The Bloated Pig

Back in 1999 I worked at Lucent/Bell Labs. I was a senior engineering manager with 14 emplyoyees in hardware design, mechanical design, component engineering, integration testing, compliance engineering and documentation. It sounds pretty efficient but I was in an efficiently run division: we were acquired, not grown organically.

The rest of Lucent comprised 155,000 employees and 78,000 managers.

My boss and I used to laugh at the absurdity of two employees per manager and correctly guessed it couldn't last. We called it the bloated pig.

We were astounded when, during a company-wide webcast, the new head honcho also referred to the company as a bloated pig: he had apparently overheard us during a recent visit when we won the Bell Labs President's Award - Silver.

Lucent was essentially the surviving equipment maker of the post-breakup Bell Telephone company, a once proud and quite old company. It developed a culture over the century or so of its existence; the culture of bloat. A bloat culture builds a larger and larger pyramid of middle management that, in the end, consumes more than it produces. This, in turn, causes prices to rise to the point that the company can no longer compete with younger, hierarchically flatter companies.

Lucent succumbed to the combination of bloat and the dot-com bubble and was eventually sold off to the French company Alcatel and has languished ever since.

I tell this story because it provides a segue into the story of government institutional bloat. The only difference  is that Lucent was trying to make money whereas government seeks to give it away, largely to its own employees.

Many, if not all, of our government institutions suffer from bloat. This happens because they have been around for a long time and because they grow during good times but rarely shrink when times are lean. Oh sure, we'll lay off a few worker bees and stop back-filling for retirements from time to time but the number of departments and managers keeps growing as do the salaries and benefits they receive.

My contention is that this is the reason (aside from our liberal/socialist tendencies) that our government costs so much more than I'd like. I expect that you feel the same way since you're still reading.

I'll give two examples of institutional bloat to give an idea of how it happens.

Public Education
I live in Shelton and the direct budget for our schools is about $63.7 million for 5,137 kids.

The superintendent thinks that we, the Shelton taxpayers, therefore pay $12,400/kid. This fits on the low end of this map. I've heard it said that, on average, the state spends $14,400/kid.

Shelton has 8 smallish schools with 383 teachers but only 299 classrooms;  Only 17 kids per class average. Eight schools with 23 highly paid administrators; my high school had only two for 2,000 kids. Books, computers and utility costs are $3.8 million. The average teacher salary is $79,600 for a 180-day work year. I've heard it said that the workday is only 6 hours. Over a full year of 250 days of 8 hours, this is equivalent to a salary of $147,400. Nice gig but it gets better; or worse depending on your perspective.

I personally think (and show in my post on Public Education), that this is more than twice too much but this is not even half of the story.

It turns out that, because of bloat, it actually cost more than twice the 'advertised' cost of $12,400/kid.

I'm not sure if this isn't done on purpose to hide the true costs.

To find the true costs I had to hunt down and digest five separate government budget documents. Three for the city, one for the state and also the federal budget; we don't really have one but I used the President's most recent fiction because it has details and the house and senate budgets don't (by convention, apparently). I tell you this not to earn an Attaboy but to illustrate why so many of us are so ill informed.

So, the Shelton school budget is $63.7 million. However, the cost of the local board of education is carried outside the school budget in the city budget but costs $1.09 million.

In addition, school construction debt is also carried on the city budget but costs $9.03 million.

In addition, Connecticut had failing schools in Hartford so the lawmakers decided in 1996 to make all of the other towns chip in to provide more money so that they could continue to fail but with resources equivalent to the non-failing schools of other towns; as of 2012 only one school out of 63 in Hartford met the state's performance goals.

Stupid legislation; parents and families make schools, not money (and everybody knows this). Similarly stupid is the idea of mainstreaming, but I digress.

But, of the $4.5 billion in the educational cost sharing fund (financed through income and sales taxes) at the state level, we in Shelton pay $48.9 million (by population ratio: Shelton has 39,400 residents to the state's 3.5 million) but get back only $4.98 million for a net cost of $43.9 million. This is equal to two thirds of our city school budget!

For the state board of education, we pay $40,500 by population ratio.

For the state teachers' retirement board we pay $9,280 by population ratio.

For teachers' retirement benefits, after subtracting the teachers contributions, we pay $8.92 million by teacher population ratio (Shelton has 383 teachers to the state's 46,000). There is also a lot of bonded debt for this purpose and I have no idea how to figure the cost. That being said, borrowing for ongoing expenses is a sure sign of bloat.

For retired teachers' health benefits we pay $699,000 by teacher population ratio.

I've said before, these retirees should be on Social Security and Medicare like the rest of us, not receiving special treatment.

The state is also projecting local school construction bonding of $500 million per year for the next few years. We pay $5.63 million by population ratio.

For the President's newly released budget, the Education budget is $71 billion of which we will pay $8.99 million by population ratio (Shelton has 39,400 to the nation's 311 million).

All summed, we pay $136 million for 5,137 kids: $27,600 per student plus the (unknown-to-me) cost of bonding for teachers' retirement benefits.

When I compare this figure to my own calculated cost of Public Education, I see bloat on the order of 450%.

My old friend Leo B was similarly misled about the costs of public education in his city of Burnsville, Minnesota. Leo was led to believe that the cost there was less than here in Connecticut but the map above tends to dispute that. So I dug in there too, just to be sure.

His school district budget is $156.4 million and an enrollment of 9,426: $16,590/student, again, fitting nicely on the map above.

I did a similar but less rigorous evaluation of Leo's city and state budgets and came up with $35,002 per student without looking at bonded debt. Considering the 30% lower cost of living in Minnesota I can only surmise that the more liberal a place is, the bigger the bloat: in this case 900% without bonding.

Bloat here is measured based on my post that projects $5,000/kid to be sufficient.

Extrapolating the average of Burnsville and Shelton we get a national cost of $2.4 trillion compared to the $385 billion is should cost. That's more than $2 trillion wasted every year.

The bloat factor is 523%

Transportation
This one is a real eye-opener.

I never realized how much bloat we had in this area until I wrote the post on Targeted Government Program Funding.

Connecticut has about 21,000 miles of paved roads out of which the state maintains 3,733 miles.

My city (Shelton) maintains 210 miles of road for $2.9 million/year or about $14,000/mile.

Extrapolating by mileage ratio, the state might be spending $52.25 million.

According to the City of New Haven, the average cost to mill and pave a road is $15 per square yard or $176,000/mile for a roadbed 20 feet wide. This means that we pay enough to repave every road in the city every 12.5 years. This sounds reasonable to me.

To maintain our bridges, nationally we need about $70.9 billion to fix them all. Connecticut has 383 structurally deficient bridges out of 68,842 so we need about $394 million to fix ours. We should be able to fix them all in 12.5 years for a state cost of $31.5 million/year.

To plow the roads after major snowstorms is included in the city budget but, my cousin Suzanne called me on it so here' the arithmetic. The going rate for a snow plow is $40/hour. At an average speed of, say, 25 miles per hour the state plows could make a double pass in both directions for:

$40/hr x 3,733 miles x 2 x 2/25 miles/hr = $23,891

Even with 10 storms, this is almost negligible. Add sanding, still negligible.

The transportation department (or Public Works?) also cuts the grass in the medians. Same thing, small money.

As I noted in my post on Targeted Government Program Funding, the transportation department shouldn't pay a cent for railroad, seaports, airports or buses. These should be supported by user fees or be left to die.

This means that the transportation budget should be about $85 million, right?

Wrong, the budget is $610 million without including debt service on the bonds used to finance the projects. The state issued $600 million in transportation bonds in 2011 alone. Say what?!

The bloat factor is 617%.

Extrapolation

Given these two institutions as a baseline, the average bloat for government is 570%.

The current cost of the federal government is about $3.9 trillion. Dividing by 6.7 (to get the root of a 570% bloat), we get $582 billion. This is very close to the $600 billion I say we should be paying.

Pass this along. Complacency does your wallet no favors.

Want the economy to pick up? Imagine how much better off we'd all be with 30% more of our own earnings back in our own pockets. For you liberals, you can always feel free to give it away to whoever you like (I can always use more cash so please consider me!) and it will be better spent than using the government as an intermediary ;-)