Treasury Fire Sale Could Take Years

An emerging right-wing meme about how to deal with the prospect of a debt default is that the federal government can pay off its debts by selling its assets. Veronique de Rugy of Cato and the Mercatus Center co-authored a paper listing the Treasury’s financial assets that could be sold to avoid default.

She noted in a later blogpost that the list was “conservative” since “it only lists financial assets rather all of the things that Treasury could sell (such as lands and building).“ Congressman Dennis A. Ross of Utah wondered if the federal government can sell off 70% of Utah’s land and other conservatives have suggested selling the nation’s gold.

Selling, leasing, and privatizing national assets can be a good idea in the abstract, but even Leonard Gilroy, a  director at the Reason Foundation who co-authored a pamphlet on government privatization for the libertarian Heartland Institute  knows that even in the best of circumstances, selling off assets within a “one to two year window” is the most “realistic” option for most governments.

It’s not necessarily that government work is slower than private sector work, it’s that in order for any sort of sale to generate the most potential revenue, without fraud or corruption, there are several different steps that need to be observed.

To start with, in order to sell assets, the federal agencies would need to know what assets they have. While this sounds like an easy thing to know, it turns out that many federal agencies don’t even keep lists of assets so that they know what they can sell. As Gilroy noted, “They don’t know what they even own.” From his experience with working with the federal government, many of them lack even a comprehensive list of what their assets are “much less a calculation of their value.”

Secondly, a federal agency can’t simply decide how much a property is worth; it has to go through a process with an outside individual or group to determine the property’s value. “You want some sort of evaluation to know what the property is worth, otherwise you are going into the market without a sense of what fair market value is.” This is similar to getting an evaluation done on a house you own. Since most federal agencies don't usually contemplate selling their assets, it's not surprising that most aren't keeping lists of how much value the properties they own are worth.

There are many other considerations that come in after the value is set as well. If a government building is being sold or leased, would it need to be rezoned? Currently they are trying to figure out how best to rezone the Walter Reed military hospital for when it gets transferred to the District of Columbia. In the case of lease agreements, extensive contracts need to be written up to clearly state how the private company to which the government property is being leased to will maintain the new asset. For example, if a private company takes over a toll road, there are certain responsibilities and minimum standards that will need to be met.

Perhaps one of the most successful privatization efforts in recent history was when Governor Mitch Daniels leased the Indiana toll road. This was a process that began in 2004 by exploring the proposal and the bill to approve the lease was eventually passed in 2006. If it takes two years just to lease a toll road, does anyone really expect that the rest of the federal government can sell off enough assets in a month to prevent a default?

The difficulties of privatization are important to keep in mind even in non-crisis situations. Gilroy noted that even more ambitious libertarian plans (such as privatizing the postal service) can’t be done overnight: “You’re going to be looking at years to do that, just to get the policy figured out. ... Are you going to sell the postal service? Break it into chunks then sell it? Auction it off? Do an IPO?” Privatization of government services can be a worthy goal and it is also clear that it takes time and attention to detail to get it done properly. The sort of time that is not available in the middle of crisis.

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