Wednesday, April 27, 2011

Cut The Pork: How Washington's Deficit Affecting New Orleans Non-Profits

By J. Samuel Cook, Trumpet Contributor

When I became director of a local non-profit in June 2010, I assumed the position with reckless aplomb.

Overly confident in my ability to cut the organization into prosperity, and recognizing the tough economic times non-profit organizations were facing, I set an ambitious goal by trimming the organization’s roughly $150,000 annual operations budget down to less than $90,000, excluding salaries and benefits. Within days of beginning, I made tough cuts to areas such as printing, postage, vendor services and professional development, scaling back the operations budget by thousands. The loss of a staff member, though ordinarily a painful experience, provided further budget savings by not hiring a replacement. The organization had streamlined its operations, cut waste, trimmed the fat, learned to do more with less, or any other idiom used in the private sector to indicate cuts in operations.

And then, an unnerving e-mail arrived that was forwarded from a project manager: an outstanding, one-year-old vendor’s bill totaling nearly $1,000 demanded remuneration.

I was floored.

It wasn’t exactly that anyone had been irresponsible; rather, a simple computing error had resulted in non-payment of the vendor’s bill.

Then, after a heavy rain, I came in to work on a Monday to find that the roof had collapsed. Another $1,000 for repairs.

Then, all four computers in the center’s resource lab then crashed, racking up another $160 bill.

Then, a toilet malfunction resulted in a nearly $500 sewage and water bill.

Suddenly, my “cut, cut, cut” rhetoric hit the reality of an organization that, already on a shoestring budget, had been able to afford little general upkeep in its nearly three-year existence.

As an executive, it’s important to look at real-world business experience as Washington prepares to tackle its $14 trillion debt, (amount of money borrowed and currently owed) and its deficit, (the shortfall between income and expenditures) of more than $1.5 trillion—and why applying a business model to the nation’s fiscal issues won’t work.

Let’s be clear: It’s important to note that the nation’s debt and deficit are cumulative. They are not the result of profligate spending on the part of President Obama since taking office in January 2009. Congress has run a deficit each year since 1969, prompting the Treasury Department to borrow money to meet appropriations demands. And despite heated partisan rhetoric, this has been true of both Republican and Democrat presidents. And so, the nation’s $14 trillion debt is the result of 42-years worth of borrowing to meet the nation’s demands.

Just as the nearly $1,000 vendor’s bill that came across my desk had to be paid, despite the fact that it was for an expenditure that I’d not personally authorized, the president inherited a $1.2 trillion deficit before signing a single law, according to the non-partisan Congressional Budget Office.

It is true that former President George W. Bush inherited a budget surplus. How then, did he leave office with a massive deficit? It comes down to a couple of factors: First, how the government operates and, secondly, how government expenditures are financed.

As much as voters, who are disgruntled by the economy’s sluggish recovery indicate they’d like to elect a president with executive experience, the government does not operate in the same way a business does. There are similarities between the private sector and the government, but there are stark differences as well. Businesses exist to turn a profit, and only provide products or services when doing so is profitable.

Government, on the other hand, fundamentally exists to promote human welfare. In order to remain solvent, a business must sell a product or service. It must sell enough of that product or service that its income exceeds it expenses. By selling those products or services, a private business is then able to meet its financial obligations. If one product doesn’t work, a business can change its product offerings. It can expand its market or reach out to new consumers. It can merge with more, (or less) lucrative companies, and there is a wide array of money-making options for private sector businesses.

For the government, “revenue” is taxes. In order to meet its obligations, whether it be Social Security, Medicare or Medicaid, the government collects taxes based upon one’s income, (a progressive tax). Those taxes then fund government projects such as bridges and roads, the United States military, Veterans benefits and education.

While President Bush inherited a $236 billion surplus, several initiatives under his leadership, including Medicare Part D and No Child Left Behind, were either poorly funded or not funded at all. The largest drivers of the Bush-era deficit, however, were dual wars in Iraq and Afghanistan, which cost taxpayers roughly $10 billion a month.

It is important to note here that, historically, the United States has raised taxes during times of international conflict in order to pay for the costs of war dating back to the Civil War era. Not only did President Bush not raise taxes in order to finance Middle-East conflicts, he also lowered taxes twice during his administration through the Economic Growth and Tax Relief Reconciliation Act of 2001, and Job and Growth Tax Relief Reconciliation Act of 2003.

As a result of reduced revenue and increased costs, the exorbitant cost of the wars in Iraq and Afghanistan not only eliminated any budget surplus Bush inherited, but ultimately resulted in a deficit.

Even taking into account the fiscal irresponsibility of the Bush Era, the blame is not his alone. Each president and each Congress since Richard Nixon has directly contributed to the nation’s $14 trillion debt.

And in order to fix this 42-year-old debt, it will take a comprehensive approach to both the nation’s spending and revenue problems that involves both revenue increases and cutting unnecessary spending. While the compromised $38 billion in spending cuts brokered by President Obama was a promising sign, it is unconscionable that Congress should only make cuts to education programs and jobs training.

This is particularly offensive when the Defense budget in 2010 exceeded $700 billion, but the Department of Education Budget in that same year was less than $100 billion.

If we’re truly going to put America back on the path to prosperity, it’s going to require a whole lot more honesty and a whole lot less demagoguery from our elected officials regarding real solutions to solving the debt crisis. The United States could cut all discretionary spending from its budget, and would only have cut about 14 percent of its spending. Increasing revenue isn’t an end-all, be-all either. But taxes for all income levels are at their lowest level since the 1950s despite increased appropriations commitments.

And for all the fear-mongering about reckless social welfare spending, a recent report by the Organization for Economic Cooperation and Development, the United States ranks dead last in spending on social welfare programs, spending a mere 7.2 percent of its gross domestic product on its social contract with its people, (as an example of the dissonance between social welfare spending and national debt is Canada, which spends 26 percent of its GDP on social welfare programs ,and has substantially less debt than the U.S.).

It’s clear, then, that a comprehensive approach that examines areas of waste, fraud and abuse in government spending and increases revenue to meet the demands of a 21-century economy and to maintain American exceptionalism at a time when the United States trails other developed nations in education, ranks fourth in the world for economic competitiveness, and has an infrastructure which is rapidly crumbling.

The U.S. once led the world in education, economy and infrastructure, and we can again—but we cannot and will not do so by neglecting necessary investments to ensure international competitiveness or by whittling away at the social safety nets which have ensured a quality standard of living for our seniors, our disabled and our disinherited.

It’s a delicate balancing act, but we are a nation that has a long history of rising to meet the challenges of the day.

This time, the threat is not from a malevolent-opposing nation or foreign-born terrorists.

Rather, we must meet the challenge of defining who we wish to be as a nation and the social contract we wish to have with all Americans.

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