Digging into Spending

One doesn’t have to dig very deep to find examples where spending far exceeded predictions. I can look across the street, where an underground Capitol visitor’s center is under construction.

The project was first floated in the early 1990s, with a $71 million price tag. About a year into construction, there’s a giant hole in the ground–a hole the government’s General Accounting Office now predicts will cost as much as $500 million to fill. Expect that to rise before the center welcomes its first guest in 2005.

The visitor’s center was never a good idea. Architect of the Capitol Alan M. Hantman recently told The Washington Post, “I can’t think of a more difficult place to build a project.” In addition, the GAO says the spending overrun happened because Congress has frequently ordered expansions to the project without considering their cost.

Something similar is still happening in Boston, where, 12 years ago, the government decided to put 7.5 miles of freeway underground. It was supposed to cost $3 billion–that’s $400 million per mile.

To date, it has cost $14.6 billion, much of that federal tax money. Authorities now say the project will be completed in two years. But if a taxpayer from, say, Kansas, wants to drive east in 2005 and see where his tax dollars have gone, he’d be well advised to wait and make sure the completion of the “Big Dig” hasn’t been delayed again.

Surely, though, the government must do better with non-construction budget predictions, right? Let’s look at Medicare for an example.

When the program was launched in 1965, the federal government projected that Part A–the segment of Medicare that pays for hospitalization–would cost $9 billion in 1990. The program’s actual cost that year was $66 billion, meaning that, after inflation, the cost of Medicare was 165 percent higher than the government had predicted it would be.

But 25 years is a long time. Were short-term predictions more accurate?

No. In 1968, the Tax Foundation did a study that revealed public spending on medical care had nearly doubled since Medicare started.

Doubled. In just three years.

Call it the law of unintended consequences. The government creates an entitlement, and tells people they can now have “free” health care. Almost immediately, people start taking advantage of that entitlement, using more health care than they ever have before. Costs soar, and spending predictions go out the window. And we all–well, those of us who pay taxes–end up footing the bills.

This is all especially relevant today, in light of the recent congressional debate over how to reform Medicare. Lawmakers came up with a prescription drug benefit for all seniors, which they claim will cost “only” about $400 billion over 10 years.

But under the measure they concocted, costs will skyrocket. Watch for companies to drop millions of retired workers into the government pool. And be ready for doctors to write more prescriptions than before, since Uncle Sam, not the patient, will now be picking up the tab.

It’s similar to what happened in 1988, when Congress tried to add catastrophic coverage to Medicare. The original cost estimate was $5.7 billion over 5 years. Just one year after the bill passed, that tab had climbed to $11.8 billion. Congress quickly scrapped the plan after a public outcry about its cost.

Lawmakers should start over and draft a real Medicare reform package. Otherwise, when the entitlement bill comes due, we’ll all be paying it. And that’s a prediction you can count on being accurate.

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