... But Is It Fiscally Responsible?

Obviously, by now anybody who even occasionally reads a newspaper is familiar with the now-controvercial deal between Boeing and the USAF for the Air Force to "lease" a fleet of 100 new refueling tankers, at a cost of between $26 billion to $37 billion. As an editorial in USA Today states,

Proponents of the lease deal concluded it had a better chance of winning congressional approval than a standard purchase of tankers for at least $150 million apiece because the initial costs would be less. But the eventual price could be as much as $5.7 billion more than a purchase, according to Congress' own budget experts. That's the cost of running all federal courts for a year.

The editorial notes that, despite the costs and questions about whether new tankers are actually needed, legislation to lease them "flew through Congress" and included a provision which "specifically awarded the contract to Boeing, short-circuiting the normal bidding process"

A revised deal, after the scandal broke, called for purchasing eighty tankers and leasing twenty. Boeing fired the executive and former Pentagon employee who exercised (to put it nicely) questionable ethics when they negotiated the deal.

Rep. Norm Dicks, D-Washington, "a senior member of the House Defense Appropriations Subcommittee and co-chairman of the Congressional Airpower Caucus", argues in favor of the deal. (Not mentioned in his comments: the tankers are to be built in Washington in Dicks' district, and that he has received significant campaign contributions from Boeing.) Dicks argues:

Third, although the chairman of the Joint Chiefs of Staff says we need an additional $30 billion to $40 billion annually to modernize military equipment, neither the Bush administration nor the Clinton administration provided adequate levels of procurement funding. So Congress - not Boeing - developed the creative tanker-lease arrangement, now structured as a plan to lease 20 planes and purchase 80.

What has not been emphasized enough is that this is a very good deal for the government: The Air Force will pay less than any other customer for the 767 airframes. It's a guaranteed price, millions less than other nations are paying for the same planes.

The easy retorts to this are that, if the tankers truly are needed, Congress would authorize the money to purchase all 100 of the new tankers. First, it can't be that much cheaper even in the short-term to purchase 80 and lease 20. Second, it is not a good long-term deal to lease the tankers - it costs the taxpayer a lot more. In terms of Boeing providing "a good deal", when was the last time it had a customer who wanted to make an outright purchase of even 20 jets of this size, let alone 80 or 100. The government should get an excellent deal - and if the price is so great, it seems that it wouldn't have been necessary to award Boeing a "no bid" contract.

But, leaving aside issues of pork, unethical backroom deals, and even of corruption, what bothers me the most about this deal is its fiscal irresponsibility. Leasing is great if you can't afford to buy, and can even present significant tax advantages for business. Major airlines typically lease their entire fleets for a variety of reasons, including the tax deductions and their ability to shift the massive debt they would otherwise have to directly float off of their books. But when you can afford to buy, particularly when you are the tax collecter and not a taxpayer, it really makes no sense to lease.

The purpose of a lease such as this is to hide the true cost of the planes, and to shift the cost onto future budgets (and Presidents). It's a bad precedent, as if this one lease deal is followed by an increasing number of similar deals, a President can effectively float a massive invisible budget deficit - burdening future administrations with the cost of future lease payments. While such budget trickery may serve airlines well, as they hide massive debt that might otherwise deflate the value of their stock, investors are aware of this trick so nobody is really fooled. But even now, the U.S. government intentionally confuses its budget picture so as to hide the true magnitude of its present and future debts - and there are no shares of stock or class of professional investors who can give the budget even the limited "reality check" offered by the stock market.

What it boils down to for me is this: I like fiscal responsibility. I like balanced budgets. While I recognize that running a deficit is not always a bad thing - and sometimes it is the only way to afford important new infrastructure - I am not a fan of incurring debt "for the sake of incurring debt" or worse, in order to hide the debt from those who ultimately will be called upon to pay it back. From my perspective, tying the hands of future administrations by burdening them with obligations that should be paid in the present is worse than simply running an oversized deficit. If Bush and Congress are afraid of admitting the true size of the budget deficit, perhaps they should step aside and let some fiscally responsible individuals take over the financial management of our country.

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