The Political Economy of Terrorism || Terrorism and Pork-Barrel Spending

Terrorism and Pork-Barrel SpendingAuthor(s): R. Morris Coats, Gökhan Karahan and Robert D. TollisonSource: Public Choice, Vol. 128, No. 1/2, The Political Economy of Terrorism (Jul., 2006), pp.275-287Published by: SpringerStable URL: http://www.jstor.org/stable/30026645 .

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Public Choice (2006) 128:275-287 DOI 10.1007/s 11127-006-9054-8

ORIGINAL ARTICLE

Terrorism and pork-barrel spending

R. Morris Coats 0 Gikhan Karahan - Robert D. Tollison

Received: 1 February 2005 / Accepted: 2 October 2005 C Springer Science + Business Media B.V. 2006

Abstract The horrifying, tragic events of 9/11 made Americans aware of their vulnerability to terrorist attacks and triggered the creation of the Department of Homeland Security along with a substantial increase in federal spending to both thwart terrorist attacks and to increase our ability to respond to such emergencies. Much of this large increase in spending was in the form of direct transfers to states and cities through several grant programs. Homeland Security grants may be used for protection against terrorist activities, thereby enhancing public interests, or as wealth transfers to state and local governments, enhancing the reelection efforts of incumbents, and thus, private interests.

Using 2004 per capita Homeland Security grant funding to states and their cities, we find that the funding formula used for some of the grant programs, which allocates almost 40% of the funds in some grant programs through a minimum percent to each state with the rest allocated based on population, means that per capita funding is related to electoral votes per capita, i.e., to the politics of Presidential re-election. However, the funding in other grant programs is also related to some of the dangers and vulnerabilities faced by states and their cities. Some of the variation in per capita grant allocations is also explained by the amount of airport traffic in the state and the state's population density, which are variables closely linked to the state's vulnerability to attack. Per capita Homeland Security grant allocations, however, do not seem to be related to the closeness of the 2000 presidential race.

Keywords Pork-barrel spending - Public-interest theory - Homeland Security grants 0 Patriot Act

R. M. Coats (CE) Department of Finance and Economics, Nicholls State University, Thibodaux, LA 70310 USA e-mail: [email protected]

G. Karahan Department of Finance and Economics, Nicholls State University, Thibodaux, LA 70310 USA e-mail: [email protected]

R. D. Tollison The John E. Walker Economics Department, Clemson University, Clemson, SC 29634 USA e-mail: [email protected]

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276 Public Choice (2006) 128:275-287

1. Introduction

Like other exogenous shocks, the 9/11 attack on U.S. targets opened up the possibilities for wealth transfers as public policy toward terrorism emerged in the aftermath of the horror. Under its newly consolidated domain the Department of Homeland Security (DHS) now parcels out grants and financial support to state and local governmental entities representing the political manifestations of these policies. These grants cover a variety of homeland security fronts, including fire and police expenditures, civil defense, and other related activities. Of course, the threat posed by terrorism is not uniform across political geography so that a fully rationalized homeland security program might simply ignore the issue in Thibodaux, Louisiana or Clemson, South Carolina and focus efforts where the threat is greater. As we learned a long time ago, however, this is not how a geographic-based representative democracy allocates resources (Buchanan & Tullock, 1962). That the most highly-valued political uses of resources are not the same as their economic uses is a truism in public choice. Votes must be bought in Louisiana and South Carolina, and in most every state where terrorism may be a minimal threat, to support funding for New York City, where the danger is read- ily apparent. This process of political exchange means that Thibodaux and Clemson will get some new fire trucks or communications equipment that they may not need for com- bating terrorist threats, but rather as a way to grease the proverbial pork barrel.1'2'3 This type of public choice analysis is well established in both theoretical (Weingast, Shepsle, and Johnsen, 1981) and empirical (Faith, Leavens, & Tollison, 1982) literature and for executive and legislative branch behavior (Anderson & Tollison, 1991a). In both cases political actors are seen as buying votes with the public purse in the pursuit of reelection. The richness of this approach is apparent in its robust results, especially in explaining the pursuit of electoral votes in presidential politics (Wright, 1974).

In addition to the waste due to the misdirection of funds to lower priority areas, waste also occurs because wealth transfer programs generate ordinary rent-seeking costs. Veronique de Rugy (2004, p.19) mentions that in 2004 several thousand officials came to Washington to lobby for larger first-responder grants, as well as a multitude of firefighters and many other officials to protest the size of their grants relative to others.

The fact that the DHS allocates grants across states and reports data on the same allows us to test the pork barrel hypothesis in the political response to terrorism. In short, we examine what drives these allocations - public interest, pork barrel, or both. Our approach is admittedly simple, both theoretically and empirically. We cannot claim to present definitive results. However, the results are in keeping with other work along these lines so that in this

respect they are not unusual at all. The homeland security program is just one of a long

'Politicians, of course, recognize what is transpiring. Mayor Bloomberg of New York City has complained that small and remote states and territories such as Wyoming and American Samoa are receiving homeland

security funding out of proportion to any objective "need" for such monies. Responding to such complaints, funds in the 2005 budget (after the presidential election) are apparently being shifted toward the nation's larger cities (Lipton, 2004). 2 First responders are not alone in seeing the opportunity of homeland security grants. Academicians have also

participated in homeland security rent seeking. The Department of Homeland Security has established various

university centers at the University of Southern California, Texas A&M, and the University of Minnesota. Each of these institutions has multiple partners (see US Department of Homeland Security 2005). 3 We should probably not overplay the seeming insignificance of Thibodaux as a recipient of Homeland Security funds, as LOOP, the nation's largest petroleum port facility, and much of the infrastructure for offshore oil and

gas production in the US are located in the Houma-Thibodaux MSA, which would probably qualify the area for critical assets.

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Public Choice (2006) 128:275-287 277

line of programs that represent the infusion of "marginal" funds into the political process in response to both real and perceived threats. The Clinton administration passed a crime bill to add 100,000 police officers to the streets nationwide. What explains where the money went - some measure of the value of electoral votes or the local crime rate? Homeland security expenditures represent yet another case. In terms of presidential politics was the program designed to affect the 2004 election or to combat terrorist threats or most likely both?

2. The literature

The literature on executive branch behavior dates from Wright's (1974) above cited paper. He examined the allocation of New Deal spending across U.S. states as a function of the local severity of the Great Depression and a measure of the value of the state's electoral votes to President Roosevelt. Using a measure of closeness-weighted electoral votes, he found that politics mostly trumped "need" in the allocation of these monies. Anderson and Tollison (1991a) follow up Wright's lead by adding tenure on the House and Senate Appropriations Committees to the empirical analysis, finding again that politics outweighed local economic conditions in the process of meting out New Deal funds.4

Other similar approaches to explaining executive branch behavior include Anderson and Tollison (1991b) on union casualties in the Civil War, Brams and Davis (1974) on presidential campaigning and electoral votes, Colantoni, Levesque, and Ordeshook (1975) on the same subject, and Grier, McDonald, and Tollison (1975) on executive vetoes.

These studies employ various measures of a state's electoral votes to proxy their political value to a presidential candidate. These include closeness-weighted electoral votes (perhaps weighted by the standard deviation of the vote of the last several presidential elections in a state), aggregate electoral votes, the rank order of electoral votes, and electoral votes per capita. In general, states with more electoral votes (larger states) have more influence in these models.

The reader should also keep in mind that the system of electoral votes is a uniquely U.S. institution. It basically operates so that each state has electoral votes equal to its number of representatives plus two senators. In all but two states, a presidential candidate wins all of a state's electoral votes by winning a plurality in the state. The two exceptions are Maine and Nebraska, where the electoral votes associated with the representatives are given to the candidate winning a plurality in that congressional district, while the electoral votes associated with the two senators are given to the candidate who wins a plurality in the state (Kuhn, 2004). The College is thus a state jurisdictional winner-take-all system wherein the president is elected by the Electoral College rather than the popular vote. This system clearly makes it advantageous for presidential aspirants to seek electoral votes where the expected payoff is greater.

3. The legislative process for appropriating discretionary federal funds

In the U.S., federal legislation may be proposed in several different ways. Legislators may originate bills, of course, but laws may be proposed by citizens petitioning the Congress directly or through their state legislatures. Tax bills must originate in the House of Represen- tatives. For a bill that appropriates discretionary funds to be spent through the administration,

4 Also see Couch and Shughart (1998).

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278 Public Choice (2006) 128:275-287

however, such legislation is part of the ongoing budgetary process, where the president pro- poses a budget for each administrative department, and the House and Senate Appropriations Committees take up the President's budget proposals. The Appropriations Committee of the respective chamber sends the budget for each administrative department to the subcommittee assigned to oversee that particular department. The subcommittees of both the House and Senate Appropriations Committees hold hearings on the section of the budget that allocates funds for particular departments and calls witnesses, which usually includes the Secretary of the department for which the subcommittee has oversight. In the subcommittees, the budget proposals are debated, items are approved or not, and allocations may be increased or decreased. After the respective subcommittees approve a budget, they send it forward to the Appropriations Committee that hears the reports of the various subcommittees. The Appro- priations Committee then has a chance to amend items in the budget, and a bill is then sent to the entire chamber. After each chamber passes the budget, there is likely to be some differences between the House and Senate versions of the budget, at which time the bill is sent to a Conference Committee, which has members from both chambers where differences between the bills are resolved and then sent back to the respective chambers for final approval.

The committee process is one way in which representative democracies deal with the rational ignorance problem that Downs (1957) discussed. By specializing, legislators are able to gain expertise in particular areas. Because certain subcommittees, such as the Agri- culture Subcommittee, play such an important role in some districts more than others do, legislators who represent agricultural interests have a high incentive to get on the Agriculture Subcommittee. As a result, subcommittees often come to be dominated by high and inelastic demanders of the output of the agencies that they oversee (Wildavsky, PP. 17-18).

The majority party's leaders chose Committee chairs who run the committee meetings with substantial agenda-setting powers. Minority members are afforded a voice on the committees by their voting power as well as powers afforded the ranking minority member in calling witnesses and controlling part of the debate in the full chamber. On committee chairs, Woodrow Wilson5 wrote in his book, Congressional Government:

Power is nowhere concentrated; it is rather deliberately and of set policy scattered amongst many small chiefs. It is divided up, as it were, into forty-seven seigniories, in each of which a Standing Committee is the court-baron and its chairman lord-proprietor. These petty barons, some of them not a little powerful, but none of them within the reach of the full powers of rule, may at will exercise almost despotic sway within their own shires, and may sometimes threaten to convulse even the realm itself. (Wilson ([1885] 1968 p. 59)

Since Wilson's time, however, congressional leadership positions, such as Speaker of the House, have gained power at the expense of the committee chairs (Iridis Encyclopedia, 2005a). In the House of Representatives, seniority determined chairs until 1975, but party caucuses now select committee chairs, and in the 1990s term limits were placed on committee chairs (ibid.). Still, tenure plays a role in power and influence. In the Senate, committee control is primarily, but not completely, determined by seniority, and the Senate also limits chairmen to four terms, or 24 years (Iridis Encyclopedia, 2005b). Senate chairs have enormous power because they can effectively kill bills from going to the full Senate for approval (ibid.).

5 Not only was Wilson the U.S. president during World War I and during the establishment of the Clayton and FTC Acts, the income tax and the Federal Reserve system, but was also a professor of jurisprudence and economics at Princeton, where he later served as president.

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4. Homeland security grant programs

In the wake of the terrorist assault on the Pentagon in Arlington, Virginia and the Twin Towers of the World Trade Center in New York City on September 11, 2001, Congress passed the U.S. Patriot Act of 2001, which authorized several grants to increase homeland security to be given out to state and local governments. The Patriot Act, however, requires continuous appropriations from Congress for the funding under the Patriot Act of 2001 (U.S. Public Law 107-56, 2001, Sec. 1014).

Under the Homeland Security Appropriations Act of 2004, there are five major grant programs offered to cities and states: the State Homeland Security Program (SHSP), the Law Enforcement Terrorism Prevention Program (LETPP), the Citizen Corps Program (CCP), the Urban Area Security Initiative (UASI), and the UASI Transit Security Grants Program. All of these grants are awarded under the Office of Domestic Preparedness. Section 1014 of the Patriot Act of 2001 establishes State and Local Grant Programs (now the SHSP, SETPP, and CCP) to be administered under the Office of State and Local Domestic Preparedness Support of the Office of Justice Programs (ibid.). These grants are to be used by state and local governments "to enhance the capability of State and local jurisdictions to prepare for and respond to terrorist acts including events of terrorism involving weapons of mass destruction and biological, nuclear, radiological, incendiary, chemical and explosive devices." (ibid.) The Patriot Act established minimums of .75% of total grant allocation for states and .25% of total grant allocations for the territories (U.S. Virgin Islands, America Samoa, Guam and the Northern Mariana Islands) under the State and Local Grants Program (now the SHSP), so that 39.25% of the total award is allocated in this across-the-board fashion (ibid.). The remaining 60.75% of the funds for the SHSP, LETPP, and CCP grants are allocated proportionately to the state's share of population in 2002 (Office of Domestic Preparedness 2004a, p. 2). For the FY 2004 grants, the Office of Domestic Preparedness combined the administration of the SHSP, LETPP, and CCP with a single application. These three state grant programs are allocated $2,200 million in total, with $1,685 million going to SHSP grants, $500 million going to the LETPP grants, and $35 million going to the CCP grants (ibid.).

The Department of Homeland Security Appropriations Act of 2004 gives the Department of Homeland Security $725 million in discretionary grants for high-threat, high-density urban areas (Office of Domestic Preparedness 2004b, p. 2). In 2004, the Homeland Security Department devoted $50 million to the Transit Security Grants Program and the remaining $675 million for the general security of high density urban areas (ibid.). Eligibility for the mass transit grants is based on a formula that considered ridership and total route miles and was limited to heavy and commuter rail systems (ibid.). The $675 million for general urban security is allocated proportionately based on a ranking of the results of a formula which is based on current threat estimates, critical assets within the urban area, and population density (ibid.).

5. Framework of analysis

We seek to explain the allocation of DHS grants across U.S. states. The null hypothesis is that these allocations are independent of politics and determined by factors related to the threat of terrorism. To proxy the latter conditions we employ such measures as the number of nuclear power plants by state and state income. To proxy presidential politics we use measures of electoral votes and electoral closeness by state.

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We seek to discover whether the political response to terrorism is simply yet another spending spree prompted by an exogenous shock to the body political (the attack), or whether our democracy is taking care to defend itself in a sensible fashion.6 In other words, does our system of presidential politics cause terrorism resources to be over-allocated to states predicted to be important in the next election while being under-allocated to states less important to reelection efforts?

Our theoretical framework is also simple. Government expands or contracts in the wake of exogenous shocks, as the case may be. The 9/11 attack surely qualifies as such an event, the Monday morning quarterbacks at the 9/11 Commission to the contrary not withstanding. The DHS is a well behaved agent of political actors such as the president. Political actors seek to be reelected. In this regard the president is chosen by the Electoral College wherein, as noted above, most states allocate their electoral votes by a winner-take-all rule. How, then, will the president and presidential candidates (and their colleagues) campaign and allocate resources in order to be reelected or elected? Clearly, she will ignore states where she is certain to lose and certain to win. Efforts will be devoted to attract voters in close states and to states with more electoral votes per voter. The public-choice hypothesis states that terror funds will go to these states; the public-interest hypothesis says that the funds will go where the threat of future attacks is greatest. The use of formulas for allocating funds, however, limits funding discrimination although the formulas themselves are subject to political influence.

The exogenous-shock theory of government is not new. It simply says that any time there is a significant change in relative prices, the vote-maximizing regulator (Peltzman 1976) will step in to take advantage of the newly available wealth transfer opportunities between winners and losers. The former are cost-effective demanders of transfers; the latter are not (why spend $1 to save $0.10?). Exogenous shocks come in all forms and sizes. The Great Depression, OPEC's rise in power, inventions, natural disasters, the financial collapse of large companies, and still other cases all beget more government involvement in an effort to mitigate losses and attenuate gains to the affected parties.

Some of the 9/11 effects in this regard have been obvious. The airlines and the victims' families stand out in this regard. Nonetheless, the reaction of the political sector to 9/11 is not so obvious. Has our democracy acted to defend itself rationally, or are we simply using 9/11 as yet another excuse to feed at the public trough? The importance of the answer is clear. If the public choice hypothesis has support in the data, then we might be better off spending our efforts in reforming our politics rather than simply reforming our intelligence-gathering activities.

6. Empirical model

We postulate a simple empirical test of the pork barrel hypothesis. Namely, 1) Homeland Security Spending = f (Income, Electoral Votes, Closeness, Density, Em-

planed, Nuke, Coast, and Border) where: Homeland Security Spending is the natural log of per capita homeland security grants

allocated to the states and their cities in 2004; Income is the natural log of per capita state income in 2003;

6 Indeed, are we overreacting to the threat? There appears, after all, to be little interest in terrorism insurance outside of a few major metropolitan areas, so why fund anti-terrorism programs in Boise? The market is saying one thing, and the government is doing another.

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Electoral Votes is the natural log of electoral votes per capita in that state after the 2000 decennial reapportionment of Congress;

Closeness is the natural log of the absolute difference between the Republican candidate's vote percentage in 2000 and 50 percent by state;

Emplaned is the natural log of persons emplaned per capita by state in 2000; Density is the natural log of the population density7 in 2002 by state; Nuke is a binary variable for states that have nuclear generation capacity in 2002; Coast is a binary variable for states with ocean frontage; and Border is a binary variable for states that share a border with Mexico or Canada.8 The dependent variable, Homeland Security Spending, is the log of the per capita federal

homeland security spending for the 2004 fiscal year for each of the fifty states and the District of Columbia from five grant programs: the three Counter Terrorism Grants (sum of the SHSP, LETPP, and CCP grants), the Urban Area Security Grants, and the Transit Security Grants (Office of Domestic Preparedness 2004c, 2004d, and 2004e.9 These grants account for only part of homeland security spending. Various local, state and federal agencies also spend Homeland security funds. The DHS itself spends large sums directly for both homeland security activities as well as activities that are not for homeland security purposes (de Rugy, 2004). Grants, however, are the most visible funds to which incumbents can point.

We use the Income variable mostly as a control variable. The Bureau of Economic Analysis (2004) provides the per capita income by state. Wallis (1996) notes that states with higher per capita incomes often receive more federal grant money. As Wallis (1996) points out, federal grants often go to richer states because these states are more able to provide matching funds for federal grants. Another interpretation of our Income variable is that states with higher levels of per capita income are likely to have greater levels of capital, as capital increases labor productivity, and thus, per capita incomes, so that states with higher per capita incomes probably have more assets (in both physical and human capital) to lose. Under the interpretation of the variable as measuring differences in capital, our Income variable is a public interest measure.

Our two main political variables are Electoral Votes and Closeness. In previous work (Wright, 1974; Anderson & Tollison, 1991a), these two variables are combined into a single measure of closeness-weighted electoral votes and were not considered separately. We estimate the separate effects of these two variables. Electoral Votes accounts for the importance of the state to the reelection of the president. Closeness measures the chance that a small change in votes within that state might change the outcome of the presidential race in that state, as most states allocate their electoral votes with a winner-take-all rule.10 Electoral votes are allocated based on the sum of senators and congressmen and can be found in the U.S. Fed- eral Election Commission (2003). With each state having only exactly two senators, smaller

7 Alternatively, we could use the log of the inverse of population density in order to have all of the population- related variables in per capita terms, but with the log transformation, this merely results in changing the sign of the DENSITY variables coefficient, while leaving all other coefficients unchanged. 8 Homeland Security Spending, Emplaned, and Electoral Votes use 2002 Census population figures as their de- nominator. For those interested, our data set may be downloaded at http://www.nicholls.edu/mcoats/HSgrants- .xls.

9There were two grant amounts, $795,280 each, given under the headings, "NY-Port Authority of NY/NJ" and "Phil-NJ-PATCO." We have allocated these two figures equally between New York and New Jersey and Pennsylvania and New Jersey, respectively. The maximum percentage error in our dependent variable due to our ad hoc allocation of these port authority grants is less than 1 percent for each of these three states. 10 As noted previously, Maine and Nebraska use allocate their electoral votes by giving one vote to the plurality winner in each congressional district and two votes for the plurality winner statewide.

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282 Public Choice (2006) 128:275-287

states will have more electoral votes for the sizes of their populations. The least populous state, Wyoming, has 3.83 times the number of electoral votes per capita as California, the most populous state. Also note that the number of electoral votes a state has, like the number of congressmen, is an integer, which will also cause variation in electoral votes per million persons. While larger states, such as California and New York, are expected to get higher absolute allocations, smaller states, such as Wyoming and Vermont, are expected to receive more dollars per person.

The Electoral Votes variable can be thought of in another way: one that also involves another public-choice explanation, but based on congressional instead of presidential politics. For the Patriot Act and the Homeland Security Appropriations Bills to pass, both houses must approve the bills. When funds can be fought over, whether the funds are homeland security grants or armed forces bases, the longer Congress squabbles over how to divide the funds, fewer other bills get passed, reducing the other special-interest legislation Congress can produce. So delaying the passage of one bill is costly. The game of distribution of a fixed sum lacks a core. In each chamber of the Congress, a rather even distribution of funds is likely to have focal-point properties. We can think of the problem here in terms of what Dixit and Skeath (1999, pp. 531-34) refer to as an alternating-offers model where the total value decays, and gradual decay leads to a more even splitting of the total funds within each chamber. The formula for the three state grant programs, with roughly 40% based on an even split of 0.75% of the total for each state and the remaining 60% based on population, is then what one would expect from bargaining between the Senate and the House of Representatives.

Closeness, as measured, is actually a negative measure of closeness, since it measures the difference in the vote of the Republican candidate for president from all other candidates. Since we hypothesize a positive relationship between closeness and spending, we should expect a negative relationship between our vote difference measure and spending. The source for our Closeness variable is the U.S. Bureau of the Census (2004-5b).

The events of 9/11 that launched the Department of Homeland Security utilized com- mercial airliners as missiles targeted at the Pentagon and the World Trade Center, pointing out the vulnerability of our airports for terrorist attacks. The number of persons emplaned measures the amount of air travel originating in the state, which we find in data provided by the Bureau of Transportation Statistics (2000)."1 Even though the UASI transportation grants fund only passenger rail instead of air travel (increased airport security is funded from other sources), large airports do require greater security and monitoring outside the airport, as airliners have long been targets of terrorists. It is then expected that the number of persons emplaned provides us with another public-interest variable shaping homeland security spending.

Population and population density in 2002 (Bureau of Census 2004-5a; Land and Water Area of States 2000). Infoplease.com 2000 were used in the funding formula for Homeland

Security grants.12 One reason for including density in the funding formula is that a single terrorist attack is likely to be more costly in terms of lives lost in more densely populated areas, making population density a public-interest measure.

Congressman Chris Cox (R-CA) noted "The system is still flawed. It is at the intersection of threat and vulnerability that our money should be directed. But right now we are using seat-of-the-pants analysis." (Lipton, 2004) Our three binary variables are likewise based on

I Delaware's emplaned passenger count includes only nonscheduled passengers. 12 See Page 2 of the grant application package, Office of Domestic Preparedness (2004d), for a discussion of the formula and information on the years of the US Census data on population and density.

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vulnerability and threat. Since the nation's nuclear power plants could release dangerous levels of radioactive toxic materials if attacked, protecting such plants is expected to be a high priority. If funds are allocated based on threats and vulnerabilities, we would expect higher per capita spending on homeland security in the 31 states with nuclear facilities than in the 19 states without nuclear power plants (Energy Information Administration 2004). The binary variables, Border and Coast, are used to show points of potential entry for foreign terrorists other than airports; entry by land and by sea are extremely difficult to protect and should be positively correlated with per capita spending on homeland security.

To recap, pork barrel politics should lead to higher per capita spending in states with more electoral votes per capita and where the vote difference is smaller. Spending on matching grants should also be higher in states that are more likely to agree to partially fund them, usually the states with higher per capita incomes. Higher per capita incomes can also be viewed as indicating greater capital, requiring greater protection. The grant funding formulas are partially based on population density, and so spending will be greater in states with higher population densities. Productive uses of the grants would suggest that homeland security spending is positively related to Density, Income, Emplaned, Nuke, Coast and Border.

7. Regression results

We estimate our model with OLS using SAS Institute, Inc (1999). The model estimates are shown in Table 1. We see that it is important to control for income with high-income states receiving more money per capita. We also see that per capita homeland security spending is higher in states with more passengers emplaned per capita, so that spending is related to human airport traffic. Population density is also important with more densely populated states receiving more money per capita (or states with greater area per capita receiving fewer dollars per capita).

On the other hand, the danger posed by nuclear plants in the country does not seem to be a high priority for homeland security grant dollars, as states with nuclear plants get less spending per person, and this negative relationship is significant.13 While the states bordering Mexico and Canada do receive more homeland security dollars per capita than those that do not have such borders, the relationship is insignificant. This could be due to the federal government allocating homeland security border-patrol funds through the DHS's U.S. Border Patrol, rather than enlisting state and local police in helping to perform this function. On the other hand, states with coastlines receive less money per capita than inland states, and this relationship is almost significant.

Though the results do not contradict either hypothesis, so that both explanations have merit, the results suggest that the pork-barrel or public-choice hypothesis has a significant effect at the margin. Of our two presidential political variables, Electoral Votes and Close- ness, only Electoral Votes seems to be related to homeland security spending (we see that Electoral Votes is very highly related to homeland security spending), with an elasticity that is significant in its magnitude as well as being significant statistically. Holding other variables constant, a 1 percent rise in electoral votes per capita seems to increase homeland security spending per capita by 1.3 percent. It thus appears that objective factors, such as state income

13 Foiling planned attacks is likely to be superior to protecting individual targets according to de Rugy (2004). She also suggests that other government or private sources may be more efficient in protecting individual targets. Still, it is curious that we find a significantly negative effect of the presence of nuclear generating facilities instead of no significant effect of either sign.

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Table 1 Homeland security grant allocation regression estimates

Variable Coefficient t-value p-value

Intercept 13.851 6.08 <.0001 Income 0.512 2.96 0.0051 Electoral votes 1.288 16.69 <.0001 Closeness -0.002 -0.09 0.3116

Emplaned 0.025 1.82 0.0763

Density 0.040 2.28 0.0276 Nuke -0.115 -2.25 0.0300 Coast -0.061 -1.49 0.1439 Border 0.044 1.01 0.3175 N 51

Adjusted-R2 0.93 F 85.33

and persons emplaned, as well as political factors, play a role in anti-terror funding. The per-capita-electoral-votes variable is very significant because of the large state minimums in the funding formula, but we suggest here that its use in the formula may be due to the importance of small states in the determination of electoral votes or because of bargaining between the Senate and the House of Representatives. The political effect we find appears to

operate in terms of aggregate electoral votes per capita but not in closeness. Some variables clearly have the wrong sign from what would be expected under the public-interest hypothesis (Nuke, for example). Overall we are able to explain a large amount of the variation in Department of Homeland Security grants across states.

We estimated the model with various measures of our variables, but find that the overall pattern of results is consistent with those in Table 1.14 15 We also estimate the model with a different measure of the dependent variable, using only the state grants, the grants in State Homeland Security Program, the Law Enforcement Terrorist Prevention Program and the Citizen Corps Program, excluding the Urban Area Security Initiative and Urban Transit Grant funds. What we find from this model is that almost all of the coefficients are insignificant except for Nuke and Electoral Votes, with the latter variable having a coefficient with a t-value above 30. The variable, Electoral Votes, explains almost all of the variation in the

14To examine the robustness of our model, we ran the model under alternate specifications, logged and

"unlogged" measures of the variables, per capita and total measures of the variables, and with the Border (Borders, 2005) and Coast (Coastlines of the United States, 2005) and Nuke (Nuclear Energy Institute 2004) variables measured as dichotomous and as continuous variables (miles of borders with Canada or Mexico, and miles of Atlantic, Pacific or Gulf of Mexico coastline). These various specifications are largely consistent with the model we present here. In a model where all of the variables, including the Coast, Border and Nuke variables, are measured in per capita terms, the Coast variable becomes significantly negatively while the Border variable becomes significantly positive, but the VIF for those two variables exceed ten, so we place no value on their "momentary" significance. The model is rather robust across various specifications. These other results are available upon request. 15 To our basic model in Table 1 we added several variables to measure Congressional power, such as the combined tenure of a state's Republicans on the House Appropriations Committee, the combined tenure of a state's Democrats on the House Appropriations Committee, whether or not a state had representation on the Homeland Security Appropriations Subcommittee, whether or not a state had a Senator or Congressman who was part of the official leadership, and dummies for Senate representation on the Senate Appropriations Com- mittee and the Senate's Homeland Security Appropriations Subcommittee. For the most part, the coefficients of these variables are insignificant. However, if Electoral Votes is dropped from the model, the two House

Appropriations Committee tenure variables became negatively significant, but this seems spurious at best.

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Public Choice (2006) 128:275-287 285

state grant allocations, because the formula allocates 40% of the funds across the board and 60% by population. The coefficients of the variables, Density, Income, and Emplaned, all of which are significantly positive in the full model suddenly become rather insignificant in the "state only" grants model. In other words, only in the case urban area grants are added to the state totals, do we see a public-interest explanation in Homeland Security grant distributions emerge.

So we end with a half-filled glass of water. Politics matters to the allocation of anti-terror funding, but there are some public-interest effects revealed in the data as well, especially for the two urban area grants programs, which have formulas that take threat, critical assets, population density, and train mass transit into account. Still, much of our spending to fight terrorism may be wasteful even if it is spent in areas of threats. For instance, de Rugy (2004) suggests that the large sums spent to check every passenger and all baggage for protecting against 9/11 style attacks may be less efficient than training and arming pilots and the use of fortified doors on cockpits.

Our analysis so far has also been limited by looking at the ways in which the federal government allocates grant funds to combat terrorism. Another margin for funds to be misal- located occurs in the ways that state and local governments allocated the funds they receive from the federal government (Victoria Advocate Online 2005). For instance, recent news has suggested that in one state, New Jersey, a state with Democratic majorities in both legislative chambers and with a Democratic governor, Republican areas receive little homeland security grant funds (Hepp 2005). While there could be a legitimate reason for the New Jersey pattern of spending, this news item at least underscores another way in which wasteful allocation of these funds can occur.

8. The politics of closeness and grant allocation by formula

As economists, we normally think of competition as a good thing. Yet in politics, this may not follow. Closeness in elections makes individual votes more important, increasing the value of paying attention to and taking care of marginal voters (Karahan, Coats and Shughart, 2006). As elections become closer, electoral competition ramps up the "price" paid for marginal votes, the cost of government spirals, and the range and extent of the political sector increases. As we are learning, this process can be quite expensive, not just in fighting the war on terror, but across the board in terms of government programs.

There are two ways presidential races can be close but only one way is measured here, the within-state closeness. Even though within-state closeness does not seem to be related to the allocation of homeland security grants, a presidential election can still be close in terms of overall electoral votes across all states. If a presidential race is expected to be close in overall electoral votes, it is more likely that presidential political factors will dominate the allocation process, rather than congressional political factors, such as congressional leadership. If key congressional races, especially those in which the current majority leadership are participat- ing, are more tenuous than the presidential race, then congressional politics could dominate the allocation process.

As de Rugy (2004 p. 17) points out, the allocation formulas used for some Homeland Security grants do much to "disconnect the funding from the risk of being attacked." Still, formulas are not without purpose and allocate funds in a particular pattern. Grant allocations made through formula funding reduce the ability of the politicians to discriminate finely, leaving them with less perfect forms of political allocation. While allocation formulas limit the ability of politicians to allocate funds in line with definitions of the public interest,

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286 Public Choice (2006) 128:275-287

they may also limit the rent-seeking waste associated with wealth transfer programs. Just as a monopolist charging the same price in different markets but facing different costs of service practices a form of price discrimination, allocating the same funds across different jurisdictions for protection against terrorists, when the threat of terrorist strikes and potential damage varies widely, is another form of pork.

Some funds are clearly spent in a manner supporting the public interest theory, while other funds seem to go to "buy" consent. Clearly, this is not a Pareto optimal allocation of spending - we have government failure. We can improve upon the way funds are spent, at least to the same extent that improvements can be made to reduce the waste from various market failures. Remaining is the question of how to reform the political system to reduce this waste without creating waste elsewhere in the system.

Acknowledgements We thank Charles Rowley, Mark Crain, Gordon Tullock and William Shughart and other participants in the Conference on the Political Economy of Terrorism held at George Mason University Law School, on 24-25 May 2005. We would also like to thank Amber Rippy and Wanda Buxto, librarians of the Dequincy, LA Public Library, and Michael Kurth at McNeese State University who provided assistance and Internet connections as this paper underwent final editing while Coats and Karahan were evacuated for Hurricane Katrina. The usual caveat applies.

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