Big government gets bigger

BIG GOVERNMENT SERIES: First of three parts

George W. Bush rode into Washington almost eight years ago astride the horse of smaller government. He will leave it this winter having overseen the biggest federal budget expansion since Franklin Delano Roosevelt seven decades ago.

Not since World War II, when the nation mobilized to fight a global war against fascism and recover from the Great Depression, has government spending played as large a role in the economy as it does today.

This time, it is a rapid mobilization against another global enemy — Islamist terrorism — that lies behind much of the growth. But rising spending on discretionary domestic programs has also played its part.

“We have now presided over the largest increase in the size of government since the Great Society,” said Sen. John McCain, the Republican candidate vying to replace Mr. Bush in the White House, during the first presidential debate.

That, in fact, was an understatement. No president since FDR — who offered a New Deal to pull the nation out of the Great Depression and then fought World War II — has presided over as rapid a growth in government when measured as a percentage of the total economy.

And now comes the Next Deal — the rapid-fire series of programs announced in recent weeks to deal with a global financial crisis that few Americans even understand. It has begun with a decision to use $700 billion in taxpayer money to buy up financial assets and take an ownership stake in the nation’s largest banks and could be followed by a stimulus program of up to $300 billion driven by congressional Democrats.

As a result, Mr. Bush already is the first president in history to implement budgets that crossed the $2 trillion a year and $3 trillion a year marks. His final budget, which comes to an end Sept. 30, conceivably could near $4 trillion, depending on the final tab for the financial rescue.

Mr. Bush campaigned in 2000 on a pledge to reduce the size of government, continuing a trend that had been under way since the end of the Cold War. But since terrorists attacked the World Trade Center and Pentagon on Sept. 11, 2001, he has done what he thought was necessary to keep the country safe. That commitment became a centerpiece of his 2004 convention speech: “Whatever it takes.”

The White House does not contest the numbers showing near-record growth in the size of government on its watch, but says it has no regrets about the president’s decision to eschew a limited government agenda in favor of homeland security and defense spending.

“What we have presided over is the security of the nation — the creation of the Homeland Security Department and the fighting of two wars in Iraq and Afghanistan. We don’t apologize for the spending needed to protect Americans,” White House deputy press secretary Tony Fratto said.

“If somebody wants to be critical of those efforts, go for it. Have fun. It’s a silly point to make,” Mr. Fratto said. “America would not be better off had this president not decided to greatly expand the protection of the homeland and to take the fight to the enemies in Iraq and Afghanistan. Period.”

There has been no repeat of a Sept. 11-style attack on U.S. soil, a fact that may turn out to be one of this president’s enduring legacies.

But an examination of numerous government reports over the past few years shows the administration has had difficulties in stewarding the taxpayer money spent on the mission — a total of more than $5 trillion on wars abroad and anti-terrorism efforts at home since 2002.

Of that, hundreds of billions was misspent, in large part due to a broken contracting system, according to congressional oversight reports.

The House Committee on Oversight and Government Reform reviewed 700 projects and found $1.1 trillion in spending from 2002 to 2008 that was plagued by “significant waste, fraud, abuse or mismanagement.”

Domestic spending also rose in almost every category as the White House, bargaining to get what it wanted for defense and national security, accommodated what even its supporters see as wasteful domestic spending in Congress.

“Basically, we have had in the past eight years an unending growth in government and ever higher increases in the level of spending,” said Phil Gramm, a former Republican senator from Texas and chairman of the Senate Committee on Banking, Housing and Urban Affairs from 1995 to 2000.

A political price

Mr. Bush has paid a heavy political price for his most costly domestic programs.

A series of large White House-backed spending projects — the 2002 Farm Bill, No Child Left Behind and Medicare Part D — alienated the conservative brain trust and power base. And as grievous pet projects — symbolized by Republican Sen. Ted Stevens’ $320 million “Bridge to Nowhere” — went unchecked by the president, the grass roots became infuriated.

The Bush White House “didn’t focus on spending,” said Grover Norquist, president of Americans for Tax Reform. “They didn’t make it a priority. And this predates September 11. It just wasn’t on the list of things they were going to do.”

Government has also been growing in less noticeable ways.

The increasing outsourcing of government functions to private contractors that began in the 1990s under President Clinton’s “reinventing government” initiative was continued by Mr. Bush. It was here, after the Sept. 11 attacks, that a new vista of government waste opened wide.

Contractors have squandered billions of taxpayer dollars, gaining entry into federal coffers with promises to detect terrorists, build or supply better war machinery and weapons, or protect airports, according to numerous reports by agency inspectors general.

In the high-tech age of complex computer networks and data-mining systems, the government has been unable to keep the contractors accountable, those same reports show. The federal bureaucracy is too slow and too unsophisticated to even know, often, what exactly it has asked a contractor to do.

For example, the Transportation Security Administration in 2002 contracted for a high-speed national computer network but had no idea how it would work, so it was pegged as a $1 billion expenditure. A few years later, the price had grown as high as $5 billion.

To round out the circle, the government has hamstrung its own ability to keep track of the spending by starving its watchdogs - the inspectors general - of resources and personnel.

The Bush administration sends mixed messages about its grasp of the contracting problem.

Jim Nussle, director of the White House Office of Management and Budget (OMB), calls complaints about contracting oversight “a very appropriate criticism.”

But Mr. Nussle’s deputy director for management, Clay Johnson, while acknowledging room for improvement, sounded a different note.

“I think we manage procurement in the federal government today better than ever before,” Mr. Johnson said.

Spending imaginatively

After Sept. 11, the government’s penchant for spending was given new life by the rise of homeland security and counterterrorism.

A top Department of Homeland Security official recently said that his goal was to make sure the government never again suffered from “a lack of imagination” on potential threats.

“We don’t know what all the hazards are right now. We don’t know what all the threats are,” said Bradley Buswell, deputy undersecretary for science and technology at DHS, during a recent speech at George Washington University.

This is why Nevada applied this year for $6.6 million to prevent the type of roadside-bomb attacks being launched against U.S. troops in Iraq and Afghanistan, and why other states have been told they must come up with such a plan.

“Is there any intelligence indicating that improvised explosive devices might be used against American civilians?” Mr. Buswell was asked.

“I don’t know. I don’t sit in on the intelligence briefings,” he said. “It’s easy to imagine that scenario … rather than suffer from the lack of imagination as we did prior to 9/11.”

“You can’t wait until you have intelligence before you start a [science and technology] program,” he said.

Earlier in his talk, Mr. Buswell had shown a headline from the satirical newspaper “The Onion,” showing an attack by “conceptual terrorists,” who had encased the Sears Tower in red Jell-O.

“There’s always room for Jell-O,” Mr. Buswell said.

No one laughed.

A massive new bureaucracy

“I ran on, you know, making sure we didn’t grow the size of government,” Mr. Bush said in a June 11, 2002, speech at Oak Park High School, in Kansas City, Mo.

That speech came five days after his decision to create the Department of Homeland Security, a merging of 22 federal agencies into one Cabinet-level agency.

Mr. Bush called it “the most extensive reorganization of the federal government since the 1940s” but said the new agency would “make government more effective and efficient so that we can do our job.”

“The idea, of course, is not to grow the size of government,” he added.

But government has grown.

Spending on homeland security has tripled under Mr. Bush, and DHS has become the third-largest source of federal contracts - behind the Departments of Defense and Energy - creating what one expert describes as a “hidden work force.”

Contractors, says scholar Paul Light, are a primary reason why the number of government employees - when military personnel and contract employees are included - rose from 11 million in 1999 to 14.6 million in 2005.

DHS’s budget history tells a big part of the story.

Government spending on the 22 federal agencies that became DHS held more or less steady through the 1990s, going from $9 billion at the start of the decade to $11 billion in 2000, said economist Brian Riedl of the Heritage Foundation, who based his estimate on OMB numbers.

In 2001, homeland defense spending bumped up to $13 billion. Then in 2002, it doubled to $29 billion.

In 2003, when DHS was formally created, its budget went up to $34 billion. It dipped back to $28 billion in 2004, but by 2008 was back at $36 billion.

DHS agencies, meanwhile, have been plagued by accusations of corruption, inadequate contractor oversight and ineptitude, according to inspector general reports and congressional oversight committees.

Take the Transportation Security Administration, which has an annual budget of about $6 billion.

According to a report by the DHS inspector general, TSA employees have for years been defrauding their taxpayer-funded work injury compensation system.

The injury rate among TSA workers is the highest, by far, of any government agency. In fiscal 2006, 16 percent of TSA workers were reported injured on the job, compared with 4.5 percent for the rest of the federal work force.

Some TSA workers have received injury compensation for up to three years for injuries that were either undocumented, suspicious or from which they had recovered, the report said.

The cost to the taxpayer? In 2006, it was $66 million.

One TSA employee, on Jan. 20, 2003, suffered a wrenched back while getting out of a car upon arrival at work. Despite a medical examiner’s written opinion that the employee was “either exaggerating their symptoms or actively trying to mislead this examiner,” the employee had received $88,000 by May 2007.

Deepwater troubles

TSA officials have also been discovered helping contractors evade tests by auditors from their own government agency.

When DHS Inspector General auditors conducted covert quality tests of security at San Francisco International Airport, TSA officials tipped off the contractor running the checkpoint, Covenant Aviation Security (CAS).

TSA officials allowed CAS personnel to track the IG auditors using the airport’s vast system of security cameras and then radio the checkpoint workers when a tester was headed their way.

TSA officials denied involvement, but that was refuted by the contractor, according to an October 2006 IG report.

The Coast Guard’s “Deepwater” program — where they contracted with Integrated Coast Guard Systems (ICGS) to modernize eight cutters — is another example of waste at DHS.

ICGS spent nearly $100 million to attach 13-foot ramps to the backs of 110-foot cutters so that small boats could launch into the water quickly to chase suspicious watercraft. But the ramps caused the ships’ hulls to crack, and the boats now sit in a Baltimore harbor waiting to be dismantled.

The Government Accountability Office said the Coast Guard’s oversight of ICGS “lacked rigor.”

Another area where DHS has spent millions of dollars on questionable items is through its grants to public safety departments in the 50 states.

Since 2003, DHS has spent $22.7 billion in grants to “states, territories, urban areas and transportation authorities.”

Localities have used the money to bulk up their police and fire departments, SWAT teams and other emergency-response units and systems, including defenses against biological and chemical weapons. But critics have charged that much of the money has gone to states and localities where terrorism is not a realistic threat.

The DHS funding funnel has become a billion-dollar annual industry, said Homeland Security Research, a private-sector consulting firm.

“The Department of Homeland Security, I believe, is a mistake. We didn’t need to do that,” said former House Majority Leader Dick Armey, who was tasked with driving the initiative through the House but now regrets having done so.

“Every catastrophe, real or imagined, is every politician’s newest reason for doing what they wanted to do all their life.”

The numbers story

Mr. Bush, in his final State of the Union address, tried to salvage the Republican Party’s reputation as the party of small government and limited spending.

“Our greatness lies not in our government but in the spirit and determination of our people,” Mr. Bush said, as he announced a crackdown on earmark spending that will not take effect until after he leaves office.

The Bush administration did push through tax cuts in 2001 and 2003. But Mr. Bush’s legacy on spending will likely be that he did not try to restrain it until Democrats took control of Congress in 2006.

“We’ve had too much government and too much spending, and … the size of government has grown by 40 percent in the last eight years. We can’t afford that in the next eight years,” Mr. McCain said Wednesday night during his final debate with Democratic presidential candidate Sen. Barack Obama.

The White House rejects a color-by-numbers narrative.

“If people want to make a shallow argument based on bottom-line spending numbers, that’s their choice,” Mr. Fratto said. “But who is willing to stand up and say the country should be less safe for the sake of smaller government? No one.”

The president’s current budget director, Mr. Nussle, expressed frustration at those who look only at budget statistics.

“It’s like, well, OK, we were prosecuting a war during that time, we had a number of natural disasters, we were protecting the homeland in a completely new way, we were dealing with new intelligence concerns that needed additional resources,” Mr. Nussle said during an interview.

“It’s not the full story to just do it by numbers,” he said.

But the numbers do tell quite a tale.

Federal spending grew from $1.9 trillion in 2000 to what will be at least $3.4 trillion in 2009. That number does not include a possible $300 billion second economic stimulus package, as well as another $60 billion in last-minute carryover spending from 2008.

There is also the second tranche of $450 billion that the Treasury Department will spend on buying up bad assets from troubled financial institutions, but it is not clear whether that will hit the books in 2009.

Nevertheless, it is likely that the total budget could approach the $4 trillion mark in 2009, one year after passing the $3 trillion mark.

Entitlements threaten

The entitlement problem is not going away either.

Without reform, spending on Medicare, Medicaid and Social Security will rise from their current 8.4 percent share of GDP to 18.6 percent in 2050, according to the Heritage Foundation.

Entitlements are already eating up about 61 percent of the federal budget, and are predicted to consume nearly 69 percent of the budget by 2013, according to federal budget numbers.

“There is growing spending because of programs put in place by previous presidents, and Democrats in Congress have opposed every effort to try to bring down the explosive growth in those programs,” Mr. Fratto said.

Economists say the best way to measure the size of the federal government is to look at spending as a percentage of the total economy, or gross domestic product. And by that measure, Mr. Bush has increased spending more dramatically than any president since FDR, whose spending on the New Deal and World War II will likely never be matched. During his 12 years, government ballooned from 8 percent of the economy to 41.9 percent.

Mr. Norquist, who favors measuring the size of government as a percentage of GDP, said he got positive feedback but no results when he made that argument to the president’s first budget director, Mitch E. Daniels.

“Total government spending is the problem,” he said in an interview. “Spending as the percentage of GDP is the actual size of government.”

By that measure, federal budget numbers show spending under the Bush administration rose from 18.4 percent of GDP to 22.5 percent - a 4.1-point increase - and could end up even higher.

The only presidents to approach that level of growth were President Carter, who grew spending as a percentage of GDP by 1.5 points, and President Ford, who grew it by 1 point. Presidents Truman, Eisenhower, Reagan and Clinton all decreased spending relative to the overall economy.

Measured in dollars, “Federal spending has grown twice as fast under President Bush as under President Clinton,” said Mr. Riedl of the Heritage Foundation.

Bush vs. Clinton

Mr. Clinton in fact saw spending decrease by three percentage points relative to GDP, largely because of the “peace dividend” created by the end of the Cold War. In dollar terms, he was able to cut defense spending by 20 percent even as domestic spending went up by 32 percent over his two terms.

The reduction in spending as a share of GDP began in his first two fiscal years while the Congress was controlled by Democrats and continued over the next six, working with a Republican-controlled Congress that swept to power on the promise to reform government, Newt Gingrich’s “Contract with America.”

Federal spending was 20.5 percent of GDP in 1995, when Republicans gained majorities in the House and Senate, and by the end of Mr. Clinton’s presidency in 2001, had fallen to 18.4 percent of GDP, according to the federal budget numbers.

Mr. Bush, for his part, has boosted domestic spending in dollar terms by 23 percent, less than Mr. Clinton. Much of that was driven by measures like the 2002 No Child Left Behind Act, the 2002 Farm bill, the 2003 Medicare Act and the 2005 highway bill all were backed by or conceived by the White House.

But defense spending under his administration has risen by a massive 67 percent, driven in part by the wars in Iraq and Afghanistan. The total rose from $371 billion in 2001 to $415 billion in 2002, $469 billion in 2003, and $604 billion in 2008, according to Mr. Riedl’s numbers.

The Bush administration has also had to deal with historic natural disasters, spending $140 billion on its response to Hurricane Katrina and $1 billion on relief for victims of the 2004 tsunami in Southeast Asia.

Mr. Bush has showed notable largesse in his aid package to treat and prevent deadly diseases such as HIV/AIDS and malaria. The U.S. spent $15 billion from 2003 to 2008 on its AIDS program, and in 2008 Congress expanded that program to $50 billion over the next five years.

As a result of all this spending, the country has gone from a $128 billion budget surplus when Mr. Bush took office to a deficit of at least $732 billion in fiscal 2009, according to OMB. The final 2009 deficit likely will be even higher.

“It’s plausible to think we’re looking at a budget deficit of a trillion dollars a year,” C. Fred Bergsten, director of the Peterson Institute for International Economics, said at a recent forum.

A security deficit

Mr. Nussle, who formerly served as House Budget Committee chairman, disputed the idea that Mr. Bush inherited a budget surplus.

“There was a misperception at the time that we were in surplus. We were nominally or numerically in surplus … but there were all sorts of hidden deficits that the president inherited from the Clinton administration that no one could see … starting with our national defense, homeland security and intelligence,” Mr. Nussle said.

“Those three right there were deficits in our ability to defend the country.”

But the president’s third budget director, Rob Portman, admitted that the Bush administration and Republicans “took our eye off the ball, and it was a mistake.”

“In order to get some of that increased spending for defense … there was probably some loosening on the other side to get Democrats to go along with the security spending,” he said.

When pressed, Mr. Portman admitted it wasn’t just Democrats who had to be essentially bought off to get the votes for the administration’s spending priorities on defense and security.

“We also allowed earmarks to get out of control,” he said.

Two years after Republicans took control of Congress in 1996, there were 3,055 earmarks - special spending projects for members of Congress - in federal spending bills, according to the Congressional Research Service. By 2004 the number of earmarks had ballooned to 14,211.

In 2007, Mr. Bush vetoed a spending bill for the first time in his presidency, saying the $23 billion Water Resources Development Bill was too costly. The Democrat-led Congress promptly overrode the veto with Republican help.

Mr. Gramm blamed the Bush White House for failing to enforce spending controls on members of Congress when bills were being hammered out in committee.

“President Reagan was a master at that, and Bill Clinton was very good. I don’t see that the Bush White House ever exerted any significant influence,” Mr. Gramm said. “The Republican Congress would have been more responsible had the White House pushed back.”

Mr. Nussle, however, disagreed with his predecessor, Mr. Portman, that Republicans took their eye “off the ball” on spending.

“That’s his characterization of it. I’m not sure that you want to call it that or that they … just decided to look at a completely new ball, or however you want to put it,” Mr. Nussle said.

Monday: A Broken Contracting System

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