Andrew Levin did not expect to find what he found when he started doing research to look into questions around how much Federal Reserve staff are paid amidst claims by some that they might be under paid compared to to other federal government workers.
And it is not necessarily what he has been known for after his 20 years at the Federal Reserve Board in Washington from 1992 to 2012, where he occupied a variety of roles including as a Special Adviser to the Board on monetary policy strategy and communications, an important and presitgious position.
Dartmouth College, where Andy teaches courses on macroeconomics and monetary policy, notes that “his research has been highly influential, with a total citation count that ranks among the top 200 economists worldwide.”
He has also long been concerned with Fed oversight and governance. Back in 2016, the year after he joined the team at Dartmouth, the Dartmouth News carried a story about him which shows he has looked at the Fed with a critical eye not only on its monetary policy but also on how it is run and what needs to be changed for some time: “Andrew Levin on Why the Fed Is in Need of Reform.”
Back to the paper that the Andy wrote earlier this year that was carried as a policy brief by the Mercatus Center. What did his deep dive into the Fed’s financial statement lead him to conclude?
The Fed has gargantuan payrolls and building upgrades. Time for an external review.
And it is what he found in the Fed’s own financial statements, what they revealed about what he considers the extravagance of these “building upgrades,” that surprised him and fired up his drive to make sure the facts and figures would also be known to and evalyated by the public.
Here is the abstract from his Mercatus piece:
Abstract This policy brief compares the operating expenses of the Federal Reserve with other large federal agencies. Inflation-adjusted salaries of Fed employees increased 67 percent from 2007 to 2024 but remained practically unchanged at other federal agencies. The Fed is now completing a $2.5 billion building upgrade at its DC headquarters—about ten times the cost of office renovations at the Ronald Reagan Building just a few blocks away. The Fed’s management of its securities portfolio has resulted in unprecedented operating losses of $220 billion since mid-2022, and the total cost to taxpayers will be about $1.5 trillion over coming years. Each of these outcomes reflects an opaque and hierarchical institution with no constraints on the costs or efficacy of its programs and operations. Congress urgently needs to take specific steps to strengthen the Fed's public accountability.
These argments, this kind of data is what was seized on by the Administration; Chair Powell was questioned by Tim Scott, chair of the Senate Banking Committee in June on monetray policy with a few questions on the bulding project that made waves.
So dive in and hear what Andy has to say. He is not only informed but also passionate about lessons to be learned and steps to be taken next.
How I got involve in the Fed’s renovation project 00:01:08.470
Well, my long time work, really, for more than 10 years now is on central bank institutions, and how to find a balance of protecting their ability to set monetary policy but also fostering their accountability to the public, you know, in a in a democracy. And that's, you know, a delicate balance in some ways. I've been advocating for a long time that the Federal Reserve should have external reviews Presidentially appointed Inspector general and comprehensive reviews by the GAO early this year. There were questions that were starting to come up about the Feds payrolls and a debate kind of started about whether the Fed was overstaffed or overworked….I was looking into that information. I started looking at the capital budgets and realized I wasn't aware of it, that the Fed was embarking on this major upgrade to its headquarters in DC. And it wasn't in any of the reports to Congress. It literally wasn't in the report to Congress. So there's 2 pages in the March brief about the headquarters upgrade.
So, happenstance led you to this investigation, and you found… 00:03:23.240
Well, one simple way to put it is, we're talking about 3 buildings for a total of about 2,500 Federal Reserve staff. Now that latest budget that they issued in December of 2024 the total cost of upgrading those 3 buildings is going to be 3.1 billion dollars. : So you can do the math: $3.1 billion divided by 2,500 employees. It's more than a million dollars a person. The total valuation of those buildings is going to place them among the most expensive structures in the world.
The cost perspective… 00:04:11.960
You know, this is more than Versailles Palace, more than the entire buildings owned by the US Congress, which includes the Capitol Building, Library of Congress, the Botanical Garden, and 6 Congressional offices that 15,000 Congressional staff use, and the valuation of that entire property of Congress is only $2.5 billion. And the Fed’s property probably it's going to be worth $3.5 billion.
Like an onion: Peeling off the cost-skins of this project 00:05:39.950
Well, let's start with the <new acquisition>. They acquired a building in 2018. It's called 1951 Constitution Avenue. Okay. It was built and opened in 1930. It hasn't been renovated for a long, long time. There's a bunch of things that have to be done there remove asbestos insulation. Okay? Well, you can look at contracts. There's standard building contracts removing insulation from asbestos insulation from a building that size. You're talking about a couple million dollars. You got to get rid of the lead paint. Okay, that's about another 2 million dollars. You've got to change the ventilation ducts. That's about 5 million dollars. You've got to update all the wiring and the plumbing. Oh, you got to change the roof. Okay. Now, altogether, you can put it together. And GSA, does this for other Federal office buildings of that vintage. Okay, the total cost would be somewhere in the neighborhood of 30 to 50 million dollars.
So, why are the actual costs about 10-times greater? 00:06:37.150
Okay, why is this project 10 times 50 times more expensive than that? And the answer is because the Fed decided to create an underground concourse level, to connect all 3 of its buildings, and it says in the planning documents, they thought this would be nice, because the staff would be able to go through these underground connections without having to go across the street and go in and out of security entrances. so if you could do that for 10 million dollars or 30 million dollars 100 million dollars, maybe fine. But that's for if that's costing a billion dollars. so that a couple of 1,000 staff don't have to go in and out of the security entrances. Then I'd say, that's exorbitant. (00:09:32.490) Now, another thing I haven't mentioned yet. Here another huge cost driver was the Federal Reserve decided to create 3 glass atriums at two of these buildings and those class atriums, probably are $1 billion dollar glass atriums. And the reason is because in one of these buildings the Fed basically demolished the central wing and built a new north wing
Oversight? Approval? What are the guidelines for building? 00:08:07.330
There's deeper questions here. Part of the problem here is that there wasn't any clear explanation about the major cost drivers. There are other buildings like the State departments, just a couple of blocks away, and it has security, and it has ambassadors and all coming from all over the world. the public funds probably needed to, you know, improve the State Department building. Under the law the Congress gave The Federal Reserve authority to control its own buildings and decide. But it's specific, the Congress said, has to be necessary and adequate. Necessary and adequate. Those are really important legal terms, because necessary means. It has to be crucial to the mission. So just making it more convenient for staff to be able to go, you know, between the buildings. Without having to go through security. is not obviously necessary to the mission. And GAO has set standards. GSA follows those for all other Federal office buildings. What's essential? What's sufficient? And what's a luxury?
The Fed recently posted online FAQs to explain the renovations - 00:10:35.100
The FAQS and the videos they posted don't talk about the glass atriums, and they don't talk about the underground concourse. Okay, those are the biggest cost drivers. They don't even really talk about changes in the security of the entrances, which, by the way. After 911 the Fed did make some very significant changes to the security of its building entrances and some other adjustments. The Fed has its own police force that's patrolling the ground. They have their own security dogs that are trained Right? Compared to other Federal agencies, and we're including here some of the more sensitive ones, the Fed has much, much higher security already, before the $2.5 billion dollars.
But the Fed said it scrapped some of the items on the blueprint 00:11:29.070
okay, now, we're asking another question. So the interesting thing about this is that the work that I did in March? And then I did an updated brief in June that was more specifically focused on the headquarters because there were a lot of questions about it, and I wanted to do some more reading myself. How did the cost compare to other structures and other renovations? And so on. All the information I was using was from planning documents that the Federal Reserve had submitted to the National Capital Planning Commission. and all those were marked as final approval. September 2021. And so, as far as I knew, that was the plan… as of December, just a few months ago? The cost, the total cost of the project had increased to 2.5 billion dollars for the two buildings that they're now working on. So they did it. They did decided to remove some of these major structural changes, probably because those <others> are already too far along.
Independence and oversight 00:13:47.850
The very 1st thing is the title of my latest brief. The Federal Reserve should welcome a Presidentially appointed Inspector General. Like every other Agency, State Department, Treasury Department, Pentagon. They all have a Presidentially appointed Inspector General (IG) who's confirmed by the Senate, and who's directly accountable to Congress. Okay? The Fed was exempted from that in the seventies, at a time when the Fed was very simple, with a small balance sheet and a relatively small staff, and now I think it would make sense the Federal Reserve itself to say yes, that would be helpful to us. We'd like to have an independent watchdog who has access to all of our internal information. But one who's accountable to Congress and not to the Fed Chair as under the current law. The Inspector General? It's very clear the current law says the Inspector General of the Federal Reserve, shall work under the direction and control of the Fed Chair on all policy-related matters.
The IG who reports to the Fed Chair has not been inquisitive 00:14:49.470
the Fed’s IG hasn't written anything about the cost of these upgrade projects in the last 4 years. There's nothing about the cost drivers. There's nothing about design decisions. There's no questioning of the underground concourse level, the underground garage, the glass atriums, the Ig never wrote about it… Many organizations like to have a watchdog. It makes them think… maybe we shouldn't do that, or maybe we should change the plan? The Smithsonian started doing some renovations, and when they figured out that this is a swamp and those changes are going to be exorbitantly expensive, they just changed the project, or they cancel the project. The Fed didn’t. The Fed just said full speed ahead.
How I got involve in the Fed’s renovation project 00:01:08.470
Well, my long time work, really, for more than 10 years now is on central bank institutions, and how to find a balance of protecting their ability to set monetary policy but also fostering their accountability to the public, you know, in a in a democracy. And that's, you know, a delicate balance in some ways. I've been advocating for a long time that the Federal Reserve should have external reviews GAO. So early this year there were questions that were starting to come up about the Feds payrolls and a debate kind of started about whether the Fed was overstaffed or overworked….I was looking into that information. I started looking at the capital budgets and realized I wasn't aware of it, that the Fed was embarking on this major upgrade to its headquarters in DC. And it wasn't in any of the reports to Congress. It literally wasn't in the report to Congress. So there's two pages in the March brief about the headquarters upgrade.
Happenstance led you to this investigation, and you found… $3.1B renovation cost, $1 million per Fed employee
Well, one simple way to put it is, we're talking about three buildings for a total of about 2,500 Federal Reserve staff. Now that latest budget that they issued in December of 2024, the total cost of upgrading those buildings is going to be 3.1 billion dollars. :So you can do the math: $3.1 billion divided by 2,500 employees. It's more than a million dollars a person - ! The total valuation of those buildings is going to place them among the most expensive structures in the world.
The cost perspective… Versaille Palace 00:04:11.960
You know, this is more than Versailles Palace, more than the entire buildings owned by the US Congress, which includes the Capitol Building, Library of Congress, the Botanical Garden, and 6 Congressional offices that 15,000 Congressional staff use, and the valuation of that entire property of Congress is only $2.5 billion. And the Fed’s property probably it's going to be worth $3.5 billion.
Like an onion: Peeling off the cost-skins of this project 00:05:39.950
Well, let's start with the <new acquisition>. They acquired a building in 2018. It's called 1951 Constitution Avenue. Okay. It was built and opened in 1930. It hasn't been renovated for a long, long time. There's a bunch of things that have to be done there remove asbestos insulation. Okay? Well, you can look at contracts. There's standard building contracts removing insulation from asbestos insulation from a building that size. You're talking about a couple million dollars. You got to get rid of the lead paint. Okay, that's about another 2 million dollars. You've got to change the ventilation ducts. That's about 5 million dollars. You've got to update all the wiring and the plumbing. Oh, you got to change the roof. Okay. Now, altogether, you can put it together. And GSA, does this for other Federal office buildings of that vintage. Okay, the total cost would be somewhere in the neighborhood of 30 to 50 million dollars.
So, why are the actual costs about 10-times greater? 00:06:37.150
Okay, why is this project 10 times 50 times more expensive than that? And the answer is because the Fed decided to create an underground concourse level, to connect all 3 of its buildings, and it says in the planning documents, they thought this would be nice, because the staff would be able to go through these underground connections without having to go across the street and go in and out of security entrances. so if you could do that for 10 million dollars or 30 million dollars 100 million dollars, maybe fine. But that's for if that's costing a billion dollars. so that a couple of 1,000 staff don't have to go in and out of the security entrances. Then I'd say, that's exorbitant. (00:09:32.490) Now, another thing I haven't mentioned yet. Here another huge cost driver was the Federal Reserve decided to create 3 glass atriums at two of these buildings and those class atriums, probably are $1 billion dollar glass atriums. And the reason is because in one of these buildings the Fed basically demolished the central wing and built a new north wing
Oversight? Approval? What are the guidelines for building? 00:08:07.330
There's deeper questions here. Part of the problem here is that there wasn't any clear explanation about the major cost drivers. There are other buildings like the State departments, just a couple of blocks away, and it has security, and it has ambassadors and all coming from all over the world. the public funds probably needed to, you know, improve the State Department building. Under the law the Congress gave The Federal Reserve authority to control its own buildings and decide. But it's specific, the Congress said, has to be necessary and adequate. Necessary and adequate. Those are really important legal terms, because necessary means. It has to be crucial to the mission. So just making it more convenient for staff to be able to go, you know, between the buildings. Without having to go through security. is not obviously necessary to the mission. And GAO has set standards. GSA follows those for all other Federal office buildings. What's essential? What's sufficient? And what's a luxury?
The Fed has posted online FAQs- 00:10:35.100
The FAQS and the videos they posted don't talk about the glass atriums, and they don't talk about the underground concourse. Okay, those are the biggest cost drivers. They don't even really talk about changes in the security of the entrances, which, by the way. After 911 the Fed did make some very significant changes to the security of its building entrances and some other adjustments. The Fed has its own police force that's patrolling the ground. They have their own security dogs that are trained Right? Compared to other Federal agencies, and we're including here some of the more sensitive ones, the Fed has much, much higher security already, before the $2.5 billion dollars.
But the Fed said it scrapped some of the items on the blueprint 00:11:29.070
Okay, now, we're asking another question. So the interesting thing about this is that the work that I did in March (of this year). And then I did an updated brief in June that was more specifically focused on the headquarters because there were a lot of questions about it, and I wanted to do some more reading myself. How did the cost compare to other structures and other renovations? And so on. All the information I was using was from planning documents that the Federal Reserve had submitted to the National Capital Planning Commission. and all those were marked as final approval. September 2021. And so, as far as I knew, that was the plan… as of December, just a few months ago? The cost, the total cost of the project had increased to 2.5 billion dollars for the two buildings that they're now working on. So they did it. They did decided to remove some of these major structural changes, probably because those <others> are already too far along.
Independence and oversight 00:13:47.850
The very 1st thing is the title of my latest brief. The Federal Reserve should welcome a Presidentially appointed Inspector General. Like every other Agency, State Department, Treasury Department, Pentagon. They all have a Presidentially appointed Inspector General (IG) who's confirmed by the Senate, and who's directly accountable to Congress. Okay? The Fed was exempted from that in the seventies, at a time when the Fed was very simple, with a small balance sheet and a relatively small staff, and now I think it would make sense the Federal Reserve itself to say yes, that would be helpful to us. We'd like to have an independent watchdog who has access to all of our internal information. But one who's accountable to Congress and not to the Fed Chair as under the current law. The Inspector General? It's very clear the current law says the Inspector General of the Federal Reserve, shall work under the direction and control of the Fed Chair on all policy-related matters.
The IG who reports to the Fed Chair has not been inquisitive 00:14:49.470
the Fed’s IG hasn't written anything about the cost of these upgrade projects in the last 4 years. There's nothing about the cost drivers. There's nothing about design decisions. There's no questioning of the underground concourse level, the underground garage, the glass atriums, the Ig never wrote about it… Many organizations like to have a watchdog. It makes them think… maybe we shouldn't do that, or maybe we should change the plan? The Smithsonian started doing some renovations, and when they figured out that this is a swamp and those changes are going to be exorbitantly expensive, they just changed the project, or they cancel the project. The Fed didn’t. The Fed just said full speed ahead.
Andrew T. Levin
Andrew T. Levin is a professor of economics at Dartmouth College. Levin’s research has been highly influential, with a citation count that ranks among the top 10 monetary economists worldwide.
Levin is a regular visiting scholar at the International Monetary Fund and serves on the Bank of England’s academic advisory group on digital currencies. Previously, Levin has been an external consultant to the European Central Bank, an external adviser to the Bank of Korea, a scientific advisor to the central banks of Norway and Sweden, a consultant to the Government of Australia’s review of the Reserve Bank of Australia, and a visiting scholar at the central banks of Canada, Japan, Netherlands, and New Zealand, and he has provided technical assistance to the central banks of Albania, Argentina, Ghana, Macedonia, and Ukraine.
Levin received his Ph.D. in economics from Stanford University and worked at the Federal Reserve Board for two decades, including two years as a special adviser on monetary policy strategy and communications, and he was a research adviser at the IMF prior to joining the Dartmouth faculty in 2015.
