.S.) personnel classification system for the Washington, D.C. area, perhaps one-third of all positions are overgraded and nearly one half, according to the Grace Commission, are misclassified with the wrong grade, occupation or title. Correcting the errors would save taxpayers $682 million annually.

Rate Inconsistency

The inconsistency of rate schedules among various federal agencies often leads one agency to pay far more for an identical service or commodity than another. The Commission cites an example where the “Environmental Protection Agency paid substantially more than the U.S. Coast Guard for the same services provided by the same contractor.” The inflated charge, the Commission concluded, “was due largely to the different billing standards used by EPA and the Coast Guard. For example, the Coast Guard will pay $100 per week for the use of an office trailer. The EPA’s schedule allows for $100 per day.”

Excerpted from A Taxpayer Survey of the Grace Commission Report, by William R. Kennedy Jr. and Robert W. Lee. Copyright 1984 by William R. Kennedy Jr. and Robert W. Lee. Reprinted with permission of Green Hill Publishers.