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Monday, Aug 15, 2022

Bursting a Boondoggle

It takes awhile for things to get accomplished in government, but every once in a while it’s almost worth the wait.

Soon, through an effort I began in Congress almost a decade ago, one of the biggest, most wasteful and most confounding government programs of all time will morph into one of the most successful privatizations in government history.

Up until now, the biggest privatizations in U.S. history have been the 1997 auction of the Elk Hills Petroleum Reserve for $3.65 billion, the $3.1 billion sale of the U.S. Enrichment Corp. a year later, and the sale of the federally owned and operated freight and passenger rail system, Conrail, for $1.65 billion.

But soon the privatization of the National Helium Reserve will take over on the list as the third most profitable privatization of all time. And, by the time the sale is completed in 2015, we may well have a new No. 1.

The National Helium Reserve is a classic example of a wasteful government program that just wouldn’t go away.

Once described by humorist P.J. O’Rourke as “amazingly stupid, even by government standards,” it was started in 1925, when the Department of War decided to stockpile helium for blimps in time of war.

Not long afterward, blimps were overtaken by more modern weapons. But the National Helium Reserve acquired a life of its own.

In 1929, the federal government began operating a helium extraction and purification plant. At a time when almost none of today’s high-tech uses for helium had yet been developed, the government helium operation had no customers besides itself, and even the War Department was moving on to other things. During a 30-year period, the National Helium Reserve produced far more than the government’s needs, at a significant loss to taxpayers.

So in 1960, Congress did what you would expect with a useless program: It made it bigger. The Bureau of Mines was authorized to expand the operations of the National Helium Reserve by buying helium from private sources.

The taxpayers “loaned” the National Helium Reserve $252 million to pay for stockpiling the gas.

But then something unexpected happened. Private industry and researchers in academia began to discover extremely important industrial and scientific uses for helium.

Because the government’s costs of production and storage,and thus sale,of helium were so high, the private sector quickly found ways to produce helium more efficiently.

The government then lost even the tiny amount of sales it used to make to private customers, so that its revenue fell far short of what was needed to pay even the interest, let alone the principal, on its $252 million loan from taxpayers.

By 1995, the National Helium Reserve’s debt to the Treasury stood at more than $1 billion. Additional interest was accruing at the rate of $120 million each year. Virtually the only sales the National Helium Reserve was able to make were to government agencies, where it had a monopoly.

Still, the National Helium Reserve kept on going. Every year, government bureaucrats continued to buy more helium and add it to the national reserve. By the mid-1990s, the National Helium Reserve contained 31 billion cubic feet of helium,enough to meet the government’s needs for 100 years, or the entire country’s needs for more than a decade.

When I first came to Congress from the Reagan White House in 1988, I was keen on finding ways to eliminate government waste. It didn’t take me long to discover the National Helium Reserve.

But by the time I gained enough congressional support for my legislation, Bill Clinton had become president, and he successfully stymied my efforts for years.

In an infamous vote-trading scheme recorded by Washington Post journalist Bob Woodward in his book on the Clinton presidency, “The Agenda,” Clinton agreed to veto my National Helium Reserve privatization in exchange for getting Texas Congressman Bill Sarpalius, whose district included the reserve, to cast the deciding vote for Clinton’s record-breaking 1993 tax increase.

Finally, in 1994, with Republican majorities in both the House and the Senate for the first time in 40 years, the National Helium Reserve met its maker. The historic 104th Congress convened in January 1995, and within 18 months my bill, the Helium Privatization Act, was enacted.

Under the law as passed, all of the equipment and business assets of the National Helium Reserve were liquidated at market prices for the benefit of taxpayers. Then, over time (so as not to destroy the market into which it was selling) the Bureau of Land Management would privatize the stored helium.

In 2005, the bureau will offer more than 2 billion cubic feet of helium for sale. This is on top of the 2.8 billion cubic feet that the agency sold to the private sector in 2003 and 2004.

By the time the sale of the helium stockpile is completed in 2015, taxpayers will have received a minimum of $1.8 billion,easily surpassing Conrail on the list of all-time successful government privatizations.

But the market price of helium is expected to continue to increase between now and then. The result could be that what was once the government’s most wasteful program will become the biggest privatization windfall to taxpayers in history.

The end of the federal government’sy helium operations, and the successful privatization of the National Helium Reserve, is proving to be a remarkable exception to President Reagan’s aphorism that “the closest thing to eternal life on earth is a government program.”

Let’s hope it’s only the beginning of privatizations to come.

Cox was just re-elected as a Republican Congressman from Orange County. He was also re-elected by his GOP colleagues to another term as chairman of the House Policy Committee.


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