Common Sense and the Google Windfall

A town needs $14 million to make its pension system whole, and it has just received a $60 million windfall for involvement in a federal police investigation.  Isn’t it just common sense to waive restrictions on the use of the police award in order to plug the pension gap?

That was the tenor of North Providence Mayor Charlie Lombardi’s discussion with Dan Yorke yesterday on 630 WPRO.  It’s also the gist of Dept. of Revenue Director Rosemary Booth Gallogly’s comments to the Providence Journal:

Such forfeiture amounts are typically much smaller, said Gallogly, who argues that the twin $60-million allotments are unusual enough to warrant special consideration of the requests to use some of the money to fix police pensions.

“This is an instance where the feds could really help out at the local level,” she said, noting that the assistance would not cost any additional money. “To me, it seems like an obvious practical solution. All I’m asking is that people look at the situation that way.”

No doubt, Google’s deep pockets yielded a greater take from the investigation than normal, but it does seem to echo, at least, attorney generals’ settlement with banks over the mortgage foreclosure scandal, as well as past government revenue premised on wrongdoing, most notably the tobacco settlement.  In that regard, arguing that an exceptionally large reward ought to justify more free use of the funds is counter-intuitive and arguably dangerous.

It’s helpful to describe the two sides of the question — the take and the need — in plain terms:

  • The town assisted in a federal sting operation in which the government enlisted a convicted felon to catch a highly successful Internet company being insufficiently restrictive about its clients’ use of the technology to evade government regulations of the prescription drug trade.  First came the regulation; then came the third-party use of the company’s services; then came the investigation.  At the end of it all, Google was responsible for not only the profits that it made, but also the profits that the illegal drug sellers made.
  • Meanwhile, the town (like myriad other government entities) has promised employees retirement benefits that it could not afford and insufficiently funded them to boot.  In general, the dynamic with pensions is that future benefits are easier for politicians to sell to taxpayers, because the money isn’t due up front, and it’s likely to be some future politician who has to deal with the consequences.  It’s accounting that no private sector organization could justify.

If the sense continues to get out, among government officials, that catching deep pockets in Webs of regulations, trade laws, and undercover investigations, the Google reward will not be unusual for long.  Even beyond the big dollar headlines and the uncomfortable sense that government is eying the private sector as a mark, the incentives that surround all policy decisions will become more and more tilted toward the possibility that infractions could help to cover up the fruits of government corruption and incompetence.

In a simple accounting sense, it is common sense to use unexpected money to wipe away long-standing problems.  But if we consider the rules binding government, beginning with the deep political philosophy built into the nation’s founding documents, common sense arguably goes the other way.


ADDENDUM (1:30 p.m. 5/17/12):

Via Twitter, Ted Nesi asks, “so what would you do with the money?”  This press release on the forfeiture points to the answer:

The importation of prescription drugs to consumers in the United States is almost always unlawful because the FDA cannot ensure the safety and effectiveness of foreign prescription drugs that are not FDA-approved because the drugs may not meet FDA’s labeling requirements; may not have been manufactured, stored and distributed under proper conditions; and may not have been dispensed in accordance with a valid prescription.  While Canada has its own regulatory rules for prescription drugs, Canadian pharmacies that ship prescription drugs to U.S. residents are not subject to Canadian regulatory authority, and many sell drugs obtained from countries other than Canada which lack adequate pharmacy regulations.

With crimes that involve regulations (especially health and safety regulations), it seems that money taken as a penalty for breaking those regulations could be used to alleviate the difficulties that make them necessary.  The federal government should reimburse other government entities for the time and resources expended while assisting in an investigation.  (Why should contract work for the feds be more lucrative than doing the jobs for which local residents are taxed?)  But then the rest should go toward implementing a system that would eliminate the need for such strict, market-restricting regulations.

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