Happy Fourth of July!
Just wanted to let our loyal BudgetBlog readers know we're going on a short hiatus next week. With Congress heading out of town for a short summer recess and the upcoming Fourth of July holiday next week, the Fiscal Policy team is heading out of town in order to escape the heat for some well-deserved vacation. This means, though, that the BudgetBlog will be dormant next week.

But don't despair. Craig and I will return in one short week on July 7 to continue to bring you all the news, gossip, information, and analysis on federal fiscal policy you've come to expect.

Hope everyone has a safe and festive Independence Day next week - be careful with those fireworks.

A recently released GAO report finds that (surprise!) Medicare Advantage providers predicted lower profit margins in 2005 than actually materialized.

[Medicare Advantage (MA)] organizations, on average, reported spending 85.7 percent of total revenue on medical expenses in 2005, but had projected medical expenditures of 90.2 percent of total revenue. Because organizations spent less revenue on medical expenses than projected, they earned higher average profits than projected. On average, MA organizations' self-reported actual profit margin was 5.1 percent of total revenue, which is approximately $1.14 billion more in profits in 2005 than MA organizations projected.

And while these MA providers would have been paid the same regardless of their projections, they would have been required to provide beneficiaries either more services or lower premiums had they accurately projected their profit margins.

File this one under "W" for "Well, Duh." A system that depends profit maximizing firms to divulge information that would result in lower profits will, time and time again, result in less-than-accurate information.

If you want to bring the Magic of the Marketplace^TM to government services, transparency matters -- it matters a lot. Just because the government pays a firm to provide services doesn't mean the government won't get taken.

Another report of a questionable use of outsourcing appeared today in CongressDaily, this time it's happening over at the State Department. Seems folks over there have modified an existing contract to Computer Sciences Corporation (FedSpending.org profile) to "collect visa information and fingerprints of Mexicans applying for new border crossing cards." The non-competed contract has raised some eyebrows in Congress and among government watchdogs, particularly the Government Accountability Office (GAO).

A State Department official testified before the House Oversight and Government Reform Government Management Subcommittee that the contract is just a test program and that the department hopes to initiate a formal competition before the end of the year. But it looks as though that "test program" is just an attempt by the State Department to assess the usefulness of the contract cover their behinds. GAO has not had time to assess the new contracted out work and what impact it will have, and surprise, surprise, neither has the State Department. GAO testified at the same hearing that the State Department has "not developed metrics to measure the success and efficiency of the test program."

So, the State Department is going to determine whether this is a good idea or not by...wait, how are they going to figure that out? Most likely, they have already concluded this outsourcing should happen. My bet is that the test program will lead to a contract for a full program, that Computer Sciences Corp. will undoubtably win, regardless of whether this really is a good deal for taxpayers or might compromise privacy or national security. No worries though - those are just minor details that will unfortunately remain unknown. Sigh...

Following up on my blog earlier today about the Webb-McCaskill Wartime Contracting Commission finally starting to get off the ground, I came across a great column by Thomas Frank today in the Wall Street Journal (of all places!) continuing the drumbeat for a contracting commission to finally get to the bottom of the rampant shenanigans that have gone on for far too long in Washington.

Frank, who wrote a cultural analysis of American politics in the book "What's the Matter With Kansas?", briefly explores the original of the privatization movement in the U.S. in his latest edition of his column entitled "The Tilting Yard," and calls on conservatives (of all people) to help turn the tide of waste, fraud, and abuse in federal procurement. Frank concludes:

The days when conservatives railed against red tape and shrieked for efficiency in Washington now seem like a lifetime ago. When they finally got the opportunity to put their theory into practice, conservatives contrived instead one of the most wasteful systems ever seen.

It is time for a new Grace Commission, this one examining the sordid history of privatization in all its details.

Frank's column is worth a read: The Tilting Yard: Conservatives and Their Carnival of Fraud

Craig's post yesterday about some short-sighted decisions at OMB to not provide sufficient resources for contractor oversight at the Army got me thinking about the Webb-McCaskill Commission on Wartime Contracting. There hasn't been a ton of news about that commission since it was enacted into law last fall, but just last week seven of the eight commission members were announced.

Four of the members were selected by Democrats in Congress, one was selected by Republicans in Congress, and two by President Bush. The Project on Government Oversight has a full rundown of the commission members selected so far and ample background information on each of them.

OMB Watch is looking forward to the work of the commission. We hope this badly needed oversight body for the broken federal procurement system will be able to continue to bring to light the significant problems with federal contracting, but also develop policy solutions to prevent future abuses.

Breaking news from the Government Accountability Office related to the much-hyped $35 billion refueling tanker contract that the Air Force awarded to a Northrop Grumman/EADS partnership earlier this year (see BudgetBlog coverage here, here, and here). In what is being described as a "stunning" decision, the GAO has upheld a protest of the contract award lodged by Boeing. CongressDaily reports:

In a stunning decision, GAO today announced it has sustained a protest filed by Boeing Co. over the Air Force's decision to award a lucrative contract for aerial refueling tankers to a team led by Northrop Grumman and EADS, the European firm behind Airbus. GAO's decision followed a 100-day review of the Air Force's selection process for the $35 billion program. GAO recommends that the Air Force reopen discussions with the contractors, obtain revised proposals and make a new decision. The service was also asked to reimburse Boeing for the cost of the protest.

I guess it is back to the drawing board for the Air Force.

UPDATE:
More information on the GAO decision is available in this article from The Hill: GAO sides with Boeing.

The House Appropriations Financial Services Subcommittee approved, by voice vote, a $22.4 billion bill that would provide funds for the Treasury Department and the District of Columbia. Included in the measure is $11.4 billion for the IRS, a slight increase over the president's request and over $300 million more than the current budget. And while the IRS' enforcement budget allotment matches the president's request -- a respectable 7 percent increase over current levels --, the committee saw fit to raise Bush's $2.15 billion request for taxpayer services funding by $60 million.

The subcommittee also zeroed out funding for the IRS' private debt collection. The controversial move will likely raise the ire of supporters of the program, and if history repeats itself, the program will see funding restored if Congress passes a continuing resolution for FY 2009 later this year.

Here's the approps scorecard thus far:

Writing in The New York Times, James Risen brings us an astonishing article on the circumstances surrounding the firing of the Army official in charge of overseeing the KBR contract in Iraq. It's not only galling to read that the chief of the Field Support Contracting Division of the Army Field Support Command Charles M. Smith was sacked because he refused to approve payment for unsubstantiated work by KBR, but it's a sharp reminder of how the current level of Iraq contracting has lead to billions and billions of wasted federal funds.

Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. "They had a gigantic amount of costs they couldn't justify," he said in an interview. "Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn't going to do that."

But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR's claims — approved most of the payments he had tried to block.

That's awful. But, the Army's rationale for making sure the cash spigot flows unabated signals even deeper problems with Pentagon procurement.

Below are blog and news stories discussing the introduction yesterday of a new transparency bill cosponsored by Sens. Barack Obama (D-IL) and Tom Coburn (R-OK). Given the bill was introduced at the same time as Obama was wrapping up the Democratic nomination for president, the coverage was not bad.

The bill will likely be marked up in Sen. Carper's (D-DE) subcommittee of the Homeland Security and Governmental Affairs Committee sometime in the next few weeks and then hopefully move to the floor before the August recess. Sen. McCain (R-AZ) joined this bill shortly before it was introduced as an original cosponsor, dramatically increasing the chance of it passing this year before election year pressures impose gridlock in Congress. Perhaps Obama and McCain will promote the bill in their potential series of town hall meetings - that would definitely give it a boost in Congress.

The Hill: Rivals Obama and McCain work together behind scenes
Sunlight Foundation: USASpending.gov 2.0
OMB Watch: Obama-Coburn Continue Transparency March
POGO: Obama for...Transparency
Chicago Tribune: Obama, McCain agree on transparency
CongressDaily: Obama, McCain Give Boost To Contract Data Legislation

Updated:
DC Examiner: Another revolutionary leap forward for federal spending transparency
Talking Points Memo: Nugget from Behind the Scenes
ThinkProgress: June 5 Think Fast summary

Update II:
Obama and McCain Agree on Transparency
Federal Times: Obama-McCain bill would post federal contracts online

Sens. Barack Obama (D-IL), Tom Coburn (R-OK), Tom Carper (D-DE), and John McCain (R-AZ) introduced new legislation on June 3 as a follow-up to the 2006 Transparency Act. The bill, the Strengthening Transparency and Accountability in Federal Spending Act (S. 3077), would augment the 2006 law but go further, making important new data more easily accessible to the public and making it easier for citizens to hold our government accountable for the fiscal stewardship of our shared resources.

It should be interesting to see if this new bill will generate the same amount of chaos, confusion, and excitement that the first bill did that Obama and Coburn worked together on. Stay tuned...