Local, State, Federal: What Are They Doing With Our Money? An Analysis

Keynote Remarks to the Freedom Leadership Conference
By Arthur G. Purves, President
Fairfax County Taxpayers Alliance, March 27, 2013

Good evening.  Thank you for the opportunity to speak.  I am Arthur Purves and address you as president of the Fairfax County Taxpayers Alliance, the “Watchdog of the Taxpayer’s Dollar” since 1956.  I have been privileged to be its president since 1996.  In the next few minutes, we will document the out-of-control spending in the Federal, Virginia, and Fairfax County governments.  To that end I will refer to three handouts you have been given and which are also available on the Alliance website, www.fcta.org.

(all three handouts are on this website here: Federal, State, Fairfax)

The handouts are entitled:

*Federal Budget: Unsustainable Entitlements

*Virginia:  Out-of-Control Spending

*Fairfax County: Soaring Real Estate Taxes

Let us first address Federal spending.  In 1960, defense was 55 percent of Federal outlays and entitlements were 26 percent of outlays.  Today, entitlements are 64 percent of outlays and defense is only 20 percent.

The Federal government’s principal mission has changed from defense to redistributing wealth, through entitlements including Social Security, Medicare, Medicaid, Supplemental Security Income, unemployment insurance, public housing, and food stamps

According to the FY2013 budget documents provided by President Obama’s Office of Management and Budget, Federal debt held by the public is 74 percent of the Gross Domestic Product.  The last time it was that high was right after World War II.

The Obama administration documents show that debt as a percent of GDP will remain the same for about a decade, then start upward when baby-boomers retire en masse after 2020, exceed the GDP in 2040, and eventually become twice the GDP.

This increase in the debt occurs even if President Obama gets his way on all policy issues:  higher taxes on the wealthy, substantial savings from Obamacare, ending the war in Afghanistan, higher taxes on oil companies, and no more wars  for seventy years.

So when Bill Clinton stated at the Democrat Convention that President Obama had a balanced plan to eliminate the deficit, that was false.

President Obama states that the needs higher taxes on the wealthy to pay down the debt, he in fact is not paying down the debt.

And it is not the case that budget redistributes wealth from the rich to the poor; it redistributes wealth from the next generation to our generation.

The President’s proposed FY2013 budget anticipated outlays of $3.8 trillion but revenues of only $2.9 trillion, leaving a $900 billion deficit.  To eliminate that deficit without raising taxes would require either eliminating all defense spending and all government agencies, or cutting entitlements by about 40 percent, or some combination thereof.

One seldom-mentioned cause of Federal deficits, is the low birth rate.  The U. S. birth rate has barely been at the replacement rate for some time.  So while in 1945 there were 42 workers for every Social Security recipient, now there are about two.  And these two workers also have to pay for Medicare and Medicaid.  One has to wonder if the low birthrate is in part due to the decades-long advocacy for abortion, contraception, and the glorification of women in careers, the military, and now combat.

Another major cause of deficits is medical inflation, of which a major cause is the low out-of-pocket costs for healthcare.  According the McKinsey Global Institute, healthcare consumers’ out-of-pocket expenditures declined from 47 percent in 1960 to 12 percent in 2006. This is true of private medical insurance as well as Medicare and Medicaid.  The health consumer has no incentive to check their bills, shop for the best price, forgo marginal treatments, or to reduce their medical expenses through better nutrition and exercise.  Competition among private insurers might motivate insurers to lower their rates by increasing deductibles and co-pays, but there is no competition because of the Federal tax preference given to employer-provided health insurance.  We can only chose from the one or two companies our employers choose.

In summary, the Federal government’s major business is wealth redistribution; the government is headed for financial collapse, and significant reductions to entitlements is a necessary part of the solution.  By ignoring the deficit, President Obama guarantees that some day all entitlement programs will go bankrupt,along the rest of the government.  Conservatives, who are maligned for wanting to cut entitlements, would in fact save entitlements.  The shortage of workers due to the low birthrate and government meddling in the healthcare market place make the problem worse.

Turning to “Virginia:  Out-of-Control Spending,” Virginia Governor Bob McDonnell is poised to sign a billion-dollar tax hike, including a higher Diesel tax, sales tax, hotel tax, and car tax.  These tax hikes will presumably increase transportation spending by $880 million by 2018.  In FY2012, transportation spending was about $4.8 billion.

The transportation tax hike rewards and subsidizes the General Assembly’s and the Governor’s failure to rein in Virginia’s soaring spending.  Between FY2000 and FY2012, the Virginia budget nearly doubled, from $22 to $43 billion, an increase of $21 billion.  The budget grew six times faster than population, 94 percent vs. 15 percent.  Some might say that this increase should be adjusted for inflation; however taxpayer incomes are not keeping up with inflation.

Between 2000 and 2012, transportation spending increased by $2 million, from $2.8 million to $4.8 million.  Given the $21 billion increase in Virginia revenues, why didn’t transportation increase by $3 million, making the new take unnecessary?

While all Virginia government programs, Justice, Transportation, General Government, etc., outpaced population growth, two programs, Education and Individual and Family Services, consumed most of the $21 billion.

Education increased by $6 billion to $13.5 billion, a 91 percent increase compared to a 15 percent increase in population.  The education budget is about equally divided between public schools and public colleges.

How good are Virginia’s public schools?  According to the 2012 ACT college admissions test profile for Virginia; of the 21,647 Virginia students tested, only 33 percent were prepared for college.  Schools demand extra funding for programs for disadvantaged children.  How effective are those programs?  Again, according to the 2012 ACT profile for Virginia, while 40 percent of White (and 47 percent of Asian) students were prepared for college, only 27 percent of Hispanic and seven percent of African-American students were prepared for college.

Thomas Jefferson envisioned that public education would provide upward mobility for the disadvantaged.  For decades public schools have failed to do this.  The problem is not the students and their homes.  The problem is the failure of public schools to teach phonics-based reading, their emphasis on hand calculators instead of drill, and the displacement of history by social studies.  I might add also their failure to teach Latin, the best means to learning vocabulary and grammar.

Public colleges and universities are not much better.  A bachelor’s degree no longer guarantees a job.  The nation’s security is threatened by the shortage of scientists and engineers.

The General Assembly and the Governor should know that more money does not mean better schools and should rein in education spending.

Individual and Family Services increased by $7.1 billion to $13.5 billion, a 112 percent increase compared to a 15 percent increase in population.

Individual and Family Services is largely welfare.  Half of it is Medicaid, which is means-tested subsidized health care for single mothers, for care of the disabled, and nursing home care for the indigent.  It also provides subsidized health insurance for children.  It is a broken program.  There are 7,000 disabled persons waiting for Medicaid “waivers” which provide subsidies for home care.  Medicaid subsidies are so low it is difficult to find caregivers and doctors who will take them.   Also, the Attorney General spends $9 million annually to counter Medicaid fraud.

More generally, welfare programs incentivize out-of-wedlock births by providing unwed mothers with subsidized health insurance, subsidized housing, subsidized food, and subsidized childcare.  Combined with the failure of public schools to provide upward mobility for disadvantaged children, the dependency on government “Individual and Family Services” continues to grow.

Finally we turn to “Fairfax County:  Soaring Real Estate Taxes.”

During the “housing bubble,” from 2000 to 2007, real estate taxes for the typical Fairfax County homeowner doubled, from $2407 to $4846.   Since 2007 the county supervisors have kept real estate taxes high, despite decreasing assessments.  Next year, though, the supervisors are proposing to increase the typical homeowner’s tax bill to nearly $5200, a 5.3 percent tax increase.  Since 2000 this represents a 116 percent tax hike, more than twice inflation, which was 47 percent, and nearly four times greater than the increase in homeowner income, which was 30 percent.

Increasing the typical homeowner’s real estate tax from $2400 to $5200 gives the county an extra $1.2 billion in revenue.  How is it spent?

Compared to the homeowner’s 30 percent increase in income, between FY2000 and FY2014:

  • Public school salaries increased 44 percent
  • Average cost of benefits for each public school employee increased 125 percent
  • County government (does not include school employees) salaries increased 62 percent
  • Average cost of benefits for each county government employee increased 183 percent.

School and county employees get health insurance with zero deductible in-network.  They get pension plans that allow them to retire at age 55 or earlier.  Meanwhile private employers are dropping pensions and moving to high-deductible health insurance.

The cost to the Fairfax County taxpayer of county raises in excess of 30 percent is $310 billion.

The cost to the taxpayer for pension benefits has increased since FY2000 by $660 billion.

So of the $1.2 billion in revenues from the increased sales tax, about $970 billion is so school and county employees could get bigger raises and better benefits than the taxpayers themselves get.

This is at a time when there are 30,000 applicants for 1000 new teaching positions in Fairfax County Public Schools, and when there are about 100 applicants for each new hire in county (non-school) government.

School and county administrators comment that most of the applicants are unqualified.  Is this not another commentary on our public education system?

Fairfax County Public Schools (FCPS) advertises itself as excellent.  However, according to the 2012 ACT profile for FCPS, of the 3,916 students tested, only 49 percent were prepared for college.  In the 2011 ACT profile, the latest year for which this data is available, only 29 percent of Hispanics and 12 percent of African-Americans were prepared for college.

There may be a reason why the supervisors have so generously funded their employees.  According the Virginia Public Access Project website (vpap.org), which tracks campaign contributions and spending, Firefighters – Local 2068 donated $160,000 to supervisor campaign committees. Including $62,000 to the incumbent county chairman.  The Service Employees International Union donated $59,000 to the chairman’s campaign.  These were the top two donors to the chairman’s campaign, after the Virginia Democrat Party.  Top contributors to the Virginia Democrat Party between 2008 and 2011 include Laborers’ International Union of North America ($200,000) and the Virginia AFL-CIO ($121,425).

In conclusion, the Federal government, which can borrow money for its operating budget, is going bankrupt, largely due to entitlements.  Virginia is raising taxes even though its two major programs, Education and Individual Family Services, are soaring but not solving the problems they were intended to solve, and Fairfax County taxes are soaring so their employees can be better compensated than the taxpayers who fund them.

Video of these remarks HERE.  The Story, HERE.

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