TARP As A Benchmark For Stimulus Oversight

The Vice President announced the Department of Transportation's Secretary blog about increasing oversight for infrastructure projects. DOT has a strategic plan and performance measures to track infrastructure, and known problems with programs.

This sounds good. One problem is the US leadership failure to put these lessons into practice in TARP. The public needs some assurances that the long-term risks are being factored into the near-term planning. The question is whether Congress will oversee these issues; or require additional public oversight of Congress to do the right thing.

These issues indirectly relate to the President's economic advisory board and his recent executor order: We need some leadership and feedback on the bailout.

 

Public Integrity identifies a GAO report indicating problems with project management:

GAO (via Public Integrity): "The largest highway, transit, and safety grant programs distribute funds through formulas that are typically not linked to performance and, in many cases, have only an indirect relationship to needs. Mechanisms generally do not link programs to the federal objectives they are intended to address, in part due to the wide discretion granted to states and localities in using most federal funds. Furthermore, surface transportation programs often do not employ the best tools and approaches available, such as rigorous economic analysis for project selection and a mode-neutral approach to planning and investment."

The same problem -- linking strategy, vision, goals, results, and plans -- plagues TARP. There needs to be a plan to ensure "the planning lessons" are applied to the proposed stimulus and TARP. Indeed, it appears as those who are reluctant to embrace needed changes in TARP are part of the same flawed planning mechanisms we're being asked to believe to trust to guide us through this crisis. That defies reason.

Diddling

In early February 2009, the President signed an executive order creating a board, similar to the Eisenhower Administration, which would monitor Economic conditions. Something didn't work.

However, this board isn't new, but has been around since 2008, and (supposedly) providing inputs to then-President-elect Obama, and the basis for the current stimulus:

November 2008: "The new Economic Recovery Advisory Board will be charged with offering independent, nonpartisan information, analysis, and advice to the President as he formulates and implements his plans for economic recovery."

The board overlapped with the still not addressed problems with TARP:

What have they been doing since November 2008: Are there copies of their minutes available for public review;

Why is the same board going to do something different on a larger scale, but it still hasn't confronted the smaller-scale TARP vision problem?

Why should we believe the new same board (with the same mission) is going to give us better recommendations; and

Is this just repackaging another committee to present more options Congress cannot agree within the framework of a bailout plan

Americans Resting on Lost Laurels

As a benchmark, the US has a problem providing leadership and infrastructure support in Afghanistan. The way forward should be to ensure the US, as it has not done in Afghanistan, can recover and sustain from a severe breakdown in the US transportation networks. If the US cannot get domestic transportation requirements right, then the public should not be confused why the US is having problems in Afghanistan.

One Problem Behind Financial Crisis: Creating Too Much Capacity, Without Attention To Detail

The common lesson of 9-11, Katrina, Iraq, Afghanistan, and this financial crisis: "Oh, we'll take care of that later."

• Food

It would be worse, but not surprising, to lean the US spent time creating more transportation capacity, but didn't set aside funds for the needed roads, and missed a problem with food production or food delivery.

• Material Supply
  

Supposedly, some of the bailout money went to the auto industry because they needed money to ensure parts deliveries. It would not be surprising in this environment to learn the parts suppliers don't have the needed raw materials and support to produce much less transport the needed parts for commercial and defense requirements.

• Consumer Demand, Markets

It would also not be surprising to learn the US, as it focuses inward on this crisis, neglects the needed requirements of foreign consumers. One day we will emerge from this crisis, but we need to think about ensure the foreseeable markets are sustained, and that we maintain the needed economic ties to those consumers, whether they are domestic or international.

Before the public takes the leap to have confidence in a large financial bailout or stimulus package, it would be helpful to see something marginally resembling a demonstration with a known, immediate problem: TARP oversight, and strategy. Otherwise, inaction on TARP asks the public to believe in a promise without a fair showing that change has arrived.

If they can't get TARP's vision statement clear, we should have no confidence they have a credible oversight plan for this financial crisis, the bailout, or a coherent transportation plan. The experts within DOT should be detailed to TARP to help.

Outside Audits

One of the sad lessons 2001-9 has been the reluctance of Administration officials to rely on auditors. Rather than look at them as valuable sources of information for management, the leadership has sidelined auditors in Iraq. The concern is the entrenched Bush Administration officials and staff have a low opinion of independent views.

We need to make sure the GAO has the increased staff to monitor these complex developments, and are sufficiently supported with resources so they can remain objective and provide quality auditing products. The GAO may need help in clarifying oversight plans and conducting audits; or the GAO might benefit form an outside audit, now is the time to prepare for that oversight. This process will be complicated and take some time. GAO should start on the right foot and not be short changed.

When the public sees the President and Vice President reforming TARP, and ensuring Treasury links bailout decisions to a (still not clear) goal, the public might believe other departments will do the same. 

Members of Congress have a hard time justifying confidence in their oversight or the bailout strategy when they can't get TARP to provide a coherent problem or vision statement. More broadly, it's unclear the basis with which funds will be assigned to the bailout plan, or how Congress plans to oversee the bailout of the economy. Congress appears unwilling to use its power of the purse to ensure compliance with FISA or Geneva. There's little prospect they'll threat to cut off funds for poorly managed financial programs.

In the meantime, government and industry leaders who are commenting on how the stimulus should be spent should ensure the proposed plans apply the lessons of the GAO report, address the errors of TARP, and publish a coherent oversight plan.

Until then, we have the promise of change, but without change. Until the US sees some changes to how TARP is managed, the public should not have confidence that the US leadership is coherent planning combat operations for Afghanistan, or is prepared to responsibly guide the American public through this financial crisis.

Sustainable Capacity Growth

In the planning, we need to see a table gleaned from the GAO report which specifically lists all the systemic problems GAO found with the infrastructure planning.

It does not make sense to create more capacity while the existing infrastructure maintenance requirements are not getting met: Ensuring bridges are safe with maintenance for existing infrastructure.

These strategic goals need to be revisited. The goals must be viewed in terms of the financial objectives of this recovery, with an eye toward long-term transportation sustainment, streamlining, and development. Sustainment means prioritizing our current infrastructure requirements, and identifying which basic infrastructure maintenance (not new capacity) projects are required under the foreseeable economic conditions. We cannot throw money, first, at "long term" stimulus programs which create more infrastructure capacity, but we're ignore the near-term maintenance requirements within a financially stressed economy.

The public is less interested in knowing the details of the process to prioritize between sustainment, investment, and long-term planning than getting a sense that money is being responsibly spent for our common interests. Otherwise, the promise of the Founders and Constitution seems to have been lost:

Preamble: " We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America."

The immediate need isn't to throw money at the problem, but to demonstrate that there is responsible leadership starting a coherent process that will address the problems in the GAO report, responsibly plan, and then make the decisions one the public can reasonably participate, support, and ultimately enjoy.

We still have little information about the TARP. The goals are not clear. This is a repeat finding. Something isn't working.  The public needs to see, as a confidence building measure, that the proposed "way forward" for the larger stimulus package, not just in DOT, will stop doing what TARP has done -- proceeding without a coherent vision -- and remedy the problems with TARP.

Otherwise, without a change in TARP, the public is asked to believe, on faith alone, that the systemic problems -- getting in the way of TARP responding to the auditors' concerns -- will on their own, magically evaporate when it comes to the GAO-identified issues. That defies reason.

Indeed, these are challenging economic times, and something "must be done". But the error is for the leadership to get caught up in the frenzy, and not demonstrate leadership.

DOT Planning Requirements

Here are some pointed questions intended to focus some planning:

1. Where is there a table showing which specific GAO findings need to be incorporated into the proposed stimulus plan?

2. Where is the plan to specifically list the identified problems with the TARP management?

3. Where is the plan to ensure the lessons from the TARP management are combined with the findings of the GAO report?

4. What is the deadline to update the DOT strategic plan will be updated to reflect the financial goals and priorities of the bailout?

5. Where are the individual program status charts for each of these programs; with a one-for-one discussion of how the issues in the GAO report and the TARP lessons will be addressed by each of the identified programs?

6. When does the DOT secretary plan to publish, for public review and comment, a copy of the time-phasing of the proposed budget outlays; and a reconciliation table showing how the GAO-identified problems and TARP issues are monitored, with intermediate milestone reviews, and decision points to adjust as economic conditions deteriorate?

7. What is the plan of the DOT leadership to ensure that funds-not-expended are adequately reprogrammed internally; and discuss how the DOT funds reprogramming based on funds execution will likely affect future DOT projects. Discuss the impacts in terms of funding requirements, cost overruns, program schedule slips, and impacts to the sustainment goals and the economic stimulus:

- What are the DOT priorities, from project one down to the last
- If there are limited funds, which programs does DOT plan to cut first
- How will DOT decide whether to cut or descope a specific program
- How will the identified risk areas within each program relate to each economic goal of the stimulus package

Coherent Plan To Resolve Audit Findings

We need to see a reconciliation table showing the lessons learned from the GAO and TARP are getting incorporated inot the budgeting and planning process. We need to see that the program priorities are addressing the immediate needs: Infrastructure maintenance. We need to know how much of the money will go to sustainment, new investment, or expansion.

We need to see that there is a logical relationship between the proposed DOT spending plans, the economic goals, the sustainment requirements, and effective management and lessons learned.

We need to see a time-phased chart showing how the DOT will incorporate the lessons of the GAO and TARP into the proposed planning; and a summary threshold of when DOT expects to achieve specific goals:

- Economic development goals (New manpower, economic multipliers)
- Infrastructure sustainment (Percent of logistics pipeline repairs)
- Success criteria for each of those programs
- Performance relative to decision points and contract termination criteria

Preparing For Difficult National Debates

The US citizens need assurances that there is a plan to work within the available resources; and know whether the proposed plans are going to meet our infrastructure requirements; or whether, in the long term, the United States, to meet the existing infrastructure requirements, will more likely go into bankruptcy. If bankruptcy is on the way, Americans should glean the lessons of Latin America and plan accordingly.

In the wake of 1929, senior Administration officials discussed this type of question:

Would they rather hold onto everything they had, and possibly lose it all; or would they rather give up a portion of their wealth with the prospect that there would be a recovery.

The rich and powerful may (for now) have the legal tools to defend their assets. The question is what would they like to give up now with the intent of expressly ensuring we more timely recovery. If they refuse, the risk is they will not only lose everything, but how much severe this situation will get.

We need an honest answer of how bad this situation is going to get; what percentage of the national wealth needs to be reallocated; and what prospect the powerful and wealthy have to retain their wealth; and a decision on whether we'll avoid this.

The above issues were not adequately addressed, but some overseas in Nazi Germany ultimately created a problem. As the US financial resources and leverage contracts, other power centers will emerge which will not be necessarily acting in the interests of the US. The US and even her current military opponents have fewer sustainable alliances to confront new, emerging economic and military threats. Nazi Germany was brushed aside, but the world ultimately paid an incredible human and financial price.

For example, some may not view the Somali pirates as a problem. Yet, they're able to interfere with shipping. As an economic preservation strategy, would we rather work with regional powers to military confront these assaults as was done against the Barbary pirates. The current approach appears insufficient. As the economic situation deteriorates we can expect more interference with commerce. It would be better to nip this in the bud.

Improve Economic Monitoring

At this juncture, it's unclear what's failed with the United States economic-resource allocation process. Something seriously failed to allow the scope of this economic crisis unfold. We need assurances that there will be a monitoring system in place that will timely detect whether there is going to be a subsequent financial impact with a secondary and tertiary crisis within this one. (It is possible there could be other not-yet-monitored factors driving more financial fragility, discussed here.)

If that is the case, then we need to discuss the real problem: A failure of the national security council to develop internally-focused economic monitoring tools. If that is the real problem, and until that is addressed, as has not been the case with TARP, then a secondary and tertiary financial crisis within this one will make the above DOT planning irrelevant.

The public needs to have some assurances that DOT is thinking about the options should there be, as is likely, a secondary and tertiray financial crisis; what adjustments need to be made now to ensure that we are not throwing money at investment (new capacity) in the short term, but then kicking ourselves later as we realize the long-term funding requirements for minimum capacity sustainment are short of funds.

Tradeoffs Between Future Capacity, Sustainment

It may be better, as a reserve option, to set aside some of the money for the expected impacts of a secondary financial crisis, not necessarily increase capacity, but decide to hold off or cancel programs to free up dollars for sustainment requirements. As funding proves scarce, have those funds available not for new investment, but the immediate capacity sustainment requirements needed for day to day operations, maintanenance, and parts.

Despite the promise of change, we have the same US government staff, contractors, and planning system. It defies reason, absent a credible transformation, that the same players will suddenly start doing what they're recklessly proven they've cannot responsibly do. The public has the public debacles of 9-11, Katrina, Iraq, and this financial crisis to raise reasonable questions:

- What assurances can the leadership provide that there is a plan in place to ensure we have a viable transportation system in place with a secondary or tertiary financial crisis;

- Where is there some realistic planning should the economic capacity fall by 40%;

- What are the plans to ensure minimal sustain requirements for parts, raw material, and essential logistics support requirements are getting priority;

- Which flawed planning assumptions re Katrina, 9-11, and Iraq have been resolved to ensure American citizens do not suffer the same flawed contracting, financial waste, and mismanagement;

- When will the national leadership provide a coherent table showing (a) how the planning debacles of 9-11, Katrina, Iraq, Afghanistan, and this financial crisis have been (b) responsibly mitigated within the US economic recovery plan?

Parts, Maintenance, Raw Materials

We need alternatives should the economic recovery plans fall short of the transportation sustainment requirements. These sustainment requirements include manufacturing capacity, raw materials processing, and the distribution network to supply the high priority consumers and services with basic infrastructure. It doesn't make sense to create more capacity, but we don't have the resources or means to provide throughput: Parts, raw material processing, or raw material transportation.

Recall the lesson of the current financial crisis. We've had too much money going into too much unsustainble capacity. The same players are still throwing money at the banks -- to provide for capacity -- but ignoring whether there is sufficient physical and financial support for the basic requirements needed to sustain economic activity needed to service those loans: Raw material processing, parts manufacturing, and pipeline maintenance and sustainment.

It's not clear, despite a financial shock, that the players are changing their planning to prepare for what is unfolding: A gap between sustainment requirements needed to maintain day to day operations, and the planning goals of increased capacity to stimulate activity and job creation.

High Tonnage Support

We need to have an understanding of what backup plans should be developed or are ready to ensure railway lines and key transportation nodes are adequately maintaned. This is not merely a safety or security issue, but whether there exists the physical means to cover the pipline support requirements the railway companies need to ensure raw material can be transporated. Otherwise, as an alternative, we're talking increased tonnage along roads not necessarily designed to support long-term raw material transportation. Think donkies stuck in the mud with too much too carry.

Indeed, there may be some DOT funds which should be combined with DoD sustainment funds to ensure there are basic infrastructure requirements met. At this juncture, especially in the wake of the debacles of 9-11, Katrina, Afghanistan, Iraq, and this financial crisis it's going to take something incredible and specific to provide some confidence that the players have woken up to reality. Bluntly, if you get this wrong, the public is going to have to discuss what new methods are required to ensure the planning, leadership, and resource decisions are effectively, responsibly managed, as discussed here.

Something has fundamentally broken down spanning multiple issues. It's arguably reckless for industry leadership to claim "Trust us, things are just fine," when, despite no obstacles, the leadership did not, as reasonably expected, put their heads together to learn the lessons from the earlier crises, and more effectively manage the situation. 9-11 tripped into Katrina; Afghanistan begot Iraq; and the same leadership missed this financial crisis. Even the catalyst of a financial crisis appears to have not woken up some.

Prepare Impact Statements

The "worst case scenarios" have been largely set aside as impossible. However, the "worst case" has become our reality. It's time to get some information about the worst case scenarios, those plans, and who has been setting aside those worst case scenarios.

We need some assurances that there is an understanding of what level of economic plans exist to ensure that basic material processing, raw material refinement, and basic parts needed to sustain a 20% and 40% reduction in DOT funding and capacity.

Raw Materials Processing

If we go forward in time, and develop these options,  The public needs some assurances that there will be funding set aside to ensure that the basic industries needed to gather commodities, refine them, and process that raw material into essential parts needed for the infrastructure, logistics, and transportation will be sustained; and will not take a second seat to long term investment.

The aim is to ensure that we are not building new infrastructure, but not setting aside funds to ensure the day-to-day requirements (parts manufacturing, maintenance, and roadway sustainment) are not falling aside.

Decision Point: Pipeline Abandonment

If the above is going to be a challenge, and down the road we anticipate with a 40% reduction in funding and sustainability, then DOT should discuss now the priorities for which roads are going to be abandoned; and the transition plan to ensure there is pipeline consolidations to support immediate transportation requirements.

We need some decision points on when the US government will not only stop creating new capacity, but deciding to stop maintaining existing roads and pipelines, abandon that non-sustainable pipeline, then responsibly supporting a transition to consolidated pipelines.

DoD

If the Congress does not trust the US bankruptcy courts to make these decisions, then the United States needs to discuss a planning model which will more responsibly consolidate resources and sustain existing requirements. Process is one thing; the question is whether there are sufficient personnel planning for what appears to be repeatedly overlooked, but realized worst-case scenarios. Many people appear to have explained away many concerns as was the case before 9-11, and still with Afghanistan.

Part of the problem is the finite resources at the state level needed to feed into the national resource delivery systems: Local dollars aren't there to sustain roads. These dollars will become more scarce as local and state governments slide into bankruptcy.

A. How is DOT working with DOD to ensure we have the minimum logistics requirements needed to sustain high priority combat support?

B. How is DoD working with DOT to ensure basic parts requirements needed for DoD, government, and commercial requirements are getting priority: Do we need some special sustainment funds allocated through DoD that can jointly support government and backup transportation requirements?

C. What is the decision point to transition funds from new capacity to either basic maintenance requirements; and how do these decision points square with the lead time to end support for and close existing pipelines?

D. When do we need to discuss a military draft to make up for some of the manning short falls DOT has identified and could impact DOD's ability to timely deploy for foreseeable military contingencies?

E. Are we satisfied with the current economic investment for future scientists, material processors, engineers, and others required to support quality manufacturing, parts development, and methods to create emergency backup parts suppliers during a sustained economic downturn and increased DoD combat support requirements?

F. What lessons do we need to glean from the Russians about how they transferred facility operations to Siberia as the Nazis advanced into Western Russia during WWII?

G. What is the backup plan to ensure that food is not left rotting in fields because of a breakdown in the transportation system?

H. What is DoD's role in assisting farmers in preserving the food supply, ensuring its safe delivery, and providing for safe storage; should this be contracted to a delivery system which has not yet been developed?

Conclusion

We have a new President, and things take time to change; however, we're no longer in the "transition".  This Administration has the responsibility to embrace TARP as it finds it; show the public that it has a plan to resolve the problems the TARP auditor continues to find; and demonstrate these needed changes to TARP are flowing into the Department planning.

However, there appears to be a disconnect between what the public is asked to believe about oversight in DOT, and what this Administration has done by way of reforming TARP. The public needs to have some assurances that the many valuable insights from the GAO and auditors are getting serious consideration, and those concerns are being addressed. We're not seeing that. Indeed, this short term planning cannot be at the expensive of missing the real problem: Our economic monitoring system failed. Until this early warning system is modernized, we need to prepare for a secondary and tertiary crisis within the current one.

DOT long range planning and economic investment goals need to be modernized to reflect the financial realities: We may have some serious logistics challenge which could blossom onto a scale we saw during WWII: A requirement to physically consolidate logistics-support requirements; ensure there are sufficient resources and support for this salvage operation; and responsibly shut down unsustainable pipelines while conducting multi-theater combat operations and providing basic support for civilians.

If some transportation nodes are going to get more support and enjoy long-term support as the economy continues to deteriorate, the public should be given this information so they can plan where to resettle, or make informed decisions about alternatives.

Additional Capacity Cannot Shortchange DoD or Pipeline Sustainment

The public needs some assurances that our infrastructure sustainment is not getting short changed, and that we're not spending money for new capacoity, but leaving us, down the road, with fewer options to pay for the increased sustainment and maintence requirements for the expanded pipeline.

It's time to stop promising jobs, but be realistic about where this financial crisis is going to take us. It does not appear the national leadership is adequately discussing in open the real impact this financial crisis will most likely have on transportation, sustainment capability, and the raw materials needed for basic parts and combat support requirements.

It does a disservice to those who believe in a promise of change, attempt to work within the constraints of this financial crisis, only to be told that the situation they're dealing with is much different. Until you put reality on the table, and discuss openly the real planning assumptions, we don't have leadership.

Funds needs to be set aside to ensure there is a priority on maintenance and sustainment, especially if the funds available are reduced. DOD needs to be candid with its real resources requirements. We need to discuss what will ensure the US has the planning and resources in place to sustain our logicists requirements, and still have financial and resource reserves to sustain incrased DoD requirements in subsequent combat operations.

Gleaning Lessons of Russians During WWII

Katrina was fair warning of the vulnerabilities in a transportation pipeline. Many lamented more was not done. The lesson applies to this financial crisis.

As a backup, we need to work with the Russians and revisit the lessons of the Russian transition during WWII; and ensure we have a reasonable plan in place to responsibly abandon existing pipeline and facilities that we cannot financially support.

What do we need to start now doing to prepare us for a scale of  transition we saw in Russia during WWII?

We don't need slogans, we need a vision, and a leader who will guide us to what will fulfill the promise of the Founders and this Constitution. If you fail, the public will have -- again -- another reminder of what American leadership refuses to or is incapable of doing. The public will then be positioned to discuss what modernizations are needed not just in the financial and economic sectors, but within the way that the American model of governance and planning is legally structured.

Checks and balances cannot be a slogan that American leadership conveniently ignores. Rather, this leadership is communicating it needs something else to compel it to lead, make difficult decisions, and proactively manage; not, as is the custom, recklessly react to a crisis of our own making. Americans are not required to perpetually remain loyal to a system which delivers chaos, especially when there are coherent alternatives.

We've been throwing money at the banks. Little (obvious, public) attention has been given to throwing money at the firms which convert raw material into the basic parts needed to sustain combat operations our our daily transportation infrastructure resource, parts, and maintenance requirements.

Those who waive their hands and say, "Trust us, we've taken care of that," have a skeptical audience seeing abysmal responses in Afghanistan, Katrina, Iraq, 9-11 and this financial crisis. Things fell through the cracks. There's something wrong with a planning process that requires larger scale disasters to get things right, especially after multiple reports from the TARP and GAO auditors, and (ignored) concerns from SEC watchdogs and insiders.

There needs to be now a backup plan ready should the US enter bankruptcy; and there are tertiary financial crisis which impact parts and raw material availability. DoD needs to discuss the indicators they plan to use when they decide, as after 1929, when resource and manning requirements demand a military draft, a priority on military spending, and associated backup plans to ensure basic commercial requirements are sustained as the economy spirals down.

Reconciliation Table

We need to see some summary tables of the lessons learned from the GAO, TARP, and Russian logistics decisions; and see that there is a responsible plan in place that will ensure the existing (non abandoned) pipeline is sustained. We cannot afford to rapidly expand capacity without the funds to sustain the new or existing capacity.