This morning, the New York Times published a fantastic article by Scott Shane and Ron Nixon about how contractors are taking over huge parts of the federal government. The article, "In Washington, Contractors Take On Biggest Role Ever," is the first in a series of articles by the Times that will investigate government contracting. And rightly so.

Outsourcing of government jobs, services, and product development has more than doubled in the last 6 years - a staggering growth rate. The article in today's paper shows, contrary to popular belief, that contractors often end up costing the government more money than it would otherwise spend, with inflated hourly wages ($104 per hour in one example from the article), poor performance and management, and little oversight or accountability from government employees.

Scott and Nixon profile problems at the General Services Administration and the Department of Homeland Security, among other agencies, as case examples of following poor contracting practices and making wasteful decisions that have squandered billions of taxpayer dollars while enriching private companies. In fact, one study cited in the article concluded the explosion of contracting "poses a threat to the government's long-term ability to perform its mission" and could "undermine the integrity of the government's decision making."

The entire article is worth reading and does a great job summarizing some major concerns about the current contracting environment. I'm looking forward to the rest of the articles in the series and my only hope at this point is that every member of Congress will read the articles as well.

The Bush administration is pursuing or has achieved several policy goals that work to cut social support services by reducing federal funding for Medicaid programs. The Center for Medicare and Medicaid Services (CMS) has released all of these policies — three proposed rules, one interim final rule, and two final rules — in the past nine months.

Two recent reports (one by the Center for Budget and Policy Priorities and one by the Kaiser Family Foundation) link the policies together to show a uniform attack by the Bush administration on federal support of state Medicaid programs. From the Kaiser report:

The Administration views these regulatory changes as promoting the purposes of Medicaid by enhancing the integrity of the program. However, states argue that many of the regulations could limit flexibility in administering the program and could impede the ability of the Medicaid program to fulfill some of its critical roles in the health care system such as providing support to safety-net providers or providing long-term care supports in the least restrictive settings.

Basically, the new rules undermine Medicaid benefits by placing an increasing burden on the states. "Each of the regulations is expected to reduce federal Medicaid spending by directly limiting the level of provider reimbursement, restricting the scope of services eligible for federal match and by limiting states' ability to finance their Medicaid programs," according to the Kaiser report. By reducing federal spending, states would be forced to either cut benefits or pick up the slack financially.

Some of these rules represent efforts by the Bush administration to circumvent Congress. For example, one of the proposed rules would limit the ability of state governments to provide rehabilitation services (such as transitions to independent housing) for people with mental illnesses or developmental disabilities. According to the Kaiser report, the Bush administration proposed this limitation as a legislative provision in 2006, but Congress rejected it.

These are exactly the kind of administrative changes we should expect the Bush administration to pursue in its waning days of power. Confronted by a Democratically-controlled Congress and election-year politics, the administration will try to accomplish administratively what it cannot accomplish legislatively.

When asked by Senate Budget Committee Chair Kent Conrad (D-ND) to analyze the massive growth in war spending, CBO could point to general expensing areas of supplemental budget requests, but because of lack of detail in such requests, it could not provide a detailed accounting. However, CBO did find a slew of expenses, like acquiring next-generation aircraft, that the Defense Department would undertake in the absence of the wars.

When federal agencies request funding during the normal appropriations process, they submit what are known as "budget justification" documents, which explain an agency's budget request in quite some detail (see e.g., the Education Dept.'s FY 2008 budget request justification materials). However, the emergency supplemental requests made by the administration for war spending do not include similarly detailed documents. Although the detail in such documents improved in 2007, specific data on war spending for earlier years is simply not available, severely limiting the ability of CBO to analyze and report on war spending.

The supplemental budget requests submitted between 2002 and 2006 contained little detailed information on war expenses. DoD provided detailed justification materials for its regular budget request but did not submit similarly detailed information for its war-related expenses. In February 2007, DoD expanded the quantity of justification material submitted with its requests for war funding. In addition to providing more informative summary material, it prepared budget justification materials for each appropriation, similar to those provided for the regular budget....[B]ecause similarly detailed information is not available for 2005 or for earlier years, a detailed analysis of the changing patterns of spending is impossible.

Writing in the New York Times, Robert Reich explains how a minor and temporary boost to workers' incomes is tempered by the long-term trend in income inequality.

The underlying problem has been building for decades. America's median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what's been earned in America since then has gone to the richest 5 percent.

Yet the rich devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they're rich. They already have most of what they want. Instead of buying, and thus stimulating the American economy, the rich are more likely to invest their earnings wherever around the world they can get the highest return.

The problem has been masked for years as middle- and lower-income Americans found ways to live beyond their paychecks. But now they have run out of ways.

Indeed. As economic gains from productivity growth accrue at the upper end of the income spread, the bottom two thirds of American households will experience dwindling consumption resources. And so the trend in inequality is not only troubling from an equity perspective, but it has deleterious consequences on the performance of the economy.

Writing in The Wall Street Journal, Jesse Drucker notes($) that the full cost of the recently-passed economic stimulus package is slightly underestimated by the Joint Committee on Taxation's score:

A round of business tax cuts in Congress's economic-stimulus package passed Thursday will cost nearly triple the official government estimate, tax experts said.

The tax breaks in the package will cost more than $22 billion over the next 11 years, or roughly $15 billion more than the government's long-term estimate of $7.5 billion. To put that additional $1.4 billion cost a year into context, it is the same as the annual budget of the federal National Institute of Mental Health.

...

...the U.S. Treasury must borrow to make up for the lost revenue. These interest costs over the next decade will triple the estimated long-term cost of the proposed business tax cuts, according to an analysis done by tax experts at the request of The Wall Street Journal.

And as interest expense on the national debt is the fastest growing component of the federal budget, prominent mention of interest expenses in spending and taxation debates would portray a much clearer picture of the nation's finances. So, we've put together a proposal that would impose a statutory requirement on the Joint Committee on Taxation to include interest expenses in its scorings, with the belief that budgetary decision making would be much improved when legislators have ready access to information on the interest expense of any budgetary legislation.

President Bush's FY 2009 budget continues to receive poor reviews into its second week. We reviewed a number of those reactions last week (see our summary posts here and here), and below are some additional disappointed reviews:

• The Daily Tar Heel: Budget May Cut Student Loans
  
• BlackAmericaWeb: Reading Is Fundamental's Program Target of Major Cuts
  
• Center for American Progress: Bush's Budget Cuts Aid to Displaced Workers
  
• The Buffalo News: Bush Budget Disappoints
  
• Washington Post: No Funds in Bush Budget For Troop-Benefits Plan
• WP's Stephen Barr: Social Security, DHS Say Bush's Budget Falls Short