Budget Snafu: Met the Enemy and It Is Us
 Constraining tax increases, but not spending; building in excessive, automatic expenditure requirements; and making ill-fated efforts to defy fiscal physics by trying to spend more money than is available have become hallmarks of California’s budget process, reports the Sacramento Bee. Both lawmakers and the public play roles in a fiscal ritual whose price tag just keeps getting bigger.
In two days, the Sacramento Bee has run three articles examining California’s budget problems in detail (click here, here and here).
An Untenable Position: Cutting Taxes, but Not Spending
In 1978, California voters engaged in a nationally publicized taxpayers’ revolt. They approved Proposition 13 that year to roll back property taxes and cap them against future increases, effectively reducing property taxes by an average of 57 percent.
The vote was seen as a turning point; and it was, but not the kind Californians expected.
Prior to Proposition 13, “state government spent more general fund revenues than it collected in 11 of 34 years.” And what has happened in subsequent years? “Of the 32 budgets passed since then, 19 have spent more than the state took in from tax revenues,” notes the Sacramento Bee.
No one, it seems, has bought into the notion that revenue constraints are only half of the formula; aggressive spending constraints must also be imposed to make the budget balance.
As an Arizona poll conducted in March 2009 by a group called Americans for Prosperity found out: taxpayers don’t want tax increases, but neither do they want spending cuts – they like all the things government provides! That leaves lawmakers and taxpayers in an untenable position each year.
The Sacramento Bee addresses voters’ disaffection for spending limits in this article.
If that’s not bad enough, the problem is made worse by the “structural deficit” that is endemic to state budgeting; laws are written in such a way as to automatically escalate spending commitments for a host of programs, two of the most revenue-voracious being education and healthcare.
California is Not Alone
In response to the recession, federal stimulus funds have been largely devoted to a purpose many states had already been engaged in – enlarging the social safety net through expansion of Medicaid and associated programs for low-income children and their families. (See the AOH article, “Arizona: Cutting Healthcare for the Working Poor” for an example of how Arizona has used surplus funds gained from a legal settlement to expand the social safety net, rather than setting aside funds for a rainy day.)
The Government Accountability Office has reported on how the bulk of stimulus funds is directed toward these efforts; and frequently tying receipt of funds to additional promises by states to enlarge future program commitments in a way they may not be able to afford.
Desperate for funds to fill budget gaps, states agreed to whatever requirements were made in order to receive the much needed financial support, leaving to the future the unanswered problem of how the states themselves will pay for the enlarged safety net in 2011 and after when federal stimulus funds are gone (see AOH article). (See also AOH, August 14 article, “Medicaid Expansion: States’ Struggles” for more on states’ worries once federal stimulus funds run out.)
Arizona has become symbolic of the ironic predicament of cutting taxes while simultaneously making the social safety net bigger and creating more structural deficits through automatic increases in programs where caseloads and enrollment continue to grow (namely, the Arizona Health Care Cost Containment System, which is the state’s Medicaid program for low income families; K-12 education spending; and corrections spending for burgeoning populations in prison or jail. Regarding this latter concern, see AOH, September 14, “Seeking a Lockdown on Prison Costs.”)
Slide 7 of an August 2009 Arizona State Budget Briefing presentation by Arizona economist Alan Maguire illustrates the steady growth in AHCCCS caseloads, K-12 enrollment and corrections populations, all expected to grow by 94,800 just from FY2009 to FY 2010, he says.
For Arizona, this increase translates into a funding increase requirement of $657 million in just one year – and that’s a required increase with no revenue increase to fulfill it.
The budget morass is exacerbated by built-in increases like this for needs that are continually expanding, in part due to population growth. (The Arizona Department of Commerce has noted that from 2007 to 2008, Arizona was the second-fastest growing state in the nation, trailing Utah.)
These areas – K-12 education, AHCCCS, and corrections – take a big share of Arizona’s general fund, which is about 40 percent of all spending. K-12 spending historically has hovered about 40 percent of the general fund (just under 46 percent in 1979) and has had to battle in budget shortfall skirmishes to stay close to that share (estimated at about 42 percent in 2009) amid growing enrollments.
Meanwhile, AHCCCS, implemented 27 years ago in 1982, has grown to more than 14 percent of general fund spending in that brief time. Since 1979, corrections’ spending as a percentage of general fund spending has more than doubled.
Conclusion
When the recession ends (some economists believe it has already) some of the focus on safety net services will recede, but spending requirements likely will not as these programs forge ahead laden with commitments to automatically expand their reach (and costs).
Meanwhile, new funding priorities are likely to emerge, particularly with attention to competing for new business and meeting the demands of competition.
It all spells continued trouble in an atmosphere where taxpayers, many left more financially strapped by the recession, actively oppose tax increases, even when times are good. |
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