Why the US is Helping Itself go Bankrupt

Earlier today, I received an email chain from a family member. I usually read these, but very rarely forward them off. However, this one brings up very interesting points. The tone of the email was against the current Obama administration. I’m going to try to do my best to remove the President’s office from this discussion. My reason for it is that whether or not I agree with the current Administration, I think this uncovers a larger problem with government spending.

Setting the Tone

Remember back to when you were young and in elementary school. You may remember your first Social Studies/History discussion. One of the first items discussed was the US Government, it’s branches, and the approval process. At some point during discussions, you may remember the running joke of a “$20” toilet seat costing well over $500 due to the testing and approval process. While, we’re not going to talk about grants to pay for toilet seats, I want to set the stage for outlandish spending through grants.

Disasters

One of the most difficult scenarios that any individual or family can face is when a disaster strikes. I commend the government for stepping in and assisting during these times. Just last September, Luzerne County, Pennsylvania suffered from one of the worst floods the county has ever witnessed. Several homes were completely destroyed.

The Federal Emergency Management Agency (FEMA) stepped in. Several homeowners were told that they could or would be bought out by the government for 75% of their fair market value (FMV). Nearly 9 months after the flooding, the first 22 homes were ready to receive funding for buyout. This process typically takes 18 months. So, issue number one for the taxpayers is that if you do have a disaster where your home is destroyed, get ready to find temporary living for up to 18 months. The second issue is that if you’re house is on the buyout list (which we’ll ignore, but can be another issue in itself), you’ll only receive 75% of the FMV. If you recently purchased a house, you may owe more than the buyout. The third issue has to deal with the state of your house before you receive your funds. Several home owners that are on the Luzerne County buyout list have informed me that you must bring your home back to a livable state. If not, the FMV for the property will be taken at the state the home is left in.  I have heard that this changes if the home suffers structural damage to the foundation, but do not have a confirmation on this.

Bringing America Back: Jobs and Infrastructure

Back to the original mention of an email that I received. The email mentions that bridges listed on the structural deficiency list are being built or repaired by Chinese firms. This was captured in a report by Diane Sawyer from ABC’s 20/20 show. This may be the biggest issue, issue number four, that we’ve mentioned thus far. It’s not that US workers are superior or that the quality of the work would be better with a US firm, but that funds are going abroad.

One of the respondents to the email took another angle.

Most Federally funded construction projects require compliance with the Davis-Bacon Act (DBWA). The respondent used a recent project that her firm just finished that was for a new school. She cited an example of the wages the contractors would be required to pay their employees per hour:

  • Electrician $32.61
  • Structural or ornamental ironworker $37.83
  • Pipefitter $35.22
  • Crane operator $37.08
  • Ductwork Installer $35.78

Then, she jumped into details. She broke down the ductwork installer’s rate. A normal scale rate for this trade in the particular county of this project is between $11 to $19 per hour depending on skill level. Under the DBWA, contractors are required to pay the most inexperienced employee that touches a piece of ductwork $35.78 per hour. It’s pretty obvious that the increase in pay is the fifth issue as this is costing taxpayers money.

In her example, she cited that each week, her company must produce proper documentation to prove that the higher rate was paid. They are subject to audits for verification. The documentation takes hours to complete, creates more overhead, and thus adds more cost to the project. Failure six?

Now, assume you hold the position of a Procurement Office for a municipality. You are given the task of building a bridge. By using federally funded monies you could incur cost of labor at 2.4 times the normal scale rate which significantly increases the cost of the project. In her specific project, the school they finished had a 20% cost increase in mechanical costs alone due the DBWA wages.

Unions

I’m not going to go on the books to agree or disagree with unions. However, I will state a few items that I’m aware of. Backing up just a bit to the discussion we were just having about DBWA. The respondent offered her opinion on why the wages are so high. She stated that on numerous occasions, unions would lobby to increase the wage determinations in areas where federal funds were being allocated. In her opinion, this was being done so they could compete in the bidding process.

I believe the issue is much worse in other industries. Let’s look at higher education as an example. One of my colleagues is a consultant and has performed work for a state school. Recently, they were discussing the implementation of a new three credit course. However, they hit some red tape. The issue they ran into was that the union considered denying the course. Why? When I asked him more about it, he had said it stemmed from previous conversations with the instructors. Apparently, the union instructors were so used to teaching what they have always taught, they were afraid they wouldn’t be capable of teaching a new course. Students were being denied more current ideas and principals merely on the fact that this was allowed. Those same instructors were observed leaving school grounds nearly everyday just after lunch or delaying coming in until right before lunch. At this point, I was so intrigued as to what he was saying, I bombarded him with questions. The long and the short was that it appears that instructors are only on campus 60-70% of “normal” working hours. Now, you may be saying that this could be an isolated issue with this school or with the state of PA. However, last I checked, the US government provides funding to these same schools.

Now to Solve This

I can’t. At least, not by myself. I could pull a “show the world we need to change and go vote” attitude, but I won’t. What I will say is that you should start asking questions. Start getting involved. Find out what’s going on in your area.



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