Utah's Budget
An important part of successfully riding out a storm is to be prepared before the storm hits. Obviously. During the boom years, there was great pressure on the Legislature to grow government. We did – actually, by a lot. But, to great opposition, we also took some fiscally-responsible actions that did not grow programs; specifically, we cut taxes, we appropriated cash toward capital projects, and we socked away money in rainy-day funds.
Governments get themselves in trouble during the good times, by building programs that can’t be sustained during economically bad times or flat times – leading to cuts and serious economic dislocations. As Sen. Hillyard reports, the State of Utah is doing okay. So far. We’ll see where the economy will head from here, but citizens and business owners can take some comfort in the fact that the State’s budget is holding together well for the time being.
You’ll notice that I said it is difficult to sustain programs in economically flat times. With Utah’s tremendous growth, we have to appropriate additional tens of millions of dollars every year, if we want to merely maintain level funding for programs. Think of increased student numbers and Medicaid and CHIP enrollees, for example, not to mention cost escalations and inflation.
One additional observation. Because it is always tough to move away from the status quo, governmental fat typically is cut only when it has to be. Sad, but very true. So, economic downturns invite/force Legislatures to get even tougher on prioritizing spending decisions. This is one reason why it is such a shame that the federal government has no qualms about running massive deficits; there never is a strong push to cut/reform fat governmental programs. Instead, making Enron look responsible by comparison, the federal government avoids tough decisions and foists pain on future generations.
posted by steve u. at 7/25/2008
Subscribe
5 Comments:
Steve,
Great blog. I'm just wondering, is there any ability for the state of Utah (or other states) to run deficits (creative or non-creative ways)?
Also, if times get tougher for Utah, do you have ideas of what could be cut to keep our budget balanced? I imagine education, transportation and healthcare would have to be big percentage targets, and yet all three would be politically very hot.
From what I can tell, the state really does do a great job managing what is an enormously complex "business". I'm especially glad for this fact when it comes to financially difficult times. Thanks to you and your colleagues for doing a great job balancing it all!
I'm very grateful to be a Utahn where our budget is managed well in comparison with other states and the federal government. Of course, we can do even better by spending as little as possible and keeping spending smooth over time, but overall we do a good job here.
I think the problem with government budgets is that we forget that government money is ours. We are the government and the money it has is money we gave it. Most people would be very careful about not running a deficit in their personal finances and not racking up excessive debt, but for some reason we sometimes don't care if the government does it. We assume that everything will be fine, that somebody's going to take care of everything. This is probably why the federal budget is outrageously imbalanced. The further the government entity is from the people the less they keep track of it and care about it. I wish there were a way to help people see the direct connection between their pocketbook and government spending.
Jon,
We have two kinds of money: one-time and on-going. One-time money simply is money from a completed fiscal year that exceeded expenditures (surplus, which we always want to run -- meaning we budgeted less than came in, instead of more) and one-time influxes (like the $800,000 Utah got from the E. H. Harriman estate to begin construction on the state capitol building decades ago). On-going money is money that we predict will repeat (the true growth rate of state revenues).
One of the worst things to do is to use one-time money to build on-going programs. Another way to create future deficits is to fudge the real cost of on-going programs. A third bad way to balance a budget and create real world deficits is to simply avoid real costs (by, for example, not funding O&M on capital facilities, like California seems to be doing on its highways, based on my last trip there). And, then, the biggest way to deficit finance is to bond, and, even worse, to bond without setting aside an on-going cash flow to service the indebtedness.
If our revenues are flat or actually fall, we will need to cut fat in existing programs and cut some programs altogether. However, the difficulty of doing so becomes obvious, when you understand that 60% of the budget goes to education (and very few Utahns want any real cuts there) and that the rest of the budget is effectively spent once health and human services and transportation are funded. The rest of the entire budget combined doesn't have enough money that it could do much to shore up education, HHS, or transportation.
Of course, there also is the out of restructuring debt -- to extend the payoff of bonds and, thereby, reduce the annual payments. This, of course, is not an ideal option.
Mostly, we look for efficiencies within departments' budgets.
Good description of the potential options at your disposal. I'm glad to hear your thoughts about some of the bad and less-than-ideal mechanisms for re-structuring debt. Keep the faith!
Just a question. When you cut taxes when the economy is good, is the legislature willing to raise those taxes back to pre-downturn levels to ensure that such programs as public education are not adversely effected?
Or will the legislature do what they usually do and put the burden on the executive branch to find hard to identify "fat" in order to make up the difference?
My prediction, is that rather than increase taxes, the legislature will raid state employee's retirement benefits, moving them to a defined contribution plan, rather than a defined benefit plan. They will purposely devalue previous contributions into their retirement in a period of financial devaluation of securities and essentially put the entire burden on Utah's public employees.
Anyway, that is my prediction. I could be wrong, but reading the conservative think tanks, such a strategy is all the rage.
Post a Comment
<< Home