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Monday, December 05, 2005

How DC funding works -- understanding government corruption

Ever wondered about the corruption in DC?

You're not alone.

It's not hard to understand.

Some have complained of headaches over the DoD/CIA lobbying issues with Congress:

  • How much corruption is there?

  • Why doesn't Congress do something?

  • What is going on with contracting?

    This note hopes to outline for you how the DC-game works, and show you that the "sudden revelations of corruption" are tied to long-standing behavior.

    No, there's not a new wave of corruption just starting. It's been around for years. What's different is people who normally don't hear about it are getting the information they need to make informed decisions.

    Yes, those inside DC are shaking because you've found out the game; their next project is to make you believe it's "someone else's issue."

    It's on both sides of the aisle. But the real issue: Why, by name, is actually "not following the rules and getting convicted?" It's one thing to break the rules and get caught; it's another to get convicted and have some meaningful consequences on the machine.

    * * *

    Money flows from contractors to Congress for one reason: To ensure that the lobbyist-contract's programs get support in the legislature, and preserve jobs.

    Executive branch programs are used to pay contractor-lobbyists to visit Congress and the Executive Branch.

    * * *

    What is overstated to justify initial and continuing programs/funding:

  • Threats to address

  • Benefits of the proposed solution

  • Impacts if programs are cut

    * * *

    When you think of DC, think one thing: Money.

    One analogy is thinking about sand as it falls on a big square like a checker board.

    DC-funding is simply this: The game is to ensure "your square" on that checker board gets the funding it needs, not only in volume, but over time.

    Funding has two valuable components: Volume and time. Think of funding not only as a chunk of money you can spend today or this year, but also as a future stream of money that you can use in other years.

    * * *

    Think about the analogy of pouring sand on the checker board. The goal of DC is to watch the rate that the sand falls on the checkerboard; the rate that the sand spreads around along that box; and then monitor how quickly that sand is spent.

    When money, or sand, is spent, think of it as "falling through the checker board" into other things: Contracts, material, labor, and other things.

    * * *

    There's something about funding profiles that is interesting.

    Programs that require multi-year programming have something called a "funding profile," which is the way the dollars are spread out over the years.

    In a given year you may have $100M dollars.

    In a multi-year program you can have a profile that looks like this:


    06 = 2006
    FY = Fiscal year, starting 1 Oct
    $M = Millions of dollars

    Ex: FY 09 1,350 means "Fiscal year 2009 has $1.35 Billion dollars, or $1,350 million."

    FY $M
    06 100
    07 300
    08 700
    09 1,350
    10 900
    11 400
    12 200

    A funding profile is horizontal:

    Fosus on dollars:

    $ 100 300 700 1,350 900 400 200
    FY 06 07 08 09 10 11 12

    Focus on fiscal year:

    FY 06 07 08 09 10 11 12
    $ 100 300 700 1,350 900 400 200

    The thing to notice on a funding profile is the peak year: FY09, or "fiscal year 2009".

    Also notice the dollar amounts in years 06-07, they are increasing. This is known as the initial ramp, or the build-up phase.

    The angle, rate, and the duration of that ramp is something referred to as "rampology" or the "study of ramps." This is something that the Senior Executive Service learns about.

    When the ramp "doesn't look right" it means that a funds manager is asking for too much money than they can spend; or their ramps is too shallow, and isn't getting enough momentum going to solve the problem by the planned date.

    At the "expenditure end" of things [watching how quickly the sand is falling through the checker board], people can watch whether the money is spent/moved/falling at a rate that is or is not on target: Too slow, just right, not fast enough.

    * * *

    You can also monitor whether you are getting anything for what you are doing. For example, if your job is to spend $100/month to buy 100 mouse pads, and at the end of one month you said, "All the $100 was spent," some might say, "Wow, we did it!"

    Small problem: What if I told you, for that $100, you only got 50 mouse pads. That means your cost/schedule efficiency is 50%, or that next month, for $100, you're going to have to make 150 mouse pads.

    That means you're going to have to figure out "how to make 150 mouse pads, but only have $100 to do it, or an efficiency factor of 150%, or 1.5

    That means you're current efficiency of .5 is going to have to jump to 1.5.

    The analysts looking at a multi-billion dollar program will say, "There's no way.”

    * * *

    It's possible to figure out what are "most likely" efficiency factors simply by reading the words people use.

    * * *

    One thing to understand about ramps is its relationship to learning curves in production, acquisition. The angle of the ramp should have a consistent relationship with how something is fabricated, produced, or created.

    This applies to software, products, and also reports.

    This is another way of saying, that as you make more things, you're more efficient at making it. Why? Because you're "learning" how to make it more efficiently. This is something that was used during WWII by cost estimators to estimate how much it would cost to make fighter aircraft.

    Those firms that were using learning curves could more accurately forecast efficiencies and underbid their competitors.

    A learning curve is something you can use to estimate future costs, then evaluate how many units of that item you're going to make.

    * * *

    The trick is to know how people will use and abuse learning curves.

    For example, something that is on a manual-production would have a specific learning curve, or a "relationship between the dollars/man-hours spent, and the efficiencies in output."

    However, something that is automated, will not have a learning curve because you’re using robots.

    So if someone says, “We will have improvement because of learning,” but they’re using an automated process, you know that they’re forecasting improvement that are not possible.

    * * *

    Here's how the game works every day for the people working budgets in DC. They have one goal: Protect their money. That's all they care about.

    Their goal is to get more people to support their program than other programs.

    Those with the most money, or gold, win. Money in DC equates not simply to buying power, but leverage when arguing whether one program does or doesn't get support.

    Money means one thing: Jobs.

    * * *

    There are ways to get more gold or money. You can "offer up" something today, and get friends, and then get a payback in the future.

    * * *

    Here's how the game occurs: Everyday, something new comes up. The job of the President is to figure out "where to get the money" to pay for things.

    There are several places he can go: First, he can look at the programs, or the checkerboard squares, and find programs that have "extra" money.

    Or he can go to Congress and ask for more.

    Or he can take money from a program that has a low priority.

    * * *

    Programs have hidden money: It is called management reserve. The program manager will hide that money is the budget "in case" there is a cost overrun, or a problem.

    This is perfectly acceptable.

    * * *

    Think of money as something that has a color. There are different kinds of money. Some money has to be spent in a single year; other money you can spend over five years; and other kinds of money you have to spend in other increments.

    * * *

    Here's the game that occurs: Sometimes money from cancelled programs will "show up". But the wise program manager will know: Sometimes it's not a wise thing to accept it.

    Why? Because DC watches something called the "funds execution rate." This is the speed at which you spend your money, or the rate that the sand is falling through the checker board.

    Think back to the multi-year program profile: If you have "extra" money show up that you don't really need, guess what happens?

    It means you have "extra money" in a given year, and then that money sits there, until you spend it in the next fiscal year.

    But there's a problem: Some money has to be spent in a specific year; while other kinds of money can be spent over multiple years.

    If you have "extra money" show up in 2007, but you only need the original amount, then you'll have a chunk of money, or sand, sitting on your checker board, but it's supposed to have fallen through.

    What happens? If you have the "right color" of money, you can roll it over.

    However, if you have the "wrong" kind of money, you have to find somewhere else to spend it.

    * * *

    At the end of each fiscal year in September, there's something called "fiscal year fallout." This means that all the programs that "should have spent money" will have to "offer up" all the funds that didn't fall through their checker board.

    * * *

    Let's run through a program and some scenarios, and you'll see what happens behind the scenes.

    Suppose a surprise shows up and you suddenly find out that in Country-A, let's call it the Island of Tongorgia, off the coast of Madagascar [A fictional, non-existent place].

    Suppose Tongorgia has something that everyone has been talking about, but suddenly we find out the truth: That there are these evil people who are causing mayhem.

    To the north of Tongorgia are the oil shipping lanes.

    Our intelligence intercepts tell us that Pirates linked to our arch enemy are using another Island, called Bestraka [another fictional place], as a launching pad to strike into Tongorgia.

    However, we have a problem. We don't like Bestraka because they've been shipping evil supplies to our other arch enemy on the mainland of Africa, another fictional place called the Republic of Chartalogoru.

    The issue is: What do we do?

    * * *

    The above scenario is based on a simple assumption: That we're going to figure out what is going on, come up with some options, and then solve the problem.

    At this phase, we have a surprise. Why? Because until this time we've been relying on our friends in the area, but their communication equipment has been down for repair.

    Out of the blue, we've heard something new.

    * * *

    Here's what happens in DC: First, the National Security Council will work through its current options, and find out if there are some friendlies in the area who can give us a sense of what is going on.

    At the same time, there are staffers in the CIA, NRO, and DoD that are scurrying around, talking to their contractors, and trying to figure out who has contacts in the area that can give us a sense of what the situation is.

    Just our luck. The entire region, as in some cases, is completely new. It appears as though this is a small unit, and nobody in the Western World has had any contact with these people.

    * * *

    At this point, friendly Naval units which are steaming toward Republic of Chartalogoru report that they'll arrive in two days.

    * * *

    The island of Bestraka is known for its special grade of oil.

    * * *

    The Island of Tongorgia has something that someone else wants. We don't care about it, we just don't want someone else to have access to it.

    * * *

    Oh, no. Bad news. CNN has landed, and on the Island of Tongorgia, the evil leader has announced that all non-Tongorgians will have to leave.

    Small problem. There's no way off the island.

    Genocide starts.

    * * *

    Britain, China, and Russia convene an emergency meeting. The Americans show up, and report that the Tongorgians must be stopped.

    All agree.

    Small problem.

    Where do we get the money?

    * * *

    This is the point when the DoD, CIA, and NRO staffers start to scream. "They're coming!"

    The President, whether he knows it or not, has just issued orders to have all the funding profiles scrubbed: This means to "find where we can rob money, and then use it to pay for the depleted DoD funds."

    The President has to move fast. And the good staffers have already got their contract templates ready: Charter airlines, fuel, and increased munitions.

    This one looks like real mess, we're forecasting a 3-year requirement. This means a multi-year approach.

    * * *

    At this point, the staffers then go back to the funding monitors and start shifting funds around.

    This is where the Congress steps in: "Hay, you can't afford to take the money from that program; there risks are too high."

    Then, DoD will get calls from Constitutents complaining about layoffs.

    Bloggers start blogging, and then the Washington Post starts talking about layoffs.

    * * *

    What to do?

    Well, think about the checker board and sand analogy. The goal of every program manager is to protect their money.

    But they also have to "do their part" to support the President.

    If they offer up money, as all good staffers will do, then they lose out. This means their funding ramp is less steep. This translates into less dollars when they need it, a shallower funding ramp, and less money to put on their checker board.

    * * *

    In theory, the programs that survive are the ones that have the most importance.

    In practice, the programs that survive are the ones that have the most support.

    Support is based on several things:

  • Arbitrary factors

  • Jobs

  • Who has the most powerful funding manager

  • The intelligence and responsiveness of the managers, staffs

  • The ability of a program to quickly provide information or "impact statements"

  • Whether the program is related to a high or low priority in the administration.

    All of the above factors are not intended to be all inclusive.

    Rather, this list is simply to show you that "there are many factors" that go into whether money is or is not taken from a specific program to cover an unknown requirement.

    * * *

    Small problem. What happens if, well after the funding gets shifted around, the problem goes away?


  • Tongorgians are successfully persuaded to put down their arms, and the crisis is solved in three weeks; [We have extra money]

  • The Island of Bestraka is decimated by an earthquake, and the port is wiped out beyond repair; [We have less money]

  • There's a coup in the Republic of Chartalogoru, and the mercenaries proclaim their support of the evil ones, and your critical communication center is taken over; [We have money that we cannot spend]

    * * *

    Think back to the color of money: Every time there's a problem with someone else's region of the world, the rate that the sand falls through the checkerboard [that was estimated] will be different.

    * * *

    Also, there's something called a cost overrun, or a schedule delay. You can have this when things are more complicated than you planed; or what you're doing isn't working; or what you're working on can be solved in another way.

    When we have a cost overrun, or a delay, there are several things that can happen:

  • A. You can get more money

  • B. They can take your money

  • C. They can tell you to do it anyway

  • D. They can say they still want "whatever you have" by the end-date

  • E. Your program is cancelled

  • F. They give you more money than you can use, and raid your program next year when you need it.

    * * *

    Think back to the checkerboard and sand. The game of DC is to know how much sand you have; what might be affecting the rate of sand on your board; whether your sand is getting used; and whether other programs may need your sand; or whether other program may have more sand than they can use.

    * * *

    Who cares about all this?

    Well, the game of DC is simply to make sure that the sand is flowing. Sand may or may not solve a problem.

    Sand may or may not address the situation.

    But the sand means one thing: Jobs.

    * * *

    How does this relate to corruption?

    Well, in order to "protect your sand" sometimes the funding managers will imply there are "bigger impacts" than are real in order to protect their sand.

    Is this legal? That's up to the prosecutor to decide: Has someone lied about "their program" in order to get money that should not have been moved.

    * * *

    What's the big problem right now with DC, and how does this relate to the above?

    There's a big gray area: Sometimes money gets moved for legal reasons; sometimes it gets moved, and you're not sure; and sometimes it gets moved for something you think is legal, but is actually going somewhere else.

    There are also other problems:

  • Sometimes money, that you didn't spend, is still sitting there, and is used to pay for bills that come in years later. But the money has already been moved away; so you have to find another source of money.

  • Sometimes money will show up, you have no idea what it is for, and the next day, it is gone.

  • Sometimes money will show up, but the funding documents will get messed up.

  • Sometimes your initial program estimates include management reserve, but you later find out that you've got a special account set aside to pay for things. Then you find out that you've got 2x the amount of money for a special item, but only need 1/2 of it.

    * * *

    The above scenarios are normal. The trick is to realize that it is about sand, checker boards, and the color of money.

    * * *

    Here's where there are problems:

  • You have a new requirement, no money, and you have the wrong color money;

  • You have a program that isn't making progress, but you're running out of time;

  • You are in charge of a program that everyone says is important, but they won't give you money;

  • You're in charge of a program that everyone wants to give money to, but you find no valid requirement, and the information and data justifying your program is based on fiction;

  • Your program is a "holding place" for "other programs we can't talk about" but nobody told you this; then because of your "bad execution rates" they take your money, and leave you with requirements that are not solvable; then a crisis in the Republic of Chartalogoru means all your plans go out the window; but you only have 15 minutes to give a response to DC on "what the impacts are, and your new funding profile if they take 45% of your funds." Whatever you tell them, you have to live with: Good, bad, or disasters.

    * * *

    So what do people do to "get around" these surprises?

    Well, the play games. Some of them are legal. Some of them are not.

    Illegal things include:

  • Creating false data to justify a problem

  • Reporting "greater progress than reality" so that your program doesn't get cancelled for "lack of progress";

  • Reporting "no problems" so that you don't questions, but you're actually clueless on why you have a disaster on your hand;

  • Agreeing to "ship the finished, working product" that you know isn't meeting the requirements;

  • Spending money from the wrong color of money

  • Using money from your "approved management reserve" but for a different program, one that was supposed to have been cancelled, but you still want to use it for R&D;

  • Failing to book costs against the right program, but still working long hours on something that is important;

  • Other

    * * *

    What happens when DC problems hit the Washington Post?

    Usually, at this point what's happened is someone, who cannot otherwise get money, has to create an illusory justification for their program.

    In other words, the "normal funding games that go on" [involving moving sand around on the checker board] aren't matching what your company thinks is "appropriate."

    So what happens?

  • Money gets siphoned off a program to pay for "extra trips" to DC to "explain" to the representatives the impacts;

  • "New data" shows up that says "if this product doesn't arrive by X-date, we turn into pumpkins."

  • "New technical solutions" appear that show we can do it better than the competitors in a competing program.

    What's actually happening:

  • A. Bribes are being paid to get the priorities adjusted

  • B. Technical data is fabricated to create a false story on impacts

  • C. The cost estimators, after examining satellite photos of a dumpster, have figured out the learning curves of their competitor based on the cardboard-utilizaiton, and have learned their numbers "aren't good enough" so they make the technical requirements "fit into" the available budget, knowing full well the actual program complexity requires more money.

  • D. Secret programs called "black programs" are using your program to hide money from Congress, and then its getting siphoned off to pay for the facility upgrades in a classified location -- small problem, Congress is supposed to have a special list of construction projects, but you neglected to tell them. So you say, "We're all in this together" to avoid Congressional visits to your secret detention centers on the Island of Bestraka.

    * * *

    DC is about one thing: Money.

    It is not like running a business.

    It is simply about moving sand or money around on a checker board.

    That checker board may or may not be the same size on any given day.

    The rate the sand flows through the checker board may be faster, slower, or as planned.

    What you get for the movement of that sand may or may not make a difference. Sometimes it does, sometimes it doesn't.

    The way you get more or less and may or may not depend on bonadfide requirements, and may be related to your personality, how quickly you respond, or whether you have the right people working for you who can "sell the right story to the right people."

    Overall, it is based on many factors that may or not make sense.

    The problem the players have is when they cross the line, and then dream up excuses that they think "should be acceptable," but are actually fraud.

    * * *

    DC hates whistleblowers. DC also hates corruption.

    DC is more likely to clamp down on whistleblowers than the corrupt.

    * * *

    During the Cold War, bogus requirements and threats about the Soviet Union were tossed around for one purpose: It meant more money for jobs.

    Analysts knew the Russians couldn't get food to their own troops in the Central Republics; there was no prospect they could sustain a long-duration invasion and occupation of Europe. That is why there was much concern about nuclear weapons -- the Russians might have used them because their land-based units couldn't do the job.

    * * *

    Today, we have new threats, and some of the same old ones.

    The game is the same: To sell your program, get money for your square, and protect your money.

    Today's "approved threat" is terrorism. Things are sometimes "justified" as being related to terrorism.

    The problem we have is when the money, supposed to be going to anti-terrorism, is actually going to pay for things "which we were supposed to have already have completed" or for things that "we had no idea actually cost this much."

    * * *

    After 9-11, money got shifted around. In some cases, it got thrown at programs that were not effectively funded. Sometimes money "related to anti-terrorism" was actually sent to pay for basic things that were not getting done, but commanders were told "we are OK."

    Operational readiness rates were bogus. After 9-11, money went to backfill these programs, and sometimes the basic salaries needed to do the job were finally paid at a "suitable rate."

    Small problem: There were too many problems, and the personnel were not experienced to do the job.

    Then people like Sibel Edmonds figured out what was going on: Analysts, who were not qualified, were getting paid alot of money; and sometimes, in the desire to "find people really fast to solve a problem" people were brought in to do jobs that were actually loyal to someone else.

    It all relates to money.

    * * *

    The problem also relates to the rate of sustainable growth. If an economy grows too fast, and its educational system cannot produce qualified labor to do "what is needed" to do those jobs, then the economy is on an unsustainable track.

    Think of a pizza. Sometimes, as you roll the pizza dough, it gets too thin. That's not good. The cheese melts through. It can cause a fire. Then you have no pizza worth eating.

    Today's economy is kind of like monitoring the thickness of your pizza dough. The problem is when interest rates are too low for too long, and there's too much debt.

    People can either default on that debt; or they can find someone else to pay the bills.

    That's where America is: It has a big debt. "How big is too big" is debatable.

    We've seen the results in Asia in 1997.

    * * *

    What's going on in DC? They're playing their games. Moving money around.

    But the money is also related to real people with jobs, and problems around the globe.

    It remains to be seen whether America is part of the solution, or throwing gasoline on the fire.

    When America's leaders lie to get money, it means they're throwing money at programs that, on their own merits, would not get that support.

    There is a cost: Something didn't get funded; or the country had to borrow.

    Some borrowing is good -- and when money goes into the US economy, crates jobs, and drives up tax revenues, that means there might be a good investment.

    But, there's a problem when, in our goal to save money, we end up not making things correctly. Levees fall apart. Cities go underwater. And the costs, in the long run, are higher.

    But, the "benefit" was that money from a given year was taken to pay for something else; and the sand got shifted around. The loss, self-evidently, is loss of life.

    * * *

    The voters are waking up. They're realizing that lies are used to justify moving sand around.

    The lies aren't new.

    The sand isn't new.

    The games aren't new.

    What is new: Americans have been lied to in a new war, over non-sense WMD, and real lives have been lost.

    The funding, sand, and lies will continue. As will the phone calls to Congress.

    People want to save their programs. It means jobs.

    But it also comes with a price: Sometimes money spent today is for something that means something else isn't funded.

    The voters are waking up. Realizing that perhaps the way the sand gets moved around isn't really done all that well.

    The voters will have a chance in 2006 to decide: Who do they want to manage the sand.

    Their decision will affect whether the sand goes to things that solve problems, or go to things that are illusions.

    * * *

    The current problem in DC is that the "normal way of moving sand" has been corrupted in a more visible way.

    If the President’s party loses control of the House of Representatives, he could be impeached.

    * * *

    The goal of the RNC is one thing: To move the sand around, retain control of the House of Representatives, and win the election.

    They will move sand to programs that do not work; and sand will get spent on bogus audits to say "things are OK."

    There is no reason to trust them. They have one goal, and one goal only -- To protect Bush from being impeached for war crimes in Iraq.

    They've already shown they will move sand to programs that are bogus.

    But the DNC has done the same.

    * * *

    The 2006 elections are about one thing: Who do you want to have "the most" influence on how the sand gets moved around.

    It comes down to an issue of trust.

    The same games will get played; the same "surprise crises will occur."

    Who do you trust?

    What is the most effective use of money?

    Who has the most experience?

    Who has a track record of results?

    Who is going to do so in a manner that respects the rule of law?

    The voters will decide.

    * * *

    Congress has shown that it will defer to the Executive Branch.

    Congress has a problem. It needs to get move involved in how the sand is moved around. Congress votes on the budgets, but its ability to investigate is hampered. Some are not serious about the truth.

    The voters, now that they know the truth about the Downing Street Memo, need to send a simple message: How much truth do you want?

    You get to decide in 2006.