July 2, 2010

AP Report Understates the Financial Impact of LIHEAP’s Heap of Liars and Thieves

LIHEAPlogoAt the Associated Press, Kelli Kennedy’s Thursday report on fraud and abuse in the Low Income Home Energy Assistance Program (LIHEAP), which is well done in several aspects, nonetheless significantly understated its losses.

The AP dispatch deals with a now-released Government Accountability Office report on the results of investigations in nine states.

Here are the first four paragraphs of Kennedy’s report (HT David Freddoso at the Washington Examiner), including reference to a woman who is LIHEAP’s version of a welfare queen:

A federal program designed to help impoverished families heat and cool their homes wasted more than $100 million paying the electric bills of thousands of applicants who were dead, in prison or living in million-dollar mansions, according to a government investigation.

The U.S. Department of Health and Human Services spent $5 billion through the Low-Income Home Energy Assistance Program in 2009, doling out money to states with little oversight of the program. Some states don’t verify applicants’ identifies or income. For example, the program helped pay the electric bill of a woman who lives in a $2 million home in a wealthy Chicago suburb and drives a Mercedes, according to the yet-to-be released report obtained by The Associated Press.

The Government Accountability Office studied the program after a 2007 investigation by Pennsylvania’s state auditor found 429 applicants received more than $162,000 using the Social Security numbers of dead people.

The GAO investigated Illinois, Maryland, Michigan, New Jersey, New York, Ohio, and Virginia, which represented about one-third of the program’s funding in 2009. The agency found improper payments in about 9 percent of households receiving benefits in those states, totaling $116 million.

Unless someone can demonstrate that other states’ LIHEAP programs are airtight (good luck with that), the true losses in the program are far higher than the figure Kennedy cited. We already know from her report that Pennsylvania, which was outside the scope of GAO’s investigation, has had serious program problems.

Since the states involved “represented about one-third of the program’s funding,” total losses to fraud and abuse are more than likely in the neighborhood of $350 million or three times higher than the reported $116 million. Kennedy should have included a sentence along these lines: “If the experience of these six states is representative of what is occurring in the program nationwide, annual LIHEAP losses to fraud and abuse are about $350 million.”

LIHEAP’s long list of “not for profit” and corporate advocates at the Campaign for Home Energy Assistance are already defending the program in response to Kennedy’s report. The following is from a statement currently on the group’s home page:

We are disappointed that LIHEAP funds may have gone to ineligible parties. In this economy, more and more households cannot afford to heat and cool their homes because of financial woes. The poor, vulnerable populations that this program serves should not be denied the assistance they needs because of some bad actors or some administrative mismanagement.

They also believe that the program’s scope should be quintupled:

At $5.1 billion in LIHEAP funding, only 1 in 5 eligible Americans are served, which means there are many people who need assistance and are not getting it.

A question separate from AP’s report: What would happen to a business where 9% of payments to employees or vendors were improper? Answer: They’d be out of business. But in government, the easy answer is not to clamp down on fraud and abuse (later paragraphs in the AP article demonstrate a decided reluctance to do that on the part of those who should be doing it). Instead, its “answers” are to either raise taxes or borrow more money while constantly advocating even more spending. Meanwhile, the fraud and abuse go on and on. “Responsible government” and “Government oversight,” once again, are shown to be oxymorons.

Cross-posted at NewsBusters.org.

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BizzyBlog-only Update: Considering the scope, AP’s headline (“Feds wasted millions in utilities program for poor”) seems a bit of a downplay.

‘The Worst Private Sector June in Decades’

Filed under: Economy,Taxes & Government — Tom @ 5:05 pm

It’s at the Washington Examiner’s OpinionZone blog.

Can Washington’s Republicans Avoid the Obama Tax Trap?

Filed under: Economy,Taxes & Government — Tom @ 10:42 am

UncleSamshakedownIt’s not looking good. What follows is from a Wall Street Journal editorial this morning:

The Obama Tax Trap
How some Republicans are preparing to walk right into it.

… You don’t need a Mensa IQ to figure this one out. Mr. Obama’s plan has been to increase spending to new, and what he hopes will be permanent, heights. Then as the public and financial markets begin to fret about deficits and debt, he’ll claim that the debt is “unsustainable” and that the only “responsible” policy is to raise taxes.

White House officials even talk privately about the galvanizing political benefit of a bond market crisis, which would force panicked Members of Congress to accept a big new value-added tax. The President’s two looming tax reports—one from his deficit commission and the other from Paul Volcker’s economic advisory group—are intended to propose a VAT and other tax options. Whatever their initial reception, the proposals will be there to be pulled.

Voila, Mr. Obama will have established a new spend-and-tax policy architecture that has the feds taking from 25% to 30% of GDP, up from the roughly 21% modern average.

For those who are aware of the correct language of spending and taxation, Obama’s desire is for a permanent increase in the federal take of between 19% (4% [i.e., 25% minus 21%] divided by 21%) and 43% (9% [i.e., 30% minus 21%] divided by 21%).

But wait, it gets worse:

Even Mr. Obama’s current spending level of 25% of GDP would be more manageable if the slow economic recovery weren’t keeping tax revenue at unusual lows. In 2007, the economy threw off revenue of 18.5% of GDP. That fell to 14.8% in 2009 and may not be too much higher this year. The point is that there is no hope of balancing the federal budget without a return to higher levels of economic growth.

To cover Obama’s hoped-for 25%-30% of GDP spending and balance the budget, the government’s take will have to rise from their current level by between 69% (10.2% [i.e., 25% minus the 14.8% noted above] divided by 14.8%) and 103% (10.2% [i.e., 30% minus the 14.8%] divided by 14.8%)!

The economy cannot and will not grow meaningfully under such a regime.

The Journal’s prescription is the only conceivable answer, namely an aggressive, growth-oriented economic policy, the direct opposite of what we have now:

Republicans need to break out of their rhetorical preoccupation with debt and deficits, focusing their political aim instead on spending and above all on reviving economic growth. They should hold the line against all tax increases and begin to consider a menu of tax cuts to make the U.S. more competitive, especially if the economy continues to underperform.

Mr. Obama’s strategy of spending our way to prosperity clearly hasn’t worked, as the voters are coming to understand. But if the GOP policy response is merely to bemoan deficits, they will soon find themselves back at their historic stand as tax collectors for the welfare state.

Even if the economy grows — and it would have to be at rates we haven’t seen since the days of Reagan — the problem won’t be solved without controlling spending. Controlling spending alone, why critically important, is not the whole answer. Permanently increasing taxes to levels Obama and his party desire is a prescription for permanent malaise, or worse.

Econ Catch-up, and the June Employment Situation Report (070210)

Filed under: Economy,Taxes & Government — Tom @ 8:19 am

Econ Catch-up: With rare exceptions, info coming in on the economy during the past couple of weeks hasn’t been very impressive.

Items previously noted here at BizzyBlog:

Other gloomy stuff I haven’t yet noted:

  • Yesterday — “Pending Home Sales Plunge 30% in May.” Expectations were that the drop would be 11%.
  • A week ago Thursday, as reported at MarketWatch, “The steady upward trend in the manufacturing sector hit a bump in May as a big drop in orders for new airplanes pushed total durable-goods orders down 1.1%, the largest decline since last August, the Commerce Department reported. …”
  • The Census Bureau’s report on construction spending showed a seasonally adjusted 8% decline from May 2009, when the economy was at its recessionary bottom.
  • Yesterday’s car sales news also disappointed: “GM, Ford and Chrysler said sales of new cars and trucks fell between 12 and 13 percent in June from the prior month. Sales at Toyota Motor Corp. slid 14 percent. Hyundai, however, bucked the trend with a slight gain.” Chrysler had a good month compare to a year ago, but there’s heavy suspicion that it was fueled by low-margin fleet sales, something the company has said until recently that it’s trying to avoid.

On the plus side:

The Employment Report run-up:

  • ADP’s Employment Report came in showing that a seasonally adjusted 13,000 private sector jobs were added in May vs. expectations of 60,000.
  • Expectations for today as reported by AFP — “Most analysts expect the data Friday will show the unemployment rate rose to 9.8 percent from 9.7 percent in May, and the economy shed 100,000 nonfarm jobs after adding 431,000 in the prior month, mainly temporary government jobs for the 2010 census.”
  • The Associated Press is carrying the same unemployment rate prediction, and has a private sector breakout of job expectations — “Analysts forecast that employers cut a net total of 110,000 jobs in June, which would be the nation’s first loss of jobs in six months. But that figure includes the expected end of about 240,000 temporary census jobs. Economists will focus more on private employers, who are forecast to have added 112,000 positions.”

Regardless of where seasonally adjusted data end up, it’s important to look at the history of not seasonally adjusted private sector job growth:

BLSnsaPrivateSectorThruMay2010

In the above context, the acceptability threshold for June is about 950,000 net new private sector jobs added on the ground.

The government’s Employment Situation Report will be here at 8:30.

UPDATE: The seasonally adjusted news is a mixed bag

Total nonfarm payroll employment declined by 125,000 in June, and the unemployment rate edged down to 9.5 percent, the U.S. Bureau of Labor Statistics reported today. The decline in payroll employment reflected a decrease (-225,000) in the number of temporary employees working on Census 2010. Private-sector payroll employment edged up by 83,000.

… So far this year, private-sector employment has increased by 593,000 but in June was 7.9 million below its December 2007 level.

… Within professional and business services, employment continued to increase in temporary help services (+21,000). Employment in temporary help has risen by 379,000 since a recent low in September 2009.

… Manufacturing employment continued to trend up over the month (+9,000). The industry has added 136,000 jobs since December 2009.

Construction employment decreased by 22,000 in June, with the largest decline in nonresidential specialty trade contracting. On net, construction employment has shown little change over the last 4 months.

… The change in total nonfarm payroll employment for April was revised from +290,000 to +313,000, and the change for May was revised from +431,000 to +433,000.

Including revisions, the net change is -100,000 (-125,000 in June, +23,000 in April, +2 in May).

Though it’s not an apples to apples comparison, the temporary help component of private sector adds (+379K since September, with total private sector adds this year of +593K) seems disproportionately high.

As to the unemployment rate, the suspicion here is that on a seasonally adjusted basis a lot of people withdrew from the workforce. … Yep, that’s what happened. The workforce per the Household Survey shrunk by a seasonally adjusted 652,000 in June, and has decreased by almost a million in the past two months. The number employed, again per the Household Survey, declined by 321,000 in June. Ouch.

Update: To be clear, on the ground (i.e., not seasonally adjusted), this really means that far fewer people entered the workforce in June 2010 (901K) than did so in previous Junes, which averaged almost  1.75 million from 2003-2009.

The gender gap in unemployment also widened by 0.4 points (9.9% for over-20 males vs. 7.8% for over-20 females, compared to 9.8%-8.1% in May).

Now let’s look at the on-the-ground private sector numbers:

BLSbsaPrivateSectorThruJune2010

The +863K in June didn’t meet the acceptability threshold, and is almost 100K below the June 2004-2007 average of +962K. At least June didn’t miss the mark by as much as May did (its revised +699K was 169K below the May 2004-2007 average or +868K).

The Birth/Death model was responsible for 147,000 of June’s on-the-ground job additions. Almost all would be presumptively in the private sector. That’s higher than last year’s model-driven estimate of 133,000. Birth/Death has added over 500,000 jobs to the on-the-ground numbers in the past three months. That seems unrealistically high by quite a bit.

Overall, while the results aren’t totally depressing, they’re still quite unimpressive.

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UPDATE: Obama administration media cheerleader Lucia Mutikani at Reuters is worried about the home team’s performance –

With voters in an anti-Washington, anti-incumbent mood, failure to make headway in putting back to work the more than 8 million Americans who lost jobs during the recession could cost the Democratic Party dearly in the November mid-term elections.

UPDATE: I’m amending my conclusion above over at the Washington Examiner’s OpinionZone blog, based on a deeper dig — “Worst Private Sector June in Decades.”