Through the Looking Glass
A CAGW Special Report

California's Franchise Tax Board as H&R Block - A Costly Gamble

By Leslie K. Paige
March 26, 2003

            This system would be extremely expensive, costing not just millions, but tens or hundreds of millions of dollars, at a time when the state faces a $35 billion budget crisis and is cutting money for other vital services.  Despite the state's red ink and California's dubious recent history with large-scale computer IT projects, the FTB is expanding the role of government and duplicating services already provided for free by numerous private sector business.

            They may be older than the fresh-faces stars of  Startup.com, but the bureaucrats at the FTB are making the same mistakes.  The difference is that public tax dollars are going to be wasted, instead of private venture capital.

A Costly Experiment

            There are significant privacy and security concerns associated with state government becoming every taxpayer's tax preparer.  But whether or not the FTB can respect the privacy of citizens e-filing their taxes, an even bigger issue is cost.

            FTB staff currently estimates it will need only $100,000 per tax form to launch the system, with no estimate on the costs to operate it and actually provide the e-commerce services.   This same FTB permanent staff estimated four years ago it would cost five times that amount to launch just one interactive form online, the 540 2-EZ, and subsequent disclosures showed that $500,000 estimate to significantly understate actual expected costs.

            But based on other programs built, considered, or rejected by individual states, it would cost between $50 million and $350 million in taxpayers' money over 10 years for California to develop, design, build, and operate a Web-based system for online preparation of state tax returns.  Information on these other states' tax systems is available to the FTB, calling into question whether its low-cost estimates are based on ignorance or a desire to mislead legislators.

            FTB staff has said their objective is to offer online services that compare favorably to commercial businesses like Amazon.com.  They cannot do that for $100,000 in development costs and $5,000 a year in updating, maintenance and operating costs.  By way of comparison, Virginia, one-eighth the size of California, projected its start-up costs for a similar online tax preparation services program at a minimum of $123 million over five years.

            In a document from the Virginia Department of Taxation, The Partnership Project: Delivery of Customer Service, which discusses the cost of that state's "iFile" online tax system, it notes that the Virginia Legislature twice refused to fund "iFile."  But that didn't stop determined state tax agency staff from creatively going around the Legislature.  Staff of California's FTB is also pushing ahead with its own system despite legislative concerns.

            The reality is that because the FTB, as a government agency, has no experience in providing commercial electronic financial services, it does not have any clear idea of how much this project will ultimately cost the state or how many additional government employees will be needed.  Indeed, the facts suggest that the FTB's online tax system as envisioned by career bureaucrats will require outlays of more than $30 million per year, which is hardly "free" to taxpayers, since they foot the bill.  CAGW looked into the costs associated with similar existing systems in the private sector and estimates that to build, refine, and expand an online tax return system will necessitate a massive expenditure of taxpayer funds.

Expense Category	Description	Yearly Cost
Data Center	Internet servers, connectivity and related equipment	$12,600,000
Engineering	Design, configuration and operational assets	$9,000,000
Tax Development	Creation and refinement of online tax forms and instructions	$2,000,000
Technical Support	Customer service representatives, FAQs, telephone service centers, etc.	$4,400,000
Marketing	Mailings, advertisements and related promotional activities	$4,000,000
Administration	overhead and management costs	$2,000,000
	TOTAL PER YEAR:	$34,000,000

            Ignoring the inevitable cost overruns inherent in all government procurement programs, the FTB's online experiment promises to cost California taxpayers between $50 million and $350 million over the next decade.

Examples Abound

            When the U.S. military developed an Internet-based voting system for the 2000 elections, the Washington Post found that the average cost-per-vote from overseas enlisted personnel was a whopping $74,000 per soldier.  It's likely that the FTB's technology plan will cost far more than the $6.2 million the Defense Department spent to build an online voting system. But California has proved no slouch in cost overruns.

Ø                  In 1997, after spending more than $111 million, the state abandoned development of a system to establish a statewide, automated network for tracking child support payments.

Ø                  Just last month, the California State University System admitted that it spent more than $600 million on a computer system that will not only cost $60 million annually to run but may not fix the problem it was intended to solve.

Ø                  According to the California state Auditor, other major project failures, including those at the Department of Motor Vehicles and the Department of Corrections, have cost the state and taxpayers $400 million.

            A recent report by the California State Auditor, Information Technology: Control Structures Are Only Part of Successful Governance, warned that, "Because it demands a significant commitment of resources - both financial and human - developing an IT project is disruptive to an organization and may shift its resources away from its primary mission.  Many IT projects cost more and take longer to complete than originally planned, and others are abandoned altogether when concerns mount regarding cost overruns or system malfunctions.

            "Surveys of large companies and federal government agencies reveal that only one-quarter of all large-scale systems development projects are completed on time and within budget, and almost 30 percent are abandoned because they cannot meet the developing entities' requirements, resulting in lost taxpayers dollars for governments and substantial lost revenues and profits, even bankruptcy, for businesses."  (Pages 5-6, available online at www.bsa.ca.gov)

            One thing is certain: the FTB staff's online tax preparation system is NOT free, as FTB's press releases claim.  All California taxpayers will pay for the start-up costs and all future operations, expansion and maintenance.  Assemblywoman Rebecca Cohn of Saratoga calls it "a costly waste of taxpayer dollars."

This Plan Breaks Long-Standing Precedent

The parameters of government action, vis-à-vis private sector business, have been clear for many years.   It is instructive to see how it has evolved on the federal level.  In 1983, the US Office of Management and Budget (OMB) outlined federal policy regarding the performance of commercial activities.   It was revised in 1999 to implement the Federal Activities Inventory Reform Act of 1998.   Among its key tenets is:

The Federal Government shall rely on commercially-available sources to provide commercial products and services.   In accordance with the provisions of this Circular and its Supplement, the government shall not start or carry on any activity to provide a commercial product or service if the product or service can be procured more economically from a commercial source. (OMB Circular A-76)

The Commissioner of the IRS and the Electronic Tax Administration Advisory Committee agree having recently pushed the IRS to develop its e-filing system to reduce paperwork, yet leaving tax preparation to private commercial entities:

"The IRS does not intend to offer Internet preparation or filing services itself in any form, nor do we plan to contract with a limited number of private companies to provide these services indirectly.   In fact, the IRS is planning to work closely with the private sector to find ways to achieve the free electronic filing objective.   In particular we will consult extensively with the Electronic Tax Administration Advisory Committee (ETAAC) on any policies we may be considering before we implement them." - IRS Commissioners response to inquiries from Congress, October 3, 2000

"The ETAAC believes that the most appropriate actions the IRS can take to provide taxpayers with a wide choice of no cost tax preparation and filing options over the Internet are to: 1) let the competitive market continue to progress, and 2) continue stimulating electronic filing through its creative advertising campaign and making electronic filing convenient to use through such improvements as the acceptance of additional forms and the elimination of paper." -  Letter from ETAAC  (an outside board composed of a wide variety of stakeholders created by Congress in the IRS Restructuring and Reform Act of 1998 to monitor and guide the IRS' electronic filing goals)

Other States Abandon California Approach

In January of 2003, the vision laid out above in the ETAAC letter became reality at the federal level.  The IRS and 17 private-sector tax software companies entered into a no-cost public/private partnership called The Free File Alliance which has, since January 15th, 2003, been providing free access to some of the best known commercial tax software products at no cost to the consumer.  The result:  electronic tax filing is way up, and 90 percent of that increase is due to the Free File Alliance, the IRS just told Congress.

The program has worked so well that several states have now also agreed to create a "Free File Alliance" of their own, modeled after the new federal version.  In some cases, like Michigan and New York, states that offered no form of electronic tax system are using the Free File model to help consumers file their taxes electronically (and for free) for the first time.

In other instances, such as in Massachusetts, states have actually elected to pull down their own costly online tax preparation systems.  The slow uptake rates of the government tax system by consumers, coupled with the high per-user costs make the Free File system - which costs cash-strapped state governments virtually nothing - an inviting alternative to developing a state-run IT tax system.

The new tax preparation scheme planned by the FTB is a not only costly, but potentially dangerous.   Issues of security, privacy, and the proper role of government tax agencies are inherent.   How will web-based tax returns be protected from the ever-present risk of hacking?

Repeated studies by the U.S. General Accounting Office (GAO) and others continually give government agencies failing grades when it comes to protecting against hacking.    Also, can taxpayers trust the FTB to "assemble" their tax information and "calculate" their taxes?   After all, the FTB's job is to maximize tax revenue.  Is it proper for government to collect and store tax information on behalf of taxpayers?  Can the FTB be counted upon to give reliable, accurate advice to taxpayers on which deductions they can (or should) take?  Is that an appropriate role for any government? 

Additionally, should the government be able to electronically "see" - keystroke-by-keystroke - the additions and deletions made in the process of preparing ones taxes?  This has the electronic effect of having an FTB auditor stand behind every filer, looking over their shoulder as they prepare their taxes - traditionally private information that could later be used against consumers in an audit.  The FTB is now allowed by law to share the information it gathers with city and county tax agencies seeking to practice computer "data mining" techniques to target investigations to find more potential tax revenue from individuals.

According to a January 20, 2003 report in the Los Angeles Times, "cities and states are stuck with mining their taxpayers to shake loose whatever revenue they can."   Or, as a state tax collectors' advocate explained it:  "It amounts to combing through files that can tell you something about taxpayers, or people who should be taxpayers, and matching those results to your files,'" -- Harley Duncan, director of the Federation of Tax Administrators.

Serving Underprivileged Citizens

One of FTB's principal rationales is that with the "digital divide," low-income Californians cannot afford the software and Web services to file taxes electronically.

Yet underprivileged citizens are already well served in this area.  Commercial tax preparation and filing companies offer free federal and state online tax preparation services to families with incomes below $30,000 per year (which exceeds the federal poverty level).

More than 5,000,000 electronic returns were processed and filed by Intuit Corp. alone since the start of their "Intuit Tax Freedom" program five years ago.  Through the Free File Alliance, some 17 companies, including  H&R Block, now also offer a similar free program for consumers.

            In addition, the "digital divide" would hardly top the list of grievances for low-income families in California (or elsewhere, for that matter).  Given the choice (and any budget must be about choices and priorities), would most citizens prefer to have tens, if not hundreds of millions of dollars in government resources used to cobble together a subsidized, state-supervised electronic tax preparation system rather than put those resources to use addressing more the more pressing needs of low-income California citizens, such as education, housing and nutritional needs?    As a social priority, online tax preparation is a distant second to these critical issues. 

Issues of Competence and Integrity

            Whether or not it is economically justifiable, the FTB's expansion into the realm of online tax preparation and filing presents a serious question of credibility.   As former California State Controller Kathleen Connell cogently observed in 1999, "if you use [private sector] services, they're going to find a way to save you taxes. . . .  They are going to find the best solution for you, bottom line.   [But] obviously, a tax agency is not going to be arguing against themselves." 

            With the 24/7 availability of governmental information on the Internet, people's lives can be made easier and their relations with state governments less time-consuming and confusing.  Yet government itself must actively recognize that there are some roles it should not play.

            By attempting to characterize itself as the guardian of every Californian's tax interests, the FTB is seeking to assume a new and dangerous role.   We all know the stories of chronic government bureaucratic mismanagement of projects.  If that same bureaucratic incompetence moves into the realm of tax preparation and filing, the $50 million to $350 million projected for the FTB's "free" online system over the next decade may well prove to be just the tip of the iceberg.

A Matter of Priorities

            As California is facing massive budget deficits, and with the legislature clamoring to find more funding for such fiscal priorities as education, health care and environmental protection, the FTB's online tax offering is particularly perplexing.

            In fact, the FTB's program will dwarf other more important programs of direct interest to taxpayers of all income levels.   For example, how many soon-to-be-laid-off teachers, police officers, environmental inspection officers and other state service providers could remain at work if not for the FTB's costly folly?

            These and other initiatives are the real cost of the FTB's ill-conceived foray into commercial online tax preparation.   There is no compelling reason to duplicate tax preparation services already offered by a competitive private sector when the price is higher taxes or less budgetary resources available to meet the very real challenges our state faces today.  This is especially true when those private sector providers have offered to give their products away to most state tax filers for free.  In a perfect world, taxation would be dramatically simplified and less intrusive, thereby eliminating the need for a class of tax professionals.  As long as the complexity of the tax code creates a demand for tax prep, it is better for competing private companies to provide this service than government tax collection agencies. 

            The FTB has failed to make its case that there is a demand for such a service. 

Conclusion

            The price tag for the California Franchise Tax Board's proposed foray into online tax preparation services is ill conceived, expensive and risky.

            As the state faces a $35 billion budget shortfall, there are clearly far better uses for limited budget resources than wasting $50 million to $350 million on an electronic tax system that poorly replicates services already widely available in the private sector.

            Like the failed entrepreneurs in Startup.com, the FTB's officials seem to believe they can use information technology to revolutionize the tax system in California.   This is a recipe for disaster, except the money being wasted is that of California's taxpayers, not that of California's venture capitalists.

Executive Summary

This special report reveals how the National Academy of Sciences (NAS) is squandering $500,000 in taxpayer money for a study that had been intended to produce a strategy aimed at reducing and preventing underage drinking.  By wasting taxpayer dollars and misdirecting scientific inquiry, the NAS is impeding progress in the fight against underage drinking.

This report does not quarrel with the cause of combating underage drinking; however, it does expose the failure of the current study underway by NAS to contribute anything toward that goal.  Instead, NAS failed to follow the intent of Congress, preordained the conclusions of a so-called “scientific” panel in favor of higher excise taxes and advertising restrictions, and guaranteed that outcome by stacking the committee panel with anti-alcohol radicals with biased positions in support of those ideas, while refusing to include any of the well-known, unbiased academic experts that were recommended for inclusion on the panel by members of Congress.

The result is that the $500,000 squandered for this study will contribute nothing toward reducing and preventing underage drinking, and is a waste of hard-earned taxpayer dollars.  In fact, 140 members of the U.S. House of Representatives have written to NAS, urging them to follow the intent of Congress and reiterating the need to conduct a thorough review of existing federal, state and non-governmental programs aimed at reducing and preventing underage drinking.  CAGW calls on Congress to investigate this scandalous misuse of funds and NAS violations of the Federal Advisory Committee Act (FACA), particularly to determine which members of the panel had conflicts of interest and prevent further abuse of our tax dollars.

Background

Congressional Intent

Illegal underage drinking is an issue that should be taken seriously.  In fact, the decision to provide $500,000 for NAS to “develop a cost-effective strategy for reducing and preventing underage drinking” in H.R. 3061, the fiscal 2002 Labor/HHS Appropriations Bill, was supported by Congress, the Administration, anti-alcohol advocates and the alcohol industry alike, demonstrating an overwhelming consensus to address the issue.  Unfortunately, NAS has mishandled this congressional mandate.

In providing this funding, Congress instructed NAS to “review existing Federal, State and non-governmental programs, including media-based programs, designed to change the attitudes and health behaviors of youth” and to “produce a strategy designed to prevent and reduce underage drinking including: an outline and implementation strategy, message points that will be effective in changing the attitudes and health behaviors of youth concerning underage drinking, target audience identification, goals and objectives of the campaign, and the estimated costs of development and implementation.”[1]

An objective reading of H.R. 3061’s report language indicates that Congress intended NAS to develop a strategy to combat underage drinking, including ideas for an effective direct outreach to youth and their parents, by providing a careful review of existing federal, state, local and private sector initiatives.  

NAS Ignores Congressional Intent

In announcing the scope of the project in July 2002, NAS stated that its review would “include programs that focus directly on behavior change as well as those designed to change underage drinking behavior through reduction of adolescent access to alcohol (such as through increased excise taxation, aggressive enforcement of age and identification checks, and restriction of alcohol on college campuses).”[2]

At no time did Congress direct NAS to study tax policy.  Therefore, it is telling that the very first of only three “programs” identified by NAS as a possible means of changing adolescent drinking behavior was “increased excise taxation.”  Before the panelists had even been officially named or the first committee meeting held, NAS staff was already telegraphing the Academy’s real agenda in spite of Congress’s very clear instructions to review programs that are specifically designed to reduce and prevent underage drinking.  This bias carried through to the selection of panelists and the failure to follow additional statutory requirements of the FACA.

To comply with congressional intent, an appropriate starting place would have been the May, 2001 General Accounting Office (GAO) report, “Underage Drinking: Information on Federal Funds Targeted at Prevention.”[3]  The GAO report was in response to a congressional request from the House Committee on Government Reform Subcommittee on Criminal Justice, Drug Policy, and Human Resources to “identify the nature and extent of federal efforts related to the prevention of underage drinking, to assist Congress in its deliberations on whether additional attention to alcohol use by youth is needed.”[4]  GAO defined “prevention” to include initiatives such as those associated with information, education, research, screening, and brief intervention or treatment.[5]

The report identified the amount of appropriated fiscal year 2000 federal funds aimed at preventing underage drinking.  Similar to the multiple layers of job training and other duplicative programs funded by the federal government, there are dozens of underage drinking prevention programs.  In fact, GAO identified 23 federal agencies that to some extent addressed prevention of underage drinking.  There was $52.2 million in fiscal year 2000 funding that was specifically targeted to such efforts.  Another $18.9 million in funding was cited that focused on underage drinking but also targeted both youth and the broader community.[6]

With 23 different agencies spending a total amount of $71.1 million on similar efforts to prevent underage drinking, the GAO report demonstrates what is really needed: a thorough evaluation of which federal programs are working and which are failing, not another useless government report.  Any thorough analysis must also take into account programs funded by state and local governments, in addition to privately funded programs.

The GAO report also demonstrates that the federal government does not know where that money is going or whether it is being spent effectively.  In short, no one is being held accountable for the use of the $71.1 million.  To make credible recommendations, the NAS panel should be using the $500,000 in taxpayer money to fill the void, address the problems clearly identified for them by the GAO report, and provide a serious review of all programs, which is, of course, exactly what Congress had intended NAS to do.

While inadequate attention has been devoted by the NAS to determining whether existing programs are successful or not, the Substance Abuse and Mental Health Services Administration (SAMHSA) has made some attempt to identify successful programs.  In April 2003, SAMHSA released its new edition of Science-based Prevention Programs and Principles: Effective Substance Abuse and Mental Health Programs for Every Community.  The volume presents a state-of-the-science review of substance abuse prevention theory and practice and includes a compendium of tested and effective model substance abuse prevention programs.

Parental involvement stands out as a critical factor in the success of these programs.  Of the 34 programs identified by SAMHSA as “making important differences every day in the lives of children and youth, families and communities,” 48 percent incorporate a parenting component, with more than 60 percent using structured activities and experiential activities (social, cultural, and recreational events) to foster more interaction between parents and youth, and the rest providing one or more forms of parenting skills training.[7]

According to the Roper Youth Report 2003, the overwhelming majority of youth (69 percent of 13-17 year-olds and 73 percent of 8-17 year-olds) cite their parents as the primary influence in their decisions about whether they drink alcohol or not.  Seventy-four percent of college-bound youth identified their parents as a leading influence in their decisions about drinking alcohol.[8]

While the NAS study is focusing on increased taxation and advertising restrictions as primary methods of reducing underage drinking, the panelists have paid little attention to proven methods to fight underage drinking, such as increasing involvement by parents, teachers, and community leaders; enforcing existing laws; and the value of successful non-governmental responsibility programs that are conducted at no cost to the taxpayer.  Instead, NAS has pre-determined the outcome of the study by unilaterally changing its scope and direction.

Despite NAS’s predisposition to conclude that raising excise taxes and restricting advertising will curb underage drinking, there is no data on which to base such conclusions.  If higher excise taxes were to be an effective deterrent, underage drinking should have dropped dramatically more than the national average in high-tax states like Alaska, Florida, Hawaii, and New York, but that is not the case.  While individual states’ alcohol excise tax rates vary widely, there is no data indicating a discernible divergence in any state from the national average rate of underage drinking.  This demonstrates that excise tax rates have no impact on underage drinking. [9]

Similarly, claims that restricting advertising will reduce underage drinking lack evidence.  For example, while expenditures for beer advertising have varied widely since 1970, over that same time period there has been no corresponding increase in overall per capita beer consumption.[10]  Most advertising attempts to convince potential customers to choose one product over another.  In other words, a beer advertisement is more likely aimed at convincing an existing beer drinker to choose brand x over brand y, rather than trying to convince those that don’t drink to change their habits.  In fact, the Roper Youth Report found that only six percent of teenagers identified advertising as a leading influence in their decision to drink.[11]

The Partnership for a Drug-Free America’s annual study, the 2002 Partnership Attitude Tracking Study (PATS), found that compared to 1998, all measures of teen alcohol abuse decreased.  Past year alcohol use dropped from 58 percent to 53 percent; past month use declined from 42 percent to 36 percent; and having five or more drinks in a row in the past two weeks declined from 34 percent to 30 percent.[12]

To thoroughly address and review the effects of advertising, it would be logical for NAS, as a part of its study, to examine the effectiveness of a myriad of programs.  Astoundingly, CAGW discovered that as recently as July 15 of this year, the panel had not even bothered to remove the shrink wrap from the alcohol industry-produced public service programs submitted to the NAS eight months earlier.  At such a late date, it is obvious that NAS never intended to give these programs a thorough review, ignoring the conference report instructions to consider “non-governmental programs, including media programs, designed to change the attitudes and health behaviors of youth.”

In a letter to NAS, 140 members of Congress expressed their concern about whether the agency is following their intent, stating, “Congress intended the study to focus on existing Federal, State and non-governmental programs.  It was not, and is not, our intent to use these recommendations to buttress new and untested theories to reduce illegal consumption or to use them as a primer of suggested public policy changes intended to adversely affect the beverage industry.”[13]

Unfortunately, the NAS panel has demonstrated that it is wasting $500,000 by not even attempting to meet Congress’ expectations to produce a useful document that might provide a study of “best practices” to fight underage drinking.  Instead, the panel’s real goal appears to be to attack the alcohol industry and advance an agenda of increasing excise taxes on adult alcohol consumers and restricting product advertising.

NAS Stacks Panel with Anti-Alcohol Radicals

CAGW’s investigation of the makeup of the panel reveals that the so-called scientific panel of 12 is stacked with a majority of members with preconceived support for higher taxes and advertising restrictions or who have been associated with or received funding from anti-alcohol organizations.

Specifically, CAGW has been able to identify seven of the 12 NAS panel members as having previously taken positions indicating their lack of objectivity on many of the issues surrounding the study.  These panelists favor a predisposed and single position of increased excise taxes and advertising restrictions to curb underage drinking.  Those who cannot be directly tied to the nation’s leading anti-alcohol advocacy group, the Robert Wood Johnson Foundation (RWJF), which appears to be more interested in reinstating Prohibition than finding real solutions to address underage drinking, have published studies, research or articles supporting increased taxation and restrictive alcohol access laws, not only for underage drinkers, but for adult consumers as well. 

Richard J. Bonnie, a law professor at the University of Virginia Law School, is chairman of the panel.  It is difficult to understand what qualifies Professor Bonnie for that position.  He has been an outspoken advocate of decriminalizing marijuana.[14]  But other than a chapter he wrote for a 1980 book regarding “discouraging unhealthy personal choices through government regulation,”[15] which displayed a pro-big brother approach to underage drinking as opposed to parental involvement and individual responsibility, Professor Bonnie has had little to say regarding underage drinking.

Professor Bonnie previously served as chairman of a RWJF-funded Committee on Injury Prevention and Control.   Professor Bonnie has also done pro bono legal defense work for Ted Kaczynski, the “Unabomber,” and advised the court-appointed lawyers for Zacarias Moussaoui, the only person indicted as a September 11 conspirator, and for Russell Weston, who murdered two Capitol Hill policemen in 1998.

Mark Moore, from the Kennedy School of Government at Harvard, is another panelist that follows the chairman’s lead in being more tolerant of marijuana use than alcohol consumption.  He has even maintained that Prohibition was a success.  Writing in the New York Times in October of 1989, Moore argued that while “prohibition did not end alcohol use,” it “succeeded in reducing, by one-third, the consumption of a drug that had wide historical and popular sanction.”[16]  Moore went on to claim that “following the repeal of Prohibition, alcohol consumption increased.  Today, alcohol is estimated to be the cause of more than 23,000 motor vehicle deaths and is implicated in more than half of the nation’s 20,000 homicides.  In contrast, drugs have not yet been persuasively linked to highway fatalities and are believed to account for 10 percent to 20 percent of homicides.”[17]

Philip J. Cook, a professor of economics and sociology at Duke University, has argued that alcohol taxes have a direct effect on the death rate of heavy drinkers and that higher beer taxes result in lower rates of underage drinking, higher college graduation rates and lower crime rates.[18]  Professor Cook also coauthored a study claiming that “higher excise taxes and minimum-purchase-age laws reduce alcohol consumption among adults and youths alike, making them effective alcohol-control measures that can be used to promote public health,” that “current [alcohol] excise taxes are too low, both nationally and in every state” and that “raising the excise tax would be in the public interest.”[19]  Professor Cook recently received a substantial financial award from RWJF for his research on “The Health and Social Consequences of Alcohol Taxation and Control.”[20]

Joel W. Grube is the associate director of the Prevention Research Center, a leading anti-alcohol institute located in Berkeley, California.  Grube’s writings have demonstrated his preconceived opinion on the importance of advertising in influencing drinking among adolescents and young adults.  Grube claims that his research established “a direct relationship between awareness of beer commercials on television and the propensity to drink among students in grades seven through 10.”  Implying that the beer industry is intentionally marketing products to teens, Grube claims that “the more kids like the ads, and as a result, they pay attention to them, the more likely they are to be drinkers and the more often they drink.”[21] 

Judy Cushing is CEO of The Oregon Partnership, a nonprofit organization that claims it is dedicated to substance abuse prevention and treatment referral services.  The Oregon Partnership website provides special thanks to the RWJF, stating that “Oregon Partnership programs and services are made possible in part through a generous grant from the Robert Wood Johnson Foundation.”[22]  Cushing is a 1994 Fellow of the Join Together National Leadership Program, another organization which is funded by RWJF.  The Oregon Partnership ran ads linking beer with heroin and other illegal drugs and is aggressively supporting an increase in Oregon’s excise tax for beer.

Marilyn Aguirre-Molina is a professor of population and family health at Columbia University.  Professor Aguirre-Molina previously worked for the RWJF and is still a consultant for the organization.  She has displayed her anti-alcohol bias by stating “we need to stop thanking alcohol and tobacco companies for what they’re doing for us, because they’re killing us softly” and that “they steal our heroes, holidays, and values in order to sell booze.”[23]  In 1992, she created a video entitled “Marketing Disease to Hispanics: The Selling of Alcohol and Tobacco.”[24]

Denise Herd is an associate professor of behavioral sciences at the University of California, Berkeley.  Herd has also received funding from RWJF for a study on community mobilization regarding alcohol policy issues and received a grant award through the Innovators Combating Substance Abuse Program at RWJF.  She coauthored a study with Joel Grube which claimed that “promotion of alcohol use in black oriented media . . . might increase alcohol consumption.”[25]

All Outside Panelist Recommendations Were Ignored

The incestuous nature of this NAS panel is extraordinary, with a majority of members coming from very similar backgrounds, receiving funding from the same source, and expressing carbon-copy anti-alcohol bias.  The NAS refused to include any of the well-known academic experts that were recommended for inclusion on the panel by members of Congress.  This obstinacy makes it appear that NAS feared the inclusion of any individuals that might not be willing to rubberstamp the preconceived agenda for the report.  NAS also refused to disclose relevant information about the panelists, such as their qualifications, by whom they were recommended and why they were chosen.  When $500,000 funds a study, it is appalling that NAS operated in such a secretive manner.  The result will be “jeopardy research,” which guarantees a predetermined outcome.

Biased Panel Will Result in Useless Study

The NAS panel’s biased membership has precluded an honest inquiry into determining whether existing or potential programs do or do not help solve the problem of underage drinking, and discredits the entire report.

NAS could have used this $500,000 to help address the serious issue of underage drinking.  Instead, in an affront to Congress and the taxpayers, NAS never intended to follow the intent of Congress.  NAS has exploited this opportunity to pursue a preconceived political agenda.

NAS Violates the Federal Advisory Committee Act 

CAGW contends that NAS committed multiple violations of FACA.  Section 15 of the 1997 amendments to FACA prohibits any individual from serving on a committee that “has a conflict of interest that is relevant to the functions to be performed, unless such conflict is promptly and publicly disclosed and the conflict is unavoidable.”  FACA also requires that “the committee membership is fairly balanced.”[26]

NAS failed to ensure that panelists had no conflicts of interest relevant to the committee’s work.  In fact, while CAGW’s investigation has found evidence that proves that at least seven of the panelists are receiving or have received in the past funding from organizations with a clear anti-industry bias, NAS has refused to come forth with any evidence that it even sought the required information from potential panel members.[27]

NAS also violated FACA by failing to ensure that the panel would be fairly balanced in terms of the points of view represented.  In fact, by refusing to accept any outside panelist recommendations, NAS officials deliberately stacked the panel with members it could rely on to echo biased and preconceived positions.

It should be noted that in 1997, NAS aggressively pushed Congress to adopt an amendment to FACA, which effectively established Section 15  the section of the act that governs the NAS.  In short, the amendment enabled NAS to avoid most all of the FACA requirements, except the very limited guidelines set out in Section 15.  It is difficult to believe that NAS is not merely ignoring FACA requirements, but it is ignoring a stripped down version of FACA requirements that were implemented for its convenience.

Congressional Investigation Needed

CAGW believes that the only justifiable response to this bogus study is to throw it on the garbage heap.  However, it would be a dereliction of duty to CAGW’s more than one million members and supporters, and indeed all U.S. taxpayers, to simply leave it at that.

Therefore, CAGW is calling on Congress to investigate NAS violations of the FACA.  This congressional investigation should attempt to determine which members of the panel have a conflict of interest that was never divulged.  The investigation should also ascertain why not one single individual recommended by members of Congress was included in the panel.  Finally, the investigation should also determine who within NAS was involved in the selection of the panel and determine whether those involved also had a conflict of interest.

Conclusion

Congress and the American taxpayers have been left holding the bag.  In light of NAS’s flagrant disregard of Congress’s intent in providing $500,000 and its defiant approach to a study intended by Congress to be fair, meaningful and balanced, taxpayers would have been better served by utilizing the already existing 2001 GAO report and the April 2003 SAMSHA report to determine which of the dozens of federal programs on which the government spent $71.1 million in fiscal 2000 to prevent underage drinking are effective and which are failures.

In order to guarantee that the NAS panel would rubberstamp its preordained conclusions, specifically to ensure that it would support increased excise taxes and restrictions on advertising, NAS stacked the panel with anti-alcohol radicals and panelists with undeniable conflicts of interest, while all outside panelist recommendations were excluded.  NAS’s deplorable actions, which constitute serious violations of the FACA, discredit the validity of the entire report.

Taxpayers should be appalled that the irresponsible and possibly illegal actions of NAS will result in a study that will have squandered $500,000 and fail to contribute to a better understanding of what can be done to discourage underage drinking.

CAGW urges taxpayer advocates in Congress to further investigate this misuse of funds.  This congressional investigation of NAS would help to educate the public that the NAS study on underage drinking is a sham, and deter a similar waste of taxpayer money in the future by all federal agencies.