Still Waiting on TARP Oversight...

The Treasury Department has taken steps to improve the accountability and transparency of its $700 billion Troubled Asset Relief Program (TARP), but it still has a long way to go to convince Congress and the public that taxpayer dollars are being spent effectively and responsibly on the bailout effort, according to a new report released today by the Government Accountability Office (GAO).

The report covers Treasury's administration of the TARP program through January 23, 2009, during which time Treasury disbursed $293.7 billion in program funds, mostly through the Capital Purchase Program (CPP).  The GAO acknowledged that, in response to its previous report, Treasury has developed plans to conduct monthly surveys of the 20 largest recipients of CPP funds in order to monitor their lending practices.  Nevertheless, the report makes clear that “additional action is needed to better ensure that all participating institutions are accountable for their use of program funds.”

In fact, the GAO found that Treasury has yet to fully implement eight of the nine recommendations made in its previous report.  For instance, Treasury still doesn't have a structured mechanism in place to ensure that firms are complying with CPP requirements, including limitations on executive compensation and dividend and stock repurchases.  Treasury is also still struggling to articulate a clear strategic vision for the program, which is impairing its “ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP.”  In addition, Treasury still has work to do to ensure that TARP contractors are complying with conflict of interest rules.

We applaud Treasury Secretary Timothy Geithner for beginning to issue new accountability and transparency policies, such as a plan to post contracts for future completed transactions to Treasury's website within five to ten business days.  As he continues to meet with GAO investigators, Special IG Neil Barofsky, and members of the Congressional Oversight Panel, we hope that Geithner will move quickly to address some of the other glaring deficiencies in TARP oversight.

-- Michael Smallberg

No Rewards for Bad Behavior

Much like giving sugar to a hyperactive kid, the Senate is making a mistake by giving the National Nuclear Security Administration (NNSA) $1 billion in economic stimulus funds--$900 million for maintenance and general plant project backlogs, other construction activities, and various energy projects throughout the weapons complex, and $100 million for advanced computer research and development.

This is not a wise investment.  NNSA and its parent agency DOE are plagued with management challenges.  Instead of getting additional funds, NNSA should prioritize the money it already has to carry out the projects it considers critical, and to demonstrate that it is making improvements on its contract administration, stockpile stewardship, and quality control.

We understand from sources on the Hill that the Senate language ensures that none of the money will go to the Reliable Replacement Warhead (RRW) program or big (and unnecessary) construction projects like the Chemistry and Metallurgy Research Replacement Project-Nuclear Facility (CMRR) at Los Alamos and the Uranium Processing Facility (UPF) at Y-12.  Apparently the Senate also did not fund NNSA's request for naval reactors.  In addition, while our sources cannot provide documentation, they say that the stimulus funds will only be used for smaller-scale construction projects in the range of $500-10,000, although we are highly skeptical that NNSA will be able to construct much of anything given its exorbitantly high overhead costs.

Today's issue of Nuclear Weapons and Materials Monitor provides more details on what NNSA actually is planning to do with the money [POGO commentary included]:

• $90 million for transformation disposition, the first stages of the NNSA's plans to demolish 600 buildings and structures around the complex [Holy cow! This much for only the first stage? We expect at least a dozen stages]; 

• $360 million for energy projects [Will this be for a couple of photovoltaic cells on a roof in New Mexico?];

• $400 million for dozens of minor general plant projects involving the replacement of utility poles and electrical systems, the repaving of roads, and maintenance [POGO expects 5-10 utility poles to be completed for this amount.]; and

• $50 million for site-wide security enhancements similar to what had been included in a previous version of the stimulus in the Fall [Hopefully, this doesn't mean more Gatling guns whose hydraulic systems don't work.].

Past experience has shown that everything DOE touches multiplies in price by at least five times.  Senators should also realize that these funds are unlikely to go towards preventing nuclear terrorism, as DOE spends at least 67 percent of its budget on weapons.  For example, in a long interview with veteran reporter Frank Munger, the Director of Oak Ridge National Laboratory (ORNL) did not mention using any potential stimulus money for moving the incredibly vulnerable U233 out of building 3019 at the Lab, which only a few years ago was supposedly a priority security issue that could not be addressed due to a lack of funding.  In a follow-up piece, Munger reported that ORNL is in fact trying to find ways to spend the money on UPF.

-- Ingrid Drake and Peter Stockton

Regulating Wall Street: The Debate Continues

In the wake of the financial meltdown, many believe that the entire U.S. regulatory framework must be revamped (see, for instance, the recent report by the Government Accountability Office and Jesse Eisenger's column in Portfolio).  The latest group to add their voice to the debate is the Congressional Oversight Panel.

In addition to overseeing Treasury's $700 billion bailout effort, the Panel has also been developing its own proposals for reforming the financial regulatory system.  Yesterday, the Panel released a special report with its findings and recommendations for strengthening the regulatory framework to protect investors and taxpayers from future crises.

“The current crisis should come as no surprise,” according to the report, because the regulatory system has repeatedly failed to “manage risk, require sufficient transparency, and ensure fair dealings.”

The Panel goes on to identify eight urgent reforms for improving the regulatory system, such as overseeing the financial institutions that pose systemic risks, supervising the shadow financial system, and creating executive pay structures that discourage excessive risk taking.  (The last recommendation should certainly resonate with President Obama, who yesterday called Wall Street executives “shameful” for giving themselves $20 billion in bonuses in the midst of the economic crisis and the government bailout).

It should be noted that the Panel's recommendations were split down partisan lines, with the three Democratic appointees approving the report, and the two Republican appointees voting against it.  In a separate section of the report, the Republican appointees offer their own views on the merits of increased regulation:

Before embracing more government regulation as the only answer, such advocates should consider the many ways in which government regulation itself can be part of the problem.  The history of financial regulation is replete with such examples as either regulators or regulation have simply failed or made matters worse.

Meanwhile, Members of Congress have been hard at work drafting their own proposals for improving the financial regulatory system.  As we noted earlier this week, Rep. Barney Frank (D-MA), Chair of the House Financial Services Committee, will soon be introducing legislation to create a systemic financial regulator, most likely the Federal Reserve.  And yesterday, Senators Charles Grassley (R-IA) and Carl Levin (D-MI) introduced a bill to strengthen the transparency and disclosure requirements for hedge funds.

For you audio-visual learners, Panel Chair Elizabeth Warren has prepared a YouTube video summarizing yesterday's report:

-- Michael Smallberg

We Don't Need Any Additional Plutonium Pits

Mark Thompson's article "Obama's Showdown Over Nukes," published in Time Magazine earlier this week, did a great job of highlighting the controversy over Secretary Gates' statements in favor of developing a new series of nuclear weapons and President Obama's clear statements against such a development.

However, in stating that “there is concern that aging pits may fail to detonate properly, or perhaps at all,” the article fails to acknowledge the most current research findings on plutonium pits.  The scientific authority on nuclear weapons, the JASON panel, as well as studies from DOE's own nuclear labs, have concluded that the plutonium pits in the current U.S. stockpile are viable for up to 100 years.

Unfortunately, despite this research, DOE has paved the way for the production of new pits at the Los Alamos National Laboratory (LANL).  In addition to pit production being unnecessary and costly (at least $130 million apiece)--not to mention the fact that it requires the construction of costly new facilities--it also sends the wrong message to the international community about U.S. efforts to drawdown its stockpile.

Also, POGO has doubts about the quality of the new generation of pits after learning that LANL asked for 72 waivers for the manufacturing specifications of pits, and that the new pits would not be subject to the rigorous testing required of those pits currently in our stockpile.

-- Peter Stockton & Ingrid Drake

To Finally Resolve Nuclear Power Plant Security Weaknesses, Obama Needs to Appoint New Commissioners

For the second time in two weeks, Commissioners at the Nuclear Regulatory Commission (NRC) have rejected staff recommendations to improve security at nuclear power plants by a tie vote of two-two.  NRC rules establish that a tie vote means a rejected vote.

The first NRC action was to reject a staff recommendation that would have provided the public with more information on the results of security inspections at nuclear power plants.  This is a topic that POGO feels strongly about: in fact, we recently submitted public comments in favor of the staff recommendations.

And just days ago, two of the Commissioners rejected another staff recommendation to make the NRC's Design Basis Threat (DBT) more realistic by increasing the number of adversaries that nuclear power plants have to defend against and to include more lethal weapons that are commonly used by terrorists.  For years, POGO has been critical of the NRC's unrealistic and diluted DBT.

The NRC Commissioners are not doing the American people any favors by dismissing the recommendations of their staff security experts about how to protect these nuclear power plants from a realistic threat.

These recent tie votes demonstrate the need for President Obama to both appoint a Commissioner to fill the NRC's vacant fifth seat and to designate a new Chairman.

President Obama should appoint someone who is dedicated to improving nuclear security.  This is an opportunity to show that he is serious about his commitment to prevent nuclear terrorism.

-- Ingrid Drake and Peter Stockton

McCain Finds Lynn's Responses "Disappointing"

Remember how we were waiting on William J. Lynn III's responses to Senator John McCain's (R-AZ) questions concerning how his experience at Raytheon would impact his work as Deputy Secretary of Defense?  Well, McCain has his answers, and he's not happy.  Reuters reports that McCain is "disappointed" by his responses, calling them "an inadequate response from an individual who is a former lobbyist who seeks to become the second most powerful person in the Department of Defense."  From the letter:

Let me be perfectly clear. I do not expect you to look into the future with perfection and predict every issue involving Raytheon that may come across your desk in the next year. What I do expect is that you know now the issues you have lobbied the Department of Defense on for Raytheon that would raise concern with the American public if you took action on them, or any other issue that could impact Raytheon, if confirmed as Deputy Secretary of Defense.

-- Mandy Smithberger

Lobbyists -- Recession-Proof?

According to a USA Today story, federal lobbying expenditures exceeded $3 billion in 2008: “The record $3.3 billion lobbying price tag is up from $2.9 billion in 2007 and is more than double what was spent four years ago, according to records compiled by the non-partisan CQ MoneyLine.”

That data (confirmed by the Center for Responsive Politics) begs the question: Is that dramatic increase linked to the rise in contract spending from approximately $200 billion in FY 2000 to over $530 billion in FY 2008?  POGO has often used the term “politics of contracting” to explain the relationship among contract awards, lobbying, campaign spending, and the revolving door.  Although difficult to prove, it’s assumed that “pay to play” politics and contracting are strongly rooted inside the D.C. Beltway.

Not to beat a dead horse, but protecting government decisions from influence peddlers is why POGO so strongly opposed the nomination of William Lynn, a former Raytheon lobbyist, to be the Deputy Secretary of Defense.  Mr. Lynn might be an intelligent government reformer (we hope he is if confirmed by the Senate), but when people continually switch hats, reform is undermined.  Appearances of impropriety can be as damaging as actual conflicts.  Whether real or perceived, the public’s perception of those activities leads taxpayers to think the government is run by backroom deals and private interests.

Lobbyists surely have their place in being advocates for their company or clients, but a government run by them is a recipe for failure.

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The Postman Rings Too Much for Lynn

William J. Lynn III must be getting sick of walking out to the mailbox.  We've just received another letter to Lynn, this time from Senator Charles Grassley (R-IA).  You know our song and dance about this, so let's just go straight to Grassley's concerns:

In 1998, when you were CFO, "Pay and Chase" was a term used to describe DOD vendor payment policy. With 'Pay and Chase,' the Pentagon paid bills first and worried about tracking down the receipts later.  Sometimes receipts were found; sometimes not; And sometimes no effort was made to look.  This is how DOD ended up with billions of dollars in unmatched disbursements.  As I understand it, this was SOP when you were CFO.  It was unofficial policy.  It was practiced but not authorized in government regulations or law.

He then goes on to say:

Mr. Lynn, on the surface at least, your "Straight Pay" policy appeared to authorize DFAS technicians to...create false bookkeeping entries to cover large payments in the absence of supporting documentation.  Your policy left the barn door wide open to fraud and mismanagement.  At the time, the General Accounting Office agreed with that assessment.

At the end of the letter, Senator Grassley asks Lynn to clarify his position on "Straight Pay":  "It seemed to be completely inconsistent with your responsibilities under the CFO act.  As CFO, how could you endorse such a policy?"

But Mr. Lynn must be more excited than anyone about the prospect of the U.S. Postal Service ending Saturday service.

-- Mandy Smithberger

Grassley Raises Questions About Lynn

POGO has just released a letter from Senator Charles Grassley (R-IA) that raises additional questions about the propriety of former Raytheon lobbyist William J. Lynn III taking on the position of Deputy Secretary of Defense.  While Lynn must first satisfy the questions raised by Senate Armed Services Committee ranking member John McCain (R-AZ)--due tomorrow--Senator Grassley's letter targets Office of Management and Budget (OMB) Director Peter Orszag to qualm his concerns about Orszag's decision to issue Lynn a waiver from President Obama's ethics Executive Order.  Senator Grassley's letter quotes President Obama to demonstrate why this ethics reform is so important:

President Obama explained why it was important to close the revolving door: "Lobbyists spend millions of dollars to get their way.  The status quo sets in....They use their money and influence to stop us from reforming [government policies]".  He added, "...together, we will tell the Washington lobbyists that their days of setting the agenda are over."

President Obama's message was crystal clear: allowing lobbyists to pass freely through the revolving door was simply not in the public interest.  He espoused that lobbyists in government "are a problem" because they block needed reforms - reforms Mr. Obama promised to the American people.

Senator Grassley asks OMB to answer four questions:

1. What criteria did OMB use to determine that Mr. Lynn's waiver was necessary to further 'the public interest'?

2. Does OMB believe there are no inherent conflicts of interest in having Mr. Lynn serve as the Deputy Secretary of Defense overseeing procurement from a company he formerly lobbied for?  If not, why not?

3. Given President Obama's position on lobbyists serving in government positions, did anyone in OMB ask the President or his Counsel to consider whether other candidates for the position would be better qualified before granting the Lynn waiver?

4. Does OMB believe that Mr. Lynn's requirement to recuse himself in certain instances under provisions of the Executive Order not impacted by the waiver will hinder him from doing his job?  Why or why not?

-- Mandy Smithberger

More MRAP Problems

And more follow up from Tuesday’s hearing: Defense Secretary Gates cited Mine Resistant Ambush Protected vehicles (MRAPs) as an example of how there are significant problems with the acquisition process--something POGO has also argued.  Inside Defense just reported that there is more evidence of MRAP acquisition as a case study for problems with defense procurement: the Department of Defense (DoD) Inspector General (IG) found that DoD “likely overpaid for Mine Resistant Ambush Protected vehicles because contract officials did not properly assess prices and failed to ask for a volume discount from one of the top truck manufacturers.”

-- Mandy Smithberger

Information Policy in the New Administration

The Collaboration on Government Secrecy is conducting a conference from 8:30 am - 4 pm today on Information Policy in the New Administration.  There are a slew of great speakers, but be sure to check out POGO Executive Director Danielle Brian on the 9:45 am panel on Transparency Policy Recommendations.  Live webcast is available here.

Good Ethics News from Interior

Starting to follow through with his promises to improve integrity at the Department of the Interior, Interior Secretary Ken Salazar recently issued a memorandum to employees on ethical responsibilities.  In addition to urging employees to heed current regulations, he also directed the Designated Agency Ethics Official to review Interior-specific regulations and make recommendations for improved ethical policies and guidance.  Salazar also counseled employees to not just rely upon their own judgment, but to seek the advice of ethics officials, reminding them that "[o]nly authorized ethics officials may interpret ethics rules and statutes, and only they can provide authoritative and protective advice for your questions."  As I wrote yesterday, there are a lot of issues on the new Secretary's plate, but this is another step in the right direction.  Hopefully Interior department appointees and employees will heed his advice, and we won't hear about more instances of industry attorneys being more concerned about conflicts of interest than Interior department officials.

Also, the AP just reported that Salazar may reopen investigations closed by the Bush administration.  Could he be referring to Greg Smith or Lucy Denett???

-- Mandy Smithberger