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Budget Lessons from the Old Dominion

31 August 2010, 10:36 pm

This, from the Wall Street Journal, describes how Virginia managed to close its budget gap:

Here’s something you don’t see often these days: a government running a budget surplus. Governor Robert McDonnell announced last week that Virginia closed fiscal 2010 some $400 million in the black. That’s a radically improved financial picture from a year ago when the state faced a $4.2 billion two-year budget hole.

The usual suspects—the big business lobbies, the Washington Post—thought a major tax increase was needed. So did the previous Governor, Democrat Tim Kaine, who proposed a $2 billion tax hike before he left town, on top of two major Virginia tax increases in the previous eight years.

Mr. McDonnell has proved otherwise. The newly elected Republican put a freeze on hiring and took the knife even to such politically sensitive programs as school aid, police and Medicaid to cut hundreds of millions of dollars. Total state spending has been reset more or less to 2007 levels. If Congress were to do that, the federal deficit could fall by more than $900 billion, or two-thirds.

It’s true that Richmond used too many budget tricks to make the surplus appear larger than it really is. Sales tax payments were accelerated by one month to count in 2010 rather than 2011. Several hundred million dollars were borrowed from the public-employee pension reserve—money the Governor promises to repay by 2013. Most fiscal experts think the real surplus is closer to $87 million. But given the lousy economy, Virginia’s budget achievement is laudable. (Emphasis added)

Virginia does biennial budgeting, so they’ve passed their FY11 and FY12 budgets already.  Virginia’s general fund is about $15.5 billion, and its total budget is about $38 billion, so either way, it’s about twice Colorado’s.  Virginia was facing a $4.2 billion deficit over two years, so it was also roughly proportional to the $1 billion hole we face in FY11-12.

We could begin with a meaningful hiring freeze ourselves.  Despite the Democrats’ claim of a hiring freeze, the Bureau of Labor Statistics tells a different story:

It also makes the urgency of converting PERA from a defined-benefit to a defined-contribution plan even more plain.  (For the basics on public pensions, see this primer.)

In the past, I’ve posted on the difficulty of forecasting, how despite the best intentions and best information, the folks at Legislative Council have a hard time seeing revenue crises before they hit.  Bloomberg  has a fine posting on why this is so:

How do economists fare when it comes to real forecasting, to predicting GDP growth and inflation one year out? About as good as a coin toss, according to Bryan’s research. Less than half the economists did better than the “naive” forecast, which is based on no understanding of the economy and merely assumes next year’s outcome will be the same as this year’s. It’s what you’d expect if the results were purely random….

I want to hear a plausible scenario, based on what we know and what we expect, for how things are going to play out in the U.S. and on the global stage. Getting the number right is a job for an accountant. Putting that number in the context of a larger trend is a job for an economist.

We don’t know when revenue will recover, and we don’t know when the next drop will hit.  As a result, we need to be careful not to build in additional structural spending when times are good.

Unfortunately, we’ve already used up all those gimmicks that make the Virginia surplus look larger than it is.  For us, it’s going to be even more painful, which means it’s going to call for a seriousness that’s been lacking.  It’s going to call for the guts to make difficult cuts, and the courage to defend them before the voters – even in odd-numbered years.

Filed under Issues, PERA, State Spending, Taxes.
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Biases – Who Cares for the Poor?

27 July 2010, 5:49 pm

I’ve mentioned before how much I enjoy walking the district, and not just because I get to meet people who agree with me.  You learn more from the people who disagree, and how they disagree.  Usually, we manage to do that without being disagreeable.  After all, it’s surprising to me when people taken the campaign more personally than I do.

But then, there are the times that are revealing.  I started a conversation with one voter, who asked how I felt about the Taxpayer’s Bill of Rights.  I’ve never made any secret of the fact that I support it, especially the provisions that require taxpayer approval for any increase in taxes.  I firmly believe that recipients of new funds should have to make the case of the worthiness of their cause to the people whose money they’ll be spending, not merely to legislators who see an opportunity to buy votes with taxpayer dollars.

The voter, who, as it turns out, works for a very left-of-center think tank here in Colorado, vociferously disagreed.  Nothing wrong so far.  Then, this:

She: I’m a member of society, and I’m willing to do my part and pay more if I have to
Me: Fair enough, but you do realize that there are plenty of private charities that you can contribute to, that are just as much a part of society, and do just as much good
She: Well, you go ahead and contribute to your religious groups (slight pause) and your secular groups….
Me: Ma’am, please don’t put words in my mouth.  I didn’t mention religious groups at all.
She (spitting nails at this point): Well, I know what you meant.
Me: No, you don’t.  Although, remember that the soup tastes just as good when the Catholics serve it.

This is problematic on a number of levels.  I don’t have any reason to believe the woman was reacting speficially to my yarmulke.  That is, I’m willing to give her the benefit of the doubt and assume that she has a problem with religion in general.  But the close-minded opposition to the assumed close-mindedness of the religious is an especially destructive sort of prejudice.  It undermines our civil society, those institutions that exist independently of the government, and provide a community connection for both the giver and the receiver.

There is also, perhaps a cautionary tale here for those religious (and secular) organizations whom the government uses to provide needed social services.  These groups, seeing an opportunity to do more, can all too easily be converted into clients of the state, dependent on the government not only for money for service delivery, but also for general overhead.  And after that, they can become easy prey for those who, like my neighbor, hold them in disdain.

Nobody ought dispute the need for a government safety net.  But the temptation to “do more,” laden though it is with good intentions and sympathy for those who need our help, also carries its own risks.

Filed under Issues, State Spending, Taxes, Walking the District.
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The Quantum Theory of Government

21 July 2010, 1:39 pm

Back in the early days of quantum theory, Sir William Bragg used to say that on Mondays, Wednesdays, and Fridays, physicists thought of the electron as a wave, and on Tuesdays, Thursdays, and Saturdays, as a particle.   The Obama Administration, and their Democrat counterparts here in the state, have adopted a similar theory of taxation.

First, it was the state Democrats insisting that a fee wasn’t a tax, except when it was. Now, the Obama Administration, in response to Virginia’s lawsuit against Obamacare, has changed its tune about the penalty you will soon pay for not carrying health insurance. Initially, they claimed it wasn’t a tax, in order to avoid rhetorically breaking the President’s promise not to raise taxes on anyone making less than $250,000 a year.

Now, in response to the lawsuit, which claims that the government can’t impose a penalty for not engaging in commerce, and that the IRS can’t be used to collect penalties unrelated to taxation, the Administration has decided that it’s a tax, after all. Which will create difficulties of its own.

The Constitution limits the direct taxation authority of Congress pretty severely. While the 16th Amendment permits income taxes, this isn’t an income tax. And while it permits capitation taxes, those taxes have to be in proportion to a state’s population, which this also isn’t. So we’re left with a situation where something is a tax on Monday, Wednesday, and Friday, a fee on Tuesday, Thursday, and Saturday, and a penalty on Sunday.

The resolution to the quantum paradox, most agree, is that the electron and other particles aren’t really particles or waves at all, but something else entirely that has features of each. I think it’s pretty clear what’s what in this case, but no doubt the Democrats will soon be arguing that it’s neither a penalty nor a fee nor a tax, but something else altogether.

The one common denominator to all these definitions is that it means more money for them, and less for you.

Filed under Issues, Taxes.
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The Right Way To Balance the Budget

18 July 2010, 1:11 am

By law, Colorado must produce a balanced budget each year.   Recently, the state legislature, including my opponent Rep. Court, has chosen to balance the state budget by raising taxes on its citizens.  In a time record unemployment, she has voted to raise taxes on citizens who have suffered through months of joblessness.

In the next budget cycle, Colorado is expected to face as much as a $1 billion gap between spending and receipts.  Instead of making the tough choices Rep. Court was elected to make, she declares that, “We could be as efficient as we possible could with cutting funds, but we could not reach a billion dollars.”  In fact, the state general fund increased by as much as 6% in the current budget cycle (final numbers are not in yet), in a year with no inflation and little population growth.  And while I join with the overwhelming majority of the Republican legislative caucuses in opposing Amendments 60, 61, and 101, it will be public, not private jobs that suffer.  Such confusion is understandable from the 2nd-most business-unfriendly state representative in the last session.

The fact is, there are ways of closing this budget gap through efficiencies.  We can combine redundant school districts, merge departmental activities, seek Medicaid waivers, and examine our state’s priorities.  We can demand stricter accountability from state agencies – notably the Department of Corrections.  We can stop paying for non-emergency state employees’ commutes.

Rep. Court has never met a tax increase she didn’t like or a spending cut she did.  And while in committee hearings, she has admitted that “Math and I are not friends,”* it’s clear that she wants her hand and your pocket to have a very close relationship indeed.

*State, Veterans, and Military Affairs Committee, March 23, 2010

Filed under Issues, State Spending, Taxes.
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Sales Tax Hits the Skids

2 July 2010, 8:07 pm

Remember the, “Amazon Tax?”  The repeal of the online sales tax exemption that was supposed to generate $5 million for the state?  Well, of course, that was before the main payers of the tax, Amazon’s Colorado affiliates, were cut loose by the company.  Now, that tax won’t generate anywhere near the amount of money it was projected to, in fact, probably close to nothing.

Now, the Direct Marketing Association is challenging even the reporting requirements in court.  If the state chooses to defend the law, this brilliant vote will end up costing the state money.  So maybe it’s actually not covered under the Taxpayer Bill of Rights, after all.  Gimmicks like this, used to paper over real deficits, do little to restore confidence is our elected representatives.

Instead, we need representatives who will work with each other and with the citizens to set priorities and make the tough choices they are elected to make.

Filed under Issues, Taxes.
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