So now, imagine that it is 2010 and your state is in financial trouble. You want help from the Federal government. You have shortages in a wide variety of areas: salaries for all kinds of employees, construction expense, pension benefits. How do you make your case? Do you go for the areas that have the greatest shortages? I’ll bet not. Probably you are going to go with the areas that have the most appeal to the general population. Let me see. How about teachers, police, and firefighters! Yeah, that’ll work. We’ve heard about it in the news and you can read it in the actual bill on page 4-5 .“ … REQUIREMENT TO USE FUNDS TO RETAIN OR CREATE EDUCATION JOBS.—…funds … awarded to local educational agencies --- (A)may be used only for compensation and benefits and other expenses, such as support services, necessary to retain existing employees, to recall or rehire former employees, and to hire new employees, in order to provide early childhood, elementary, or secondary educational and related services; and (B) may not be used for general administrative expenses … .”
It is all poppycock. Every dollar that goes to department X in that state is one dollar less that the state itself has to provide to department X and that frees up some other state dollar to go wherever the state wants to send it. Those who are using fungibility to deceive and those who do not understand the concept will protest: “But people will be watching. If the state uses it for those other purposes, then the state will get called on it.” That is why this maneuver is a joy to the hustler. It may be that each dollar that the feds give to department X will actually be used in department X. But the fact that money is the ultimate fungible commodity means that each of those dollars supports any other activity by that state government just as much as it supports department X.
Sunday, August 29, 2010
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Are you suggesting that if you combine fungibility with co-mingling of funds you might lose functional control?
ReplyDeleteI think so. If I understand you correctly my answer is an emphatic yes. Given the fungibility of money, if the receiver is responsible for all of the destination accounts and can put its money wherever the receiver likes, then I think you cannot really maintain any control over what you give the receiver.
ReplyDeleteExaggeration can sometimes clarify. Suppose a state has an obligation of $10 billion dollars in 5 equal areas A, B, C, D, and E. Now suppose that their revenue is only $9 billion.
They could make an across the board cut of 10% in each area. Each budget would be cut by $200 million and go down to $1.8 billion.
Or ... They could note that category A is universally approved (say education) and announce that they are going to have to cut category A by 50% ($1 billion) unless they get the money from the feds. It works!! The feds send the billion and the state carefully and publicly places it into the A account. The state then looks at the 9 billion that they have and "notice" that they only have to put $1 billion into the A account to get it back up to $2 billion. They then have $8 billion left and can place $2 billion in each of the other accounts. Now did the $1 billion from the feds go to A and only A? That depends on things that you cannot know. In particular, what would the state have done if the feds had said no? If the state really would have slashed A by 50% , then yes it all went into A. But if the state would have gone to an across the board scenario, then no only 200 million went into A.
As Francis Wolcott, a serial killer on the TV series Deadwood, said: “I am a sinner and I do not expect to be forgiven. But I am not a government official.”
You have interpreted my comment correctly and I agree 100%. As you pointed out things other than money can be fungible as well. Such as warehouse goods, office supplies, vehicles, food, and people.
ReplyDeleteIn my experience the concept here is crystal clear in accounting, controlling, and auditing circles. Outside those disciplines not so much. Your reference to lottery money for education was appropriate for Texas because that is how they (politicians) convinced the “bible belt” population to vote for a lottery (evil gambling scheme). Years after the lottery went into effect an audit watchdog group publicized that the money went into general funds with almost no addition funds directed to education.