Treasury Fire Sale Could Take Years

May 24th, 2011 at 12:40 am | 28 Comments |

| Print

An emerging right-wing meme about how to deal with the prospect of a debt default is that the federal government can pay off its debts by selling its assets. Veronique de Rugy of Cato and the Mercatus Center co-authored a paper listing the Treasury’s financial assets that could be sold to avoid default.

She noted in a later blogpost that the list was “conservative” since “it only lists financial assets rather all of the things that Treasury could sell (such as lands and building).“ Congressman Dennis A. Ross of Utah wondered if the federal government can sell off 70% of Utah’s land and other conservatives have suggested selling the nation’s gold.

Selling, leasing, and privatizing national assets can be a good idea in the abstract, but even Leonard Gilroy, a  director at the Reason Foundation who co-authored a pamphlet on government privatization for the libertarian Heartland Institute  knows that even in the best of circumstances, selling off assets within a “one to two year window” is the most “realistic” option for most governments.

It’s not necessarily that government work is slower than private sector work, it’s that in order for any sort of sale to generate the most potential revenue, without fraud or corruption, there are several different steps that need to be observed.

To start with, in order to sell assets, the federal agencies would need to know what assets they have. While this sounds like an easy thing to know, it turns out that many federal agencies don’t even keep lists of assets so that they know what they can sell. As Gilroy noted, “They don’t know what they even own.” From his experience with working with the federal government, many of them lack even a comprehensive list of what their assets are “much less a calculation of their value.”

Secondly, a federal agency can’t simply decide how much a property is worth; it has to go through a process with an outside individual or group to determine the property’s value. “You want some sort of evaluation to know what the property is worth, otherwise you are going into the market without a sense of what fair market value is.” This is similar to getting an evaluation done on a house you own. Since most federal agencies don’t usually contemplate selling their assets, it’s not surprising that most aren’t keeping lists of how much value the properties they own are worth.

There are many other considerations that come in after the value is set as well. If a government building is being sold or leased, would it need to be rezoned? Currently they are trying to figure out how best to rezone the Walter Reed military hospital for when it gets transferred to the District of Columbia. In the case of lease agreements, extensive contracts need to be written up to clearly state how the private company to which the government property is being leased to will maintain the new asset. For example, if a private company takes over a toll road, there are certain responsibilities and minimum standards that will need to be met.

Perhaps one of the most successful privatization efforts in recent history was when Governor Mitch Daniels leased the Indiana toll road. This was a process that began in 2004 by exploring the proposal and the bill to approve the lease was eventually passed in 2006. If it takes two years just to lease a toll road, does anyone really expect that the rest of the federal government can sell off enough assets in a month to prevent a default?

The difficulties of privatization are important to keep in mind even in non-crisis situations. Gilroy noted that even more ambitious libertarian plans (such as privatizing the postal service) can’t be done overnight: “You’re going to be looking at years to do that, just to get the policy figured out. … Are you going to sell the postal service? Break it into chunks then sell it? Auction it off? Do an IPO?” Privatization of government services can be a worthy goal and it is also clear that it takes time and attention to detail to get it done properly. The sort of time that is not available in the middle of crisis.


Recent Posts by Noah Kristula-Green



28 Comments so far ↓

  • armstp

    I have now heard it all from conservatives? Selling the taxpayers assets? What a joke?

    How about we simply pay our debts out of our income?

    What is proposed would be like a household that has modest debt saying I will not use my income to pay my debts, which I could easily do, but I will sell my house, at likely a discount price, to pay my debts. Or I will cash in my retirement asset or nest egg to pay down my debts. Or I will sell the car I need to go to work to someone in another country so they can lease it back to me? How stupid a plan is that?

    Very very shot sighted.

    The solution is to simply use more of the country’s income to cover spending and pay down debts. That is a pretty easy solution.

    Long term studies have show that privatization has generally been a disaster every single time governments try it. It ends up costing them much more in the long run.

  • armstp

    “Perhaps one of the most successful privatization efforts in recent history was when Governor Mitch Daniels leased the Indiana toll road.”

    What makes you think selling that toll road was successful? Most of the privatizations of toll roads have proven to be a long-term disaster for taxpayers. It is an easy and tempting fix by politicians to bring in a one time large amount of money to temporarily fix a hole in budgets, but there is not much long-term economic thought put into most of these deals.

    Here is a take that disputes your claim that the Indiana deal was a good deal for taxpayers:

    “Running east-west along northern Indiana, the 157 mile Indiana Toll Road connects the Ohio Turnpike and the Chicago Skyway. This is a major route for the truck transportation of goods through Indiana.

    A Little History

    In 2006, the state Legislature granted Governor Mitch Daniels the authority to enter into a privatization agreement with Cintra-Macquarie to lease the Indiana Toll Road for 75 years.

    Privatization Agreement

    The lease agreement includes a non-compete clause whereby no 20 mile stretch of road within 10 miles of the Toll Road may be upgraded to a 4-lane divided highway for at least 55 years.

    The agreement also has a provision that allows Cintra-Macquarie to be compensated if other road upgrades or any action by the state reduces the income from the toll road.

    INDOT and the Indiana Finance Authority are currently in the midst of a public comment period regarding their current proposal to raise tolls on the Indiana Toll Road. They estimate that 10,000 Indiana small businesses will bare an annual economic impact totally about $1 million in year 1 and an addition $160,000 in each of the years 2 through 4.

    Future toll increases are limited to the greater of 2%, the annual increase in the Consumer Price Index or the annual growth in per capital GDP. Cintra-Macquarie can recoup the cumulative increases once the 10 year toll freeze for commuters living along the Indiana Toll Road is over.

    Profitable Venture – for Cintra-Macquarie

    Macquarie reported to its investors that its investment will be returned within 15 years. The expected annual return is between 12.5% and 13.5%. The Indiana Toll Road cost them $3.6 billion. Toll payers are expected to pay an estimated $120 billion over the 75 year lease period.”

    http://www.alltolled.com/indianatollroad.htm

  • rbottoms

    Do you understand how idiotic it is to discuss the United States government trying to pay its bills like some homeowner with his VCR trying to get a few bucks at a pawn shop?

    How about you start discussing ways to get the lunatics running the GOP to wake the f**k up before they cause a financial collapse?

  • rbottoms

    The 2011 GOP, now with Extra Stupid, tm

    [blockquote]

    BROUN: I want to make this clear. I will not vote to raise the debt ceiling unless we have major cuts in the size and scope of the federal government.

    MULTIPLE CONSTITUENTS: Can you define major?

    BROUN: I propose getting rid of the Department of Education. I’d like to get rid of the Department of Energy as well.

    http://thinkprogress.org/2011/05/23/broun-debt-limit-education-energy-departments/
    [/blockquote]

    • zephae

      Why does the blockquote function never seem to work for those that attempt to use it?

      • LFC

        I think the HTML handling on this site was coded by a 12-year old neighbor of David’s. It certainly doesn’t appear to have been done by anybody with any level of programming proficiency.

  • Smargalicious

    bottomly, please. Did you take your meds yet??

    The only way to get us on the right track is to cut the massive amounts going to feed the parasites. However, you and the Dems count them as votes, don’t you? :D

  • ottovbvs

    Obviously disposing of govt assets would take years so as a short term solution to solving the deficit problem it’s a non starter. Philosophically it’s a strange approach for conservatives to take. Selling assets to fund current spending rather than increasing revenue to fully cover outgoings. Doesn’t sound very conservative to me. Politically I don’t see it having much traction. The Democrats could have a field day appealing to American nationalism and exceptionalism that Republicans are trying to sell off America to corporations many of them from overseas. One only has to think of the controversies that have arisen when foreigners have tried to buy what are perceived as strategically important companies. It’s only utility to Republicans is that it’s another specious argument to claim raising the debt ceiling is unnecessary a bit like the claim also in circulation that defaulting on the debt is no big deal. Both are nonsense but then it’s been apparent for a long time that Republicans have lost contact with reality.

  • Smargalicious

    Both are nonsense but then it’s been apparent for a long time that Republicans have lost contact with reality.

    Ahem. Back up about 47 years and remember LBJ’s Great Society, Medicare, and War on Poverty.

    Those three programs eventually destroyed our nation by creating untold millions of parasitic, worthless, immoral citizens.

    And you blame it on the GOP??

    You, sir, are mad.

  • balconesfault

    Ahem. Back up about 47 years and remember LBJ’s Great Society, Medicare, and War on Poverty.

    Those three programs eventually destroyed our nation by creating untold millions of parasitic, worthless, immoral citizens.

    Just to illuminate the mindset of this level of extremism – Medicare recipients are “parasitic, worthless, immoral citizens”.

    All that needs to be said to help us know where you’re coming from. Thanks, Smarg.

    **********
    Meanwhile, it would be the height of arrogance for the GOP to propose starting this firesale without engaging in a political debate over it first. And not just in the halls of Congress – but during the next election cycle.

    Let’s have two parties – the “firesale” party, and the “preserve America” party. See you on the other side!

  • Watusie

    If we started right now, could we have all the interstates in Boehner’s and Cantor’s districts converted to toll roads by the time the crisis reaches its peak in August?

  • NRA Liberal

    “…Do you understand how idiotic it is to discuss the United States government trying to pay its bills like some homeowner with his VCR trying to get a few bucks at a pawn shop?…”

    Feature, not a bug for the libertarian/Galtian Occupation Party privatizers.

    A going out of business sale for rich cronies to benefit from the taxpayer once again.

  • Non-Contributor

    Lets sell the Ronald Reagan building in DC. From what I understand its the largest office building in the US (maybe the world?).

    BTW: selling government assets is only attractive to the wealthy who will get, you know, another free lunch, on the backs of the middle class.

  • indy

    Here we stand, the sum total of Reaganomics.

    60+ voters would rather go down with the ship—or sell it off—than admit they were wrong.

  • zephae

    If the Republicans want to sell assets, how about selling the ridiculous amount of new office space created to house Homeland Security bureaucrats and leave it to the buyers to figure out what to do with it. For a department that was created to try and consolidate and steamline information between various agencies, there is simply no need for the equivalent of 3 Pentagons of new office space for it.

  • Smargalicious

    Just to illuminate the mindset of this level of extremism – Medicare recipients are “parasitic, worthless, immoral citizens”.

    More scare tactics. Medicare is infested with massive corruption, fraud, theft, and abuse. We need to follow Ryan’s plan.

    • joanna

      massive medicare fraud like that by Tea Party icon Rick Scott?

      Still medicare overhead is just 3%, comparing to 25%-30% of private companies.

    • think4yourself

      ” Medicare is infested with massive corruption, fraud, theft, and abuse. We need to follow Ryan’s plan.”

      And Ryan’s plan would eliminate or reduce corruption, fraud, theft and abuse how? It doesn’t address any of those. Instead it reduces what the Fed gov’t contributes for Medicare, gives it to the states with no accountability and insures that you and I will have to negotiate on our own with the insurance companies. Ever tried to get an insurance company to change a clause in their contract? They just tell you to pound sand and you have nowhere to go because all of the contracts are written to the benefit of the insurance companies – not to you.

      I prefer Erskine/Bowles as a cost cutting measure to Ryan’s plan.

      • ottovbvs

        I prefer Erskine/Bowles as a cost cutting measure to Ryan’s plan.

        The problem was this was full of magic asterisks as well. Many of which were politically unacceptable. And btw it’s Simpson/Bowles. Erskine Bowles is one person.

        • LFC

          Medicare is infested with massive corruption, fraud, theft, and abuse.

          Smarg, look up the number of lawsuits, fines, and legal actions against United Healthcare and then get back to us about how AWESOME health care is being handled by the private sector.

          Oh, wait. That would require you to leave your little bubble world. Never mind.

        • LFC

          PS: If that’s true, why did Republicans just try to cut their budget for tracking down fraud and abuse? Ditto for the IRS? Oh, that’s right. They WANT there to allow much fraud and abuse as possible so they can use that as an excuse to dismantle those and other departments of the government.

          A famous Republican once said that government is the problem. In the decades following, Republicans have gone out of their way to govern in such a way as to try to prove that to be true.

    • sublime33

      “Those three programs eventually destroyed our nation by creating untold millions of parasitic, worthless, immoral citizens.”

      So are you going to turn down Medicare out of principal.? Or do you have your speed pass because you get VA benefits?

      If there are any parasites, it is those who think they are more equal than others and either don’t have to pay their share, or think they should get special priveledges over most others like the Soviet system used to have.

  • think4yourself

    There is a time and place to sell assets. However, that time and place is not to pay current operating costs. Asset sales are best when properly planned for maximum return and those monies used for either future investments or to retire debt. Operating costs should be funded by existing revenues. When the two don’t match you either need to raise revenues, decrease costs or some combination of the two.

    Dems don’t want to cut costs and Republicans won’t raise revenue under any circumstances (and want to lower revenue in the hope that will raise revenue). Both parties are playing a game of political Russian Roulette, each hoping the gun goes off when pointed at the other party.

    • armstp

      think4yourself,

      “Dems don’t want to cut costs…:

      That is BS. Do you actually listen to anything the Dems have been saying?

      The Dems are very willing to talk about cutting spending. They just want shared sacrifice. Defense, corporate welfare, etc.

      No both parties are not playing Russian Roulette. Only the GOP is. The Dems have been talking about both spending cuts and raising taxes. It is only the GOP that cannot deal with both. The Dem budget plans talk about cutting $4 trillion in costs over the next 10 years.

      • think4yourself

        @ Armstp. I should re-state: “in general, Dems don’t want to cut costs.” I believe that the President has in both budget talks and ACA reached out more than halfway to meet the GOP. In addition to being pragmatic, he is pretty hawkish on debt and deficit. However, in my view many (most?) elected Democrats prefer to increase spending and increase taxes while many (most?) Republicans prefer to lower taxes and aren’t really addressing spending except where to tweek the Democrats.

        In recent years the Democrats have been better than the GOP about leaning towards a balanced budget but not much. For example, the Medicare part D that Bush proposed gutted the budget and the Democrats in general voted for it. If they were serious about the budget, they should have insisted on either additional revenue or offsetting cuts elsewhere to pay for it.

        @ Otto, of course you’re right it’s Simpson/Bowles. I did read their whole plan. It’s not perfect and yes there are some assumptions. I would have tried for 50/50 cuts to revenue and would have enacted some of the provisions earlier (I also would have rolled back all taxes to Clinton levels now). It is however a starting point and one that I like better than Rivlin/Domenici. It sure beats Ryan’s plan.

  • ottovbvs

    Dems don’t want to cut costs

    That’s not true. The ACA actually reduces the deficit and the Democrats wanted to allow some of the Bush cuts to expire. The Ryan plan as well as containing ridiculous assumptions like unemployment going down to 2.8% actually raised the deficit during the next 15 years.

  • sublime33

    “And Ryan’s plan would eliminate or reduce corruption, fraud, theft and abuse how? It doesn’t address any of those. Instead it reduces what the Fed gov’t contributes for Medicare, gives it to the states with no accountability and insures that you and I will have to negotiate on our own with the insurance companies. ”

    Ryan’s plan would also add a middleman who would expect to earn a profit for their efforts as well.

  • cryptozoologist

    sell off the government’s assets? what a great idea! that worked so well for the soviets when they made their transition from ‘socialism’ to ‘capitalism’

    welcome to the american oligarchy!