Commentary

Reason.org
July 19, 2006

Privatization and Devolution Keys to Solving Federal Budget Mess
Smaller, more efficient government is the path to fiscal security
By Geoffrey Segal

It's not news that the federal budget is growing at a staggering pace - with no end in sight. Despite a booming economy and record tax receipts (in no small part because of tax cuts) deficits and national debt continue to mount. Washington talks about cutting the deficit in half over the next 10 years but is largely unwilling to tackle the fundamental reforms needed - while debt continues to mount ever so higher.

Congress and President Bush are both to blame—Congressional earmarks have made a mockery of our budgeting process, driving pork-riddled spending bills higher and higher. Meanwhile the President, despite countless threats, has yet to issue a single veto during his presidency—perhaps his most powerful tool to counter the growth of government.

The current level of spending is not sustainable and a serious threat to our liberty.

A recent Government Accountability Office report highlights what the future will hold if our elected officials don't change their habits. At present rates, the federal government will consume more than 40 percent of the country's gross domestic product by 2040. By 2030, interest on debt, social security, and Medicare/Medicaid alone will drive the federal budget into deficit.

Its clear, as the GAO reported that "absent policy change, a growing imbalance between expected federal spending and tax revenues will mean escalating and ultimately unsustainable federal deficits and debt."

This should be setting off alarms in Washington and all over America for that matter. Sadly, rather than look for ways to trim federal programs we keep adding them. Despite this evidence, which according to the GAO "dramatically illustrate[s] the need for action," Congress and this administration continue to spend.

Taxing more is not the answer. Rather, a serious effort at privatization and devolution of federal assets and programs is needed.

First, privatize.

Believe it or not, the federal government does have some experience with privatization. Under Presidents Reagan and Clinton there were some successes in the 1980s and ‘90s. Both the Naval Petroleum Reserve and the uranium enrichment program were privatized to name just two. However, a new serious wave of privatization is needed. The federal asset inventory is a virtual treasure trove of locked up capital. Billions if not trillions of wealth are locked up in these assets that can be freed up with privatization. Thus generating, or creating, new wealth that can pay down debt or fund social security obligations until a more permanent fix can take hold.

In order to get the ball moving, we should turn to President Reagan's bold agenda. In the 1980s President Reagan's plan called for privatization of federal lands, Coast Guard rescue responsibilities, adjudication of federal tax disputes, the U.S. Postal Service, the U.S. Helium Reserves, and many others.

But why stop there? As the nation's largest electric power organization, the federal government acts as owner and manager of the Tennessee Valley Authority and four power marketing administrations (PMAs). In 1996, the Clinton administration did propose privatizing the facilities and estimated it would bring in between $3 billion and $9 billion. The Congressional Budget Office has estimated that sale of the three smallest PMAs and related hydropower assets would bring in from $8 billion to $11 billion. Sale of the Bonneville Power Administration would produce about $9 billion. The former head of the TVA estimates that that utility could sell for as much as $10.5 billion. Throw Amtrak and the US Postal Service on the list and we're making significant progress.

Second, devolve.

The federal government's duties have grown beyond "few and defined" as originally constructed by James Madison and the founders. Federal mission creep or ‘sprawl' has created additional layers of bureaucracy that slow down and add costs to governing. Many of these activities belong at the states.

Currently there is an effort in Congress to devolve the administration of the interstate highway system to the states. No longer deemed a federal mission, individual states can more efficiently and effectively administer their own systems. Doing so will take billions off the federal books, while producing significant benefits to taxpayers and the states as well. Similar cases for devolution can be made for other federal agencies including the Department of Education and Commerce.

Tools like these provide the path to fiscal security. A smaller, more efficient, more effective government, one that is focused on essential activities stands to increase our freedoms and liberties as well. That's something we can all stand for.

Geoffrey Segal is director of government reform of Reason Foundation. An archive of Segal's work is here and Reason's privatization research and commentary is here.