July 31, 2009— -- Unexpectedly high demand and not enough government funding: Those are the devils in the details that have led many to label the government's "Cash for Clunkers" program a victim of its own success.
The House today voted to rush an additional $2 billion into the popular but financially strapped program after the initial response was apparently too great for the government to afford.
As questions loom about whether the government can afford to keep providing subsidies to car buyers who turn in old cars, critics say it's not the first time a government program fell short on a program targeting consumers. Look no further, some say, than last year's federal digital television coupon program.
"They're great at advertising ... but they don't know how to respond when the flood comes," said Jean Chalupsky, an Omaha, Neb. resident who said the government rejected her application for coupons last year.
Started in January, 2008, the Digital-to-Analog Converter Box Coupon Program was intended to help ease last month's nationwide transition from analog television to digital television by providing $40 coupons to consumers to defray the cost of digital converter boxes. In the first year of the program, the Commerce Department's National Telecommunications and Information Administration issued more than 40 million coupons.
But the deluge of applications caught the government off guard, and by January 2009 the NTIA announced it had run out of money to fund the coupons and had established a waiting list.
Experts say the reason that programs like "Cash for Clunkers" and the converter box coupon program run into such trouble is because cost-wary lawmakers are prone to downplaying the potential demand for such subsidies.
"Some legislators understate the number who will use particular programs to keep the costs down," said Darrell West, the vice president and director of governance studies at the Brookings Institution. "Then when the program proves popular, they are in a stronger position to get Congress to appropriate more money."
'Cash for Clunkers' Gets Cash Infusion
Sometimes inaccurate forecasts happen without the help of any ulterior motives, said Jeffrey Miron, the director of undergraduate studies at the economics department of Harvard University and senior fellow at the Cato Institute.
With a complicated program, "there are a lot of details that are hard to figure out so there are going to be totally honest mistakes, both positive or negative," he said.
The federal government isn't the only one falling short. In November, the government of Hawaii announced it would stop its participation in a seven-month old health insurance program for children both because of a budget shortfall and because it found that too many parents were switching their children from private insurance to the government program. Connecticut, meanwhile, halted a program offering rebates to homeowners who purchased solar energy systems after it, too, ran out of cash.
The Connecticut program restarted this month thanks to an influx of federal funds. But absent a federal handout, such state-run programs often face a greater funding challenges than federal programs, said James Gattuso, a senior research fellow in regulatory policy at Heritage. Gattuso said that, unlike the federal government, states can't run deficits on a long-term basis.
"It's harder for state governments to hide their mistakes," he said. "If they promise more than they can afford, they have to face the consequences sooner."
Consumers like Chalupsky, meanwhile, are left facing consequences right away. The Nebraska woman is still fuming about her coupon problem.
In March, NTIA said it had cleared its waiting list, but by then Chalupsky had taken matters into her own hands: she managed to find someone selling an unused coupon. She bought it for $5 and used it to buy one converter box for $19. She paid full price -- $59 -- for a second box.
The Cash for Clunkers kerfuffle is touching Chalupsky too. Her 85-year-old mother had been considering trading in her old car under the program, but Chalupsky worries now that her mother was too slow on the draw.
"What they're doing is they're throwing out these programs," Chalupsky said, "and they're not learning from their own mistakes."