Counting ‘Dead-Weight Loss’ of Security

I hate to be a spoilsport just as Congress is preparing to hand the president his much-coveted Homeland Security Department, which will merge 22 government agencies into a single entity, creating a public-sector behemoth with no fewer than 170,000 workers.

But it must be asked: Has anyone looked closely at how much this will cost?

The White House says the new department will have a $37 billion annual budget but will not actually increase the size of the federal government. If anything, the administration says, combining all those agencies will create economies of scale that will save taxpayers money.

Sure, that’s how government works. Placing the Army, Navy and Air Force under a Department of Defense didn’t result in any redundant multibillion-dollar weapons systems or toilet seats costing $640.

“Putting all these agencies together is going to have a very significant dead-weight loss,” said Jason Thomas, staff economist at Citizens for a Sound Economy, a left-leaning Washington nonprofit.

“Dead-weight loss” is an economic term describing financial waste from inefficiencies — money that gets spent but produces no benefit for society.

Thomas estimates that nearly a quarter of the Homeland Security Department’s budget, at least during the next few years, will be squandered on dead-weight loss.

He also believes the Bush administration’s financial expectations for the new entity are wildly optimistic.

“When you take a broader view of it, you’re looking at about $70 billion a year,” Thomas said, explaining that numerous security-related expenses have yet to be accounted for in the department’s budget.

He added, “It’s going to be very difficult for them to get the cost savings they’re projecting.”

Norm Ornstein, resident scholar at the conservative American Enterprise Institute, a Washington think tank, said the department’s budget doesn’t currently allow for defending container ships coming and going at U.S. ports. This could run about $5 billion a year, Ornstein said.

Moreover, he said, bringing together the various agencies will require joining no fewer than 24 separate payroll systems, and dozens of different computer networks and software configurations. These costs, too, have yet to be accounted for.

“The administration says that because we’re talking about a nearly $40 billion budget, you can accommodate everything,” Ornstein said. “I can’t help but view that with extreme skepticism.”

The Congressional Budget Office estimated this summer that it would cost more than $3 billion to get the Homeland Security Department off the ground — beyond its almost $40 billion operating budget.

That estimate includes $150 million to administer the new Cabinet-level department next year, ballooning to $225 million annually over subsequent years.

House Republicans countered that the nonpartisan Congressional Budget Office is wrong and that all administrative costs fall within the White House’s funding forecasts.

But Robert Reischauer, former head of the Congressional Budget Office, told me that the Homeland Security Department’s administrative overhead will most likely cost $2 billion a year at the outset — and that’s without any new terrorist incidents.

“Should any insecurity emerge, this will be like the Defense Department, receiving large budget increases year after year,” he said.

Mind you, this is on top of a looming war with Iraq, which federal authorities estimate would cost as much as $13 billion a month, not to mention a subsequent occupation of the country, which is estimated to cost up to $4 billion monthly.

How will we pay the tab? Answer: We won’t.

“We’re running large deficits, and those deficits will grow even larger in the future,” Reischauer said.

The federal budget deficit jumped to $159 billion in the fiscal year that ended Sept. 30. The 2003 deficit is expected to be even bigger.

Another wild card here is the epic scope of trying to merge so many different government agencies, each with its own culture and way of doing things (or not). Homeland Security will be the third-largest federal entity, after the Defense Department and Veterans Affairs.

It will encompass a wide variety of jurisdictions, from the activities of the Border Patrol and Coast Guard to the Customs Service and Immigration and Naturalization Service.

“If it works, it will be great,” said Thomas at Citizens for a Sound Economy. “But you’re dealing with a public employee culture that does not lend itself well to working together.”

He and other observers note that each of the 22 agencies involved has spent years defending its bureaucratic turf in budget battles and keeping a tight grasp on information.

“What we know from past combinations and mergers is that culture is the dominant factor,” said Ornstein at the American Enterprise Institute. “It always trumps all other considerations.”

Look at it like this: Hewlett-Packard and Compaq are in the same line of work, and they couldn’t find enough room for both Carly Fiorina and Michael Capellas (the latter exited the merged company last week).

Joining the ultracool Secret Service with the Agriculture Department’s Animal and Plant Health Inspection Service? Yeah, that’ll be an easy fit.