EVENTS

Date:	Thursday, April 14, 2005
Time:	8:55 AM -- 11:00 AM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

April 2005

What Does Homeland Security Spending Buy?

Following the September 11 attacks, fighting international terrorism has become one of the principal policy priorities of the United States. While external efforts to combat terror around the globe are more prominent, domestic measures represent an equally significant commitment to protect the homeland. In a recently published study, AEI’s Veronique de Rugy provides a detailed review of American spending practices on homeland security, and finds that federal anti-terrorist disbursements in 2006 will top $50 billion--spent both within and outside the agencies of the recently created Department of Homeland Security. De Rugy concludes that a large portion of homeland security spending decisions are made on a political basis rather than on a sound cost-benefit analysis, resulting in misallocated homeland security funds that could compromise American security. At an April 14 AEI conference, experts discussed the study and its policy implications.

Christopher Cox (R-Calif.)
U.S. House of Representatives

I have been involved with thinking about homeland security for a few years, and I have found that it can be rather dark to consider the ways we could perish together, all the horrible ways this could come about. Terrorism will occur, but it will not occur all the time, and the horrible catastrophes that we are trying to prevent are far in the future. Our job is to work now to prevent that dark future from happening.

Today is the anniversary of the 1948 proclamation of the state of Israel. Osama bin Laden, who more than anyone is why we are here today, has a special place in his dark heart for the Jews. Bin Laden has spoke blatantly that he is at war with the Jewish people and anyone that aligns themselves with Israel. He has also said that anyone who cooperates with the United States in Iraq is hostile to Islam. In addition, he has put bounties on U.S. and UN officials in Iraq. His statements indicate that in order to mitigate or eliminate these threats the United States would have to abandon Israel and join bin Laden in purging Jews from any role in the world; these are steps American simply cannot take.

Some in the U.S. Congress think we can spend our national security dollars one way in Iraq and homeland security dollars another way in America as if it were the highway program, like it is not connected to all of these threats. I am here this morning to congratulate AEI for recognizing that homeland security is not a correlation of national security, but its very essence. All the agencies that were combined into the Department of Homeland Security (DHS) need to become national security programs.

Perhaps we should not be surprised in handing out nearly $6 billion in homeland security grants that there would be the occasional abuse, but there is more to it than that. Right here in the nation’s capital, one of the two ground zeros of 9/11, we can find problems with homeland security spending. The first is that there is a lot of money in the pipeline. Congress has appropriated enormous sums that remain unspent because the planning seems to be made only after the funds become available.

The first job of homeland security is to prevent terrorism from happening in the first place. We must harden infrastructure against potential terrorism and prepare first responders to deal with an attack.

While it is true that anything could happen anywhere at anytime, it is also true that we do not have an infinite amount of resources; we have to prioritize how we spend our money. Within the homeland security commission, we are trying to move towards an arithmetic formula. This formula distributes money in two ways: all states get a base amount, and the rest of the money is disbursed according to population. This formula is not connected to any kind of analysis, it is just automatic. We need to move away from this toward a system that recognizes risks of threat, vulnerability, and consequences.

Threat is comprised of terrorist’s capabilities and intentions and what our intelligence can tell us about terrorists’ abilities and intentions. We should use this information to decide where to direct our resources. We also spend a lot of money to determine our vulnerabilities. Consequence can help distinguish between the severities of attacks. We have to introduce risk analysis to our calculation of potential consequences.

What we are doing here this morning will help us learn the best way to spend homeland security funds and also to recognize that homeland security is the very essence of national security. The good news is that our capabilities are going to grow faster than those of the terrorists.

Veronique de Rugy
AEI

In poll after poll, Americans consistently rank terrorism as one of the top three challenges facing the nation today. Judging by their reaction, Congress and the administration fully agree; after 9/11 they moved quickly to spend a lot of money on the problem. Not surprisingly, there was a large increase in spending after 2001. In 2006 we will be spending at least $50 billion dollars on homeland security related spending. Not all this money will be spent wisely; lawmakers will take advantage of the opportunity to direct money to their districts. Many programs that had no connection to homeland security were the beneficiaries of this pork.

To be sure, all government spending contains a certain amount of waste, but when we are talking about homeland security there should be no room for wasteful spending and no room for politics. Every dollar that is misspent is a dollar not spent on our protection. We must ask if we are getting the maximum amount of protection for all of this increased spending.

Government-wide we are projected to spend $50 billion in 2006; only $27 billion of this will be spent within DHS on homeland security spending activities. Another $14 billion will be spent within the department on non-homeland security activities. In addition, $23 billion will be spent outside of DHS by other government agencies. My concern is that with so much money being spent outside of the department, there will be serious oversight problems. There is also a risk of non-homeland security programs getting funds because they are lumped in with the politically popular notion of homeland security spending where they otherwise would not have gotten passed. We must also ask ourselves why so many outside agencies that have a history of mismanagement are getting so much homeland security money.

Economics gives us a very good tool to determine whether or not we are spending our money wisely or not: cost benefit analysis. In order to deter an activity, you must either increase the cost or decrease the benefit of that activity. This is the choice we must make in attempting to prevent terrorism. Also incorporated in this idea is the element of cost effectiveness. We would like policies that yield high benefits with the lowest cost. A good example of this would be to reinforce cockpit doors. This would only cost $3-5 million and would provide very high benefits.

In addition to cost effectiveness we also must look at what kinds of attacks are most likely to happen and which ones cause the most damage; based on these assessments we should distribute our resources accordingly. We would probably want to spend some amount to prevent all types of threats, but we should direct resources towards the most likely and most damaging. This type of thinking should be applied to first-responder and port-security grants. Should we be spending equal amounts in Wyoming and New York? In terms of protecting ports, should we be worried about Guam or Houston?

After 9/11 it became clear that we needed to improve our response; as a result, Congress allocated a lot of money to first responders. The money was distributed by a formula and every state was guaranteed a minimum amount with no attention given to risk or need. As the total amount of aid has increased, so has the minimum given to each state. This appears to be an unintended consequence of the policy. Half of the money is distributed this way, while the other half is determined by population. This formula design disproportionately benefits smaller states. The logic behind this formula is that we could be attacked anywhere in the country. While this is true, the probability of this happening is not very high.

Ports are also getting security grants. Things are slightly better but still are not great in this area. Protecting these sights is very important; 90 percent of foreign trade and 100 percent of oil trade comes through these ports. Forty-two percent of this trade passes through only ten ports, but these ports are nowhere near the top. The amounts given to ports are quite random; they have no correlation to total tonnage. The more worrisome component of this is that the port security grants were awarded on a competitive basis. Each port applied for grants, the projects were then ranked by importance. However, the inspector general for DHS studied the distribution of the grants and found that the agency was trying to spread the money as widely as possible, in effect ignoring their own ranking. So here we have a distribution system based on merit, and yet the decision-makers ignored the system.

Another disturbing issue related to effectiveness is the choice of grants as a way to distribute funds. There are many factors that lead to grants not being the most effective manner in which to distribute money.

Risk analysis not only involves making wise choices about where to direct our money, but also involves deciding who is the best player suited to address a given risk. We need to look at the responsibilities of all levels of government and the private sector. All these other players are assuming that the federal government should be responsible for everything. This should not be the case. The other players should be involved in protecting elements of the country that they are better suited to protect. Immigration and intelligence should be the job of the federal government, while supplying first responders and protecting bridges should be the role of state and local government. If the federal government is going to get involved in the latter, they should assist state and local governments in assessing their risks and vulnerability.

The current system does not provide any incentive for congressman to turn down money and truly evaluate risk. If the states are held responsible, lawmakers have a greater incentive to seriously address risk properly.

The most important thing to think about when discussing homeland security spending is to remember that every dollar wasted is a dollar not spent on protecting us. We need to think about what the best use is for our money.

Matt Mayer
Department of Homeland Security

Contrary to some of the things you have heard today, the sky is not falling. Recently we have heard a lot of bad rhetoric that does nothing to advance the conversation. I hope that we can debate the finer points in protecting our homeland in a way that is more conducive to getting something done rather than just trying to make headlines. There are a lot of good ideas out there; we can debate those ideas but should do it properly.

I would like to address a couple of the anecdotes that Chairman Cox talked about. The leather jackets he mentioned were not bought with homeland security money. They were bought with federal 2002 appropriations money. The Dale Carnegie course was not paid for with homeland security money, it was Department of Justice money. We need to be careful when we say homeland security money is being spent on these types of things because it perpetrates a myth that we are not doing what we need to do to protect the homeland.

It would be foolish to sit here and say that every dollar awarded since 9/11 has been spent wisely; there has been some 13 billion opportunities for that not to be the case. In 2004 my office was in involved in fourteen separate audits with the Government Accountability Office, the Office of the Inspector General, and the House Appropriations Survey and Investigations staff, among others; not one of these audits found system misuse or fraud in our grant programs. Despite some good efforts, I do not believe anyone can say that our investments in homeland security have been wasteful, fraudulent, or abusive. In order to arrive at that conclusion it would be necessary to have an assessment stating that expenditure A was a misuse of funds because expenditure B would have been a better investment based on a strategic risk analysis based on our risks and national needs. Before April 1, 2005, no one had this baseline, they simply had their opinions.

When DHS was created, it did not have a robust policy apparatus. We have had to make policy on the fly and adjust our policy as we go along. It takes time to adjust to the rapid growth my department went through following 9/11. We have worked with thousands of officials all over the country to develop the National Preparedness Goals and to identify the capabilities. We identified the tasks that would have to be performed by some level of government to prevent, respond, or recover from a terrorist attack or natural disaster. Out of this list of about 1,800 we narrowed it down to the 200 most important tasks. Looking at this list, we identified the capabilities that some level of government would need to address these tasks. Over the next five months we are to determine the levels necessary in any jurisdiction to prevent, respond, and recover from an attack. We are going to have three levels of jurisdictions in order to build the appropriate levels of capabilities based on the size and risk of an area.

It is important to make sure we possess minimum capabilities outside of large urban areas for two reasons: our enemies do not give us the luxury of guaranteeing to attack large urban areas, and if an attack does occur in a large urban area, it is likely the areas capabilities will be damaged. By meeting our minimum levels we can ensure our capability through mutual aid.

With this assessment we can measure where we are today, where we have come since 9/11, and where we need to be in order to meet our capability requirements. We can therefore direct our resources with the goal of closing the gap. In the process, we will learn where we have under- or over-invested in specific areas. We have already completed this process for our training exercises.

If we want a smarter, faster funding program it is vital Congress approve the president’s 2006 budget proposal, which is structured to leverage what has already been done to distribute funds based on risk and need so we get the biggest bang for our buck. We do not need another layer of bureaucracy to oversee our grant program; our monitoring systems are already in place. We need to continue to streamline our efforts by consolidating grants into our office. We need to continue providing technical assistance to states and localities to speed up the process of getting their funds spent. Many states have complicated processes to go through before money can be spent, so we need work with them to speed up this process and eliminate any unnecessary bureaucracy.

We need the president’s budget because it reduces our grant programs from fourteen to five, including the State Homeland Security Grant Program, the Urban Areas Security Initiative Program, and the Targeted Infrastructure Protection Program--all of which distribute funds based on risk and need. These three programs accomplish three distinct and symbiotic goals: the first program ensures that every state receives a minimal level of funding, the second program puts more emphasis on high-risk urban areas, and the third addresses the most critical infrastructure regardless of location. This three-pronged attack will radically advance our efforts.

There is an assumption that state and local officials are acting in a way that is in the best interest of our country. Local officials around the country have done a good job in protecting our homeland. Here in Washington, D.C., we do not know how to do it all. The example of Wisconsin cited by the chairman does not give the officials the credit they deserve. The money was awarded by conducting a risk assessment, not because of a whim. We must both trust and verify that our partners at the state and local level are doing the right thing. I am confident that after completing a national assessment, we will find most local and state officials have done what we have asked them to do over the last three years.

Heather Mac Donald
Manhattan Institute

In looking at the many risk assessments of various industries that create an image of a country vulnerable to thousands of kinds of attacks, I have begun to wonder if perhaps we are over-assessing the risk we really face. We have heard the mantra that terrorism is a threat unlike any we have ever faced before; however, we are addressing this threat with business as usual, doing what government does best, spending money.

I want to disagree with Mayer’s characterization of the critique of homeland security spending. No one is arguing there is any bad faith involved; these are simply bureaucrats doing what they are supposed to do: spend what they are given.

I believe the biggest contribution of Veronique’s paper apart from identifying the use of some these grants is the application of public-choice theory to homeland security spending. She argues for moving the funding for some components of homeland security totally away from the federal level to the state and local level. Looking through the details of the federal block grant system and some of the bureaucracy involved, it does not seem like an efficient process in the least; it is not a wise way to be using government. Although this is an excellent example of the problems of federal transfer programs, if we are going to attempt to reform federal grants, it is not going to happen with homeland security.

Her diagnosis of the pork barrel problem is one of politics, and her solution is more expertise. She says that we should spend only where the risk is the greatest. But I think this ignores the fact that the effects of any attack will be felt nationally, not just locally. It may be, however, that our current system of spending a little everywhere is not driven by politics but by ignorance. It may be that the tool of risk analysis is outside our reach; do we really know enough to make the kinds of decisions we are required to make?

In terms of gathering intelligence and protecting our country, the government has been taking the easy route in simply spending money. It has avoided doing the tough job of standing up to advocacy groups that are attempting to hamstring our best weapon against the terrorists--information technology. All of the advances made in terms of information technology that could be used to protect us have been shot down on privacy issues. Efforts at data mining and information sharing have been prevented by advocacy groups on both the Left and the Right. In addition, military personnel cannot use aggressive interrogation techniques because they have been deemed torture. The challenging task of enforcing immigration laws inside the country has been ignored.

If homeland security spending becomes another pork barrel program, the terrorists have won. It may be necessary to put a stay on any increase in homeland security spending until we have the intelligence to make sure we are not overreacting. We should also have a complete analysis about what the future of this spending will be. We need to address whether terrorism is really different and whether we should treat it differently.
 
AEI intern Michael Wilson prepared this summary.