Wednesday, December 9, 2009

Money for Nothing

Mark Knopfler had it wrong. EBX didn't have to learn to play the guitar or learn to play them drums. All it had to do was write a proposal, and it got its "money for nothing."

The News Observer has a follow-up story this morning that suggests that there isn't much urgency in the state government to address the double-payments problem.

Officials with the Department of Environment and Natural Resources have characterized the payment as the result of a regulatory loophole that they now want to close. But they also acknowledge that they support double payments in some cases when a restoration project enhances streams and the land alongside them. These projects are built by the state and by private companies.

EBX officials say the company should be entitled to the $911,000 because the state has supported double payments on the other restoration projects...

Chrissy Pearson, Perdue's communications director, said that the governor has been aware of the double-dipping concerns and told her Budget Reform and Accountability Commission to tackle the issue earlier this year.

"She told me quite bluntly that this process doesn't make sense to her and she does want some answers as to whether the groups involved in this type of work are working as efficiently and effectively as possible," Pearson said.

We can speed this along for the governor. The answers are "no" and "no."

Pollution mitigation projects often yield benefits that extend beyond the affected site. Although intended to address one type of pollution, they can sometimes address several. Economists refer to these extra benefits as positive externalities, or spillovers (especially apt for projects to reduce stream pollution). The externalities make the project all the more valuable from a social perspective.

The presence of externalities could explain why the state might prioritize one project over another. It might also explain why the state might be willing to pay more initially.

However, the state's responsibility is to get these benefits at the lowest possible cost. It should drive the best bargain possible initially. And under no circumstances, should it pay a second (or third or fourth) time for work that has already been performed.

Any "regulatory loophole" that allows double payments should be closed. In the meantime, no new double-payments contracts should be written, and existing contracts should be reviewed to see if the state can terminate them.