Congratulations to President-Elect Obama

Dear President-Elect Obama,

Congratulations on your historic victory, and my condolences for the economic mess left you by your predecessors. Here are a few ideas that may help. They boil down to two words: user fees.

Many people have suggested that one way out of our current economic crisis is for Congress to pass a stimulus package focused on infrastructure. If you let it be known that you support this idea, everybody and his sister will try to make their pet projects look like “infrastructure.” They will come to you with all kinds of multipliers showing how their infrastructure projects will do all sorts of wonders for the economy. It will all be very persuasive and it will all be a lot of hooey.

The Chicago Skyway is infrastructure. So is a bridge to nowhere. How do you sort out the projects that are worthwhile from the ones that are not? The answer is user fees.

We can charge user fees for virtually all of the infrastructure in the country: highways, water lines, sewer systems, and so forth. User fees are fair since they make sure the people using a piece of infrastructure are the ones paying the cost. User fees don’t require new taxes. User fees practically eliminate the tendency to pork barrel and earmarking. Finally, user fees provide a valuable test: if people aren’t willing to pay for certain infrastructure, then building it will not provide much of an economic stimulus.

Instead of increasing taxes or borrowing more against America’s future, your job should be to make sure that agency managers can charge the user fees needed to build and rebuild our infrastructure. Concerns about fairness can easily be resolved by giving low-income families vouchers, like food stamps, for their use of infrastructure. This will make sure that government subsidies go to the people who need it instead of to the bureaucracies and powerful special interest groups.

User fees won’t be enough to solve all of our problems and pay off the deficit. To help save money, you made a campaign promise to “go through the federal budget line by line, eliminating programs that no longer work.” That’s nice rhetoric, but you know it won’t happen.

First, with a total budget of more than $3 trillion and a discretionary budget of nearly $1 trillion, it would take many lifetimes to adequately analyze all the line items in the federal budget. Second, every single line item in the federal budget has a special interest group that watchdogs that line item. Any efforts to cut any line items will be met with furious political opposition.

Al Gore’s National Performance Review was supposed to make government “work better and cost less.” After putting hundreds of people to work studying federal programs for two years, Gore abandoned the “works better” part and simply ordered agencies to reduce their personnel by an arbitrary 12 percent. The agencies complied, but quietly refilled those positions a few years later, thus saving nothing in the long run.

You can do better by focusing on the “works better” part. Instead of cutting line items or ordering personnel cuts, you need to give agencies incentives to save money. As one of your illustrious predecessors observed, “If you tell a commander, ‘Ike says he’ll get an extra star if he cuts his budget,’ there’ll be such a rush to cut costs you’ll have to get out of the way.” Creating better incentives for agency managers may not seem to save much money right away, but in the long run it will make a huge difference in how well our government works and how much it costs.

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Selected programs in many other departments could also be on a user-fee basis. Many of these programs might even earn a profit for the government. The Forest Service, for example, once earned a profit; now it costs taxpayers $4 billion a year.

For user fees to work, keep the following in mind:

1. Agencies should be allowed to charge fees for the full range of their services. If they can charge only for some, they will focus on those and neglect the others.

2. Agencies should be allowed to keep the same share of fees they collect from all their services. If they can keep some fees but not others, they will focus on the programs that return them the most money.

3. Agencies funded out of user fees should not get appropriations out of tax dollars, at least not for the same programs. Giving them such appropriations only encourages them to turn money-making programs into money-losing ones.

4. To repeat, support for low-income people can best be provided through vouchers. This will insure that federal programs are targeted to the people who need them and do not turn into reverse-Robin Hood programs that take from the poor and give to the rich.

5. Finally, consider using the legal structure known as a fiduciary trust. This differs from traditional government agencies in several significant ways. Turning federal programs into fiduciary trusts funded out of their own receipts will make them more responsive to public needs.

In short, the best way to change government, provide an economic stimulus, build and rebuild infrastructure, and save taxpayers’ money is through user fees. Following these guidelines won’t solve all of the problems you face, but they will reduce the number of problems you have to deal with on a day-to-day basis.

Best wishes,

The Antiplanner