In the movie Wall Street, Gordon Gekko notoriously predicts that "greed--you mark my words--will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
Well, greed is not especially popular these days. And neither is the private sector. But don't be fooled: No entity is more malfunctioning than the U.S. government, and we could use a few political leaders schooled in running private enterprises in the pursuit of profits.
Normally in the business world, executives consider their company's capital structure one of the highest priorities. Capital structure refers to how the company is financed, which usually entails variations of debt--a company issues bonds and borrows money--and equity, ownership in the company and participation in profits.
The U.S., as most Americans are aware by now, is awash in debt. The government has borrowed its way into serious fiscal peril, which it is trying to mitigate by further spending. Unlike a private company, the U.S. government cannot and does not issue equity, so it generally just issues more Treasuries (debt) to finance operations.
However, the government has the ability to raise funds and reduce debt on its balance sheet like private enterprises by selling assets that are either wasteful or unnecessary. Of course, doing so requires a bit of creativity and business acumen on the part of government officials, and that might demand some of the real world experience that someone like Mitt Romney possesses.
Currently, the federal government's balance sheet is cluttered with assets that could be sold to raise funds to pay down public debt, while simultaneously downsizing the wild beast that is central government. One area, in particular, is illustrative: government-owned real estate.
Since 2003, the General Accountability Office (GAO) has designated the federal real estate portfolio as an area at high risk for waste, fraud and abuse. The 2003 GAO report said, "Long-standing problems in the federal real property area include excess and underutilized property, deteriorating facilities, unreliable real property data and costly space. These factors have multibillion-dollar cost implications and can seriously jeopardize the ability of federal agencies to accomplish their missions."
The government currently owns billions of square feet of real estate in hundreds of thousands of buildings, which are worth hundreds of billions of dollars, not to mention vast areas of open land. The Bush administration recognized this problem and set the goal of reducing the federal government's real estate inventory 5% by 2015.
President Bush also issued Executive Order 13327 ("Federal Real Property Asset Management") in 2004 to "promote the efficient and economical use of Federal real property."
A February 2006 GAO study, titled "Excess and Underutilized Property is an Ongoing Problem," reported point blank: "the government has many real estate assets it does not need."
And a 2007 GAO report ("Federal Real Property: Progress Made Toward Addressing Problem, but Underlying Obstacles Hamper Reform") detailed specific problems that remain. For instance, the Departments of Energy and Homeland Security and NASA reported that over 10% of their facilities are excess or underutilized. Those three agencies, along with the General Services Administration and the Departments of the Interior, State and Veterans Affairs reported repair and maintenance backlogs exceeding $16 billion. And the Department of Defense has a $57 billion restoration and modernization backlog.
The economic crisis and explosion of the federal debt makes it more imperative than ever for the federal government to seek creative ways to cut costs and downsize where possible. Selling unnecessary real estate assets and making the government a tenant, rather than an owner and landlord, could impose such much-needed discipline.
It would also allocate real estate assets to the private sector where they might be more effectively used, while raising billions of dollars. Unfortunately, trends seem to be moving in the opposite direction with the government acquiring additional ownership interests and injecting itself further into private industries, especially financial and automobile companies.
Hopefully the fate of the U.S. government will not follow the path of those auto companies, but there are some remarkable similarities at the moment, including massive pension liabilities, obsolete real property assets and burgeoning debt service expenses.
It took the imminent prospect of a Chapter 11 bankruptcy for the carmakers to start taking balance sheets and income statements seriously. If it requires the same set of dismal circumstances for the government to start operating with a business mentality, then it will be far too late for this malfunctioning corporation.
No comments:
Post a Comment