The High Cost of Government Dependence

This video was from the recent Presidential debate in Tampa. The question dealt with someone that didn't buy health insurance and had a serious injury requiring intensive care. The moderator asked Rep. Ron Paul who would pay for the care? Please listen to Dr. Paul's answer. He starts out with the statement "This is what freedom is all about." Dr. Paul then made the assessment that when he was a younger man and working as a physician in San Antonio Texas before medicare, who paid was never an issue- no one was turned away. The churches, friends, and neighbors took care of it. Then it got dumped on the government, who created a bureaucracy, and the cost went up.

Yesterday this issue hit home for me. Over the past month, I have been trying to get a livable home for a widow in my area without the use of tax dollars (the phrase in these parts is "federal dollars"). The mobile home she owns is in very bad shape, so she is on the list for the government to build a new home for her via the Community Development Block Grant (CDBG) program. What this program does is utilize tax dollars that have been sent to Washington and are then returned to the states. The states then send the tax dollars to the several counties, who then in turn pay local contractors to build homes for the needy. Sounds pretty good, right? Remember what  Dr. Paul said about the cost?

In a 2009 study, it was found the administrative costs for the CDBG were as follows:

• Federal: 5%
• State: 8%
• Local: 17%
• Builder: 10%

Total administrative overhead: 40%. This leaves only 60% of the money to actually build the home.

The relevant section of this report is as follows:

Excessive Bureaucracy

One result of involving all three levels of government in funding local projects is rampant bureaucracy. Local governments that receive CDBG funds spend 17 percent on administration, on average, according to the Government Accountability Office.²⁰ For the portion of CDBG funds that flow to state governments, state-level bureaucracies are an additional cost. The GAO found that state government administration consumed 8 percent of CDBG funds. On top of those costs are federal administration costs, which are about 5 percent of the value of grants.²¹

After the government bureaucracies take their share, CDBG monies get distributed to the private businesses and organizations that carry out funded projects. Federal rules usually specify the share of funding that may be used by recipients for administrative costs, and 10 percent seems to be common. Thus, considering all the administrative costs at all layers of government and private organizations, a large share of the CDBG budget disappears before any actual work is done.

One cause of high administration costs in grant programs is that governments and private groups must comply with complex federal regulations. Consider, for example, that the State of Virginia’s CDBG manual explaining the regulations is 170 pages long, and the state’s application package for grant applicants is 132 pages long.²²

If you doubt these numbers, please check the linked source material- they are principally from the Government Accounting Office (GAO). It's inarguable that the more hands money passes through the less is available at the intended recipient.

Here's something else- at a prior commission meeting, the following hourly rates were listed for the private-sector group that received the tax dollars as part of a 12-page grant administration services contract:

Where grant funds cannot be used or for additional services the following schedule will be utilized:
Description Fee*
Principal   $225.00 per hour
Project Manager   $150.00 per hour
Financial Services Manager   $140.00 per hour
Construction Manager   $110.00 per hour
Construction Inspector   $ 85.00 per hour
Accounting/Budget Specialists   $ 85.00 per hour
Administrative Assistant   $ 45.00 per hour
*Please note that all fees include overhead, profit, travel, office supplies, benefits, etc.

Remember those local administrative costs? There are some of them. The lowest-paid worker is $45/hour. And this is just to administer the grant for the county. None of these people are laying block or running electrical wire. When I spoke about this money at the meeting, I contrasted a state trooper who risks their life each day makes about $19/hour. Something is very wrong here.

What I found depressing was when I updated our commission about my activities, I was told I had endangered the contract the widow had signed and she may not get a government home. Of course, nothing has been done to her home, as I was not even sure the gentleman that said he could refurbish it for under $5,000 could do so. I've since called the widow and told her what was said at the meeting, and she has decided to go ahead with the government new home since she was already in process. She did mention that when she spoke to the contact person today, her paperwork was set for next week, which was apparently sooner than expected. God works in mysterious ways, I'd like to think my actions helped her in some way perhaps by lighting a fire under the local officials.

One of the reasons why this nation is 14 trillion dollars in debt is due to inefficient use of our tax dollar as noted above. What would happen if instead of collecting $100 from the taxpayer for the government to build homes, this money could be kept in the community (meaning of course that $100 in taxes would not be collected)? By the numbers:

• Currently, $60 of the $100 is actually used for the home.
• Under this concept, up to $90 would be used for the home. As noted in the above article, if the local government were involved (and they need not be), the local administrative costs are unrealistically high. If there were no layers above the local level, these costs would be lower.

Another possibility was mentioned by a friend of mine today. With so many homes sitting empty due to foreclosure and prices low due to short sales, why is the government building new homes?

We have a choice in our nation. We can either depend on ourselves, our friends, family, and neighbors, or we can depend on the government. The choice to me is clear.