Monday, January 07, 2008

Utahns Yawn as State Spending Increases

Utah has enjoyed a recent spate of huge budget surpluses. The conventional wisdom has been to ‘invest’ in areas that are chronically underfunded.

More money on transportation? Of course. Infrastructure must be built and maintained. Do you want bridge problems like they have in Minnesota? Oh, we do have those problems? Well, for heaven’s sake, let’s spend more. Maybe we can get our national legislators to toss us a few bucks to assuage their guilt. Ah yes, it’s a good time to be a transportation contractor in Utah.

More money on education? Well, sure! Don’t you know that we’re in last place in the per-pupil spending race in the nation? Don’t you know that spending more money on education will make it better? Don’t you care about the children? Never you mind about the inability to account for past spending increases.

More money on … well, just about anything? Heck, why not? We’ve got the money. And besides, we had some lean years in ’02 through ’04, where we really had to tighten our belts. Let’s splurge while we’ve got it. I mean, what area of state spending isn’t chronically underfunded?

More money returned to the taxpayers? Well, no. I mean, it would only amount a measly $X for each taxpayer. I’m sure they’d rather leave that paltry sum in the hands of the state bureaucracy. And besides, this money is so badly needed.

Indeed the Utah Taxpayer Association’s January newsletter shows, “During the 10-year time period from 1999 to 2009, total [State of Utah] government expenditures will have nearly doubled.” That isn’t meaningful unless you compare it to inflation. The newsletter explains, “Total state expenditures will increase 12% from 1999 to 2009 after adjusting for inflation and population growth.” So it’s not so bad. Or is it?

The newsletter also explains, “Government growth will easily exceed combined population growth and inflation for both [5-year and 10-year] time periods [ending 2009].” Unlike the federal government, states must balance their budgets each year. Utah has done well in this respect. So, where has all the money for this increased spending come from? The newsletter says:

“From 1997 to 2007, all major revenue sources grew faster than combined inflation and population growth and only state sales tax and motor fuel tax grew slower than personal income, while property taxes grew at a rate nearly equal to personal income.”

In other words, the State of Utah has increased its share of what comes out of its taxpayers’ pockets. If you’re a Utah taxpayer, you have less of what you earn in terms of real money, while state government has more of the money you earn. This is an ongoing trend that won’t stop with this budget year. Do you care? Or are you like the proverbial frog in the pot of water where the temperature is increased only one degree per hour?

Respected political analyst Michael Barone opines in this WSJ article that the average voter today came of age in an era of unprecedented prosperity. “The median-age voter in 2008,” he writes, “was born around 1963, so he or she missed out on the culture wars of the '60s, and on the economic disasters and foreign policy reverses of the 1970s.” Consequently, today’s voters are “relatively unconcerned about the downside risks of big government programs, and largely unaware of America's historic foreign policy successes.”

It seems that Utah voters are no exception to this trend. They seem relatively unconcerned about the fact that the growth of state government is outstripping their ability to provide for their families. So when Governor Huntsman (under whose watch Utah has experience the largest historical increase in state government spending) stands up and says that, while his 2009 budget includes another massive surplus but has no room for tax cuts, the voters shrug. When he says that all Utahns need coercive universal health care (masqueraded as a market-based solution), they cheer.

We seem incapable of casting our eyes westward to see California’s fate. After sloshing years of budget surpluses into the trough of increased government spending, the economic cycle inevitably turned from boom to bust. Angry voters ousted their standing governor in a recall and elected a celebrity his place, only to demand essentially that he not cut spending. They still want government to spend, but they aren’t so keen on paying for it.

But we can’t see that. So we celebrate Utah’s expanding government as the budget surpluses are ‘invested.’ Today, Utah’s strong economy is showing signs of weakening. The boom can’t continue forever. What will we do when the bust comes along? As the UTA notes, “More than half of all education and general fund revenues are individual and corporate income taxes, which are highly volatile.” When the economy turns down, what will happen to all of Gov. Huntsman’s celebrated education spending increases?

Ah, but why worry about that? Right now the state is flush with cash. Let’s spend it!

Indeed, in a democratic society, we have the government we deserve.


Anonymous said...

This is beyond jaded, this is the definitive statement of why Utah schools are so screwed up. The fact that there are inefficiences in schools and highway contracting means that severely underfunded schools and roads should be neglected further? Good gravy man!

Oh, and by the way, the CPI is a screwed up measure that massively under-estimates inflation. They downgrade goods in the basket when prices go up. If the price of steak goes up, they put in ground beef instead. So in real terms accounting for real inflation and population growth I doubt if things are quite so out of control as you suggest.

Even if more real dollars are going to government, the question should not be if that is intrinsically a good or bad. The question should be is it the best use of those dollars. Simply stating a platitude about government being inefficient doesn't answer that questions.

I've spent enough time in enough corporations to know plenty of them are just as inefficient. But some of those companies still do things better than government. Likewise even with all its inefficiences, government does some things better than the private sector could ever hope to.

Like mass education. Look to the Congo or Pakistan or Egypt or some other country where public schooling is really failing and private schools are the only option for a decent education. Pretty safe to say you wouldn't want to put the future of the kids of the United States or any country into that situation.

Jesse Harris said...

The central question on one-time expenditures is if they save us money in the long run or not. If we avoid a 20-year bond at 6% by ponying up for a new highway now, it seems like a solid investment to me since we would pay almost 320% of the original amount in interest over the life of the bond. If we were going to buy the road in a few years anyway, it seems like a good deal to buy it with cash now (even with a few extra years of maintenance) rather than with credit later.

Scott Hinrichs said...

You can quibble about the CPI, but the fact remains that real state spending is outstripping real income growth. That is not a sustainable pattern, as Californians discovered a few years ago.

I never argued that private businesses achieve maximum efficiency. But when businesses perform a service, consumers have the choice of whether to purchase the service or not. No such freedom exists in government services. And when government faces actual competition, it works to suppress it so that choice is unavailable. Businesses try this as well, but they are rarely successful at maintaining an effective monopoly for any length of time.

Jesse is correct that certain future expenditures can be reduced by wisely targeting large expenditures when revenue is available. However, this same argument can almost always be made for just about any type of government 'investment.' Where do you draw the line? That's the hard question legislators face.

Unfortunately, it seems that all too often, once your tax dollars are in the state's coffers, the state will opt to spend them rather than return the overpayment. There are always so many "needs" that must be covered. Never mind your family's "needs."

Anonymous said...

How do you then propose schools and roads be paid for? All toll roads? All private schools? Those are effectively massive taxes on the poor, they put the heaviest burden as a percentage of income onto those who have the least. That in turn increases income gaps and makes it harder and harder for the poor to improve their lives through their own hard work. I hear a theoretical argument from you about why government spending on schools and roads is bad, I don't hear any practical solution that delivers a better path to provide badly needed public goods.

Scott Hinrichs said...

Who said anything about privatizing all roadways and schools? State government certainly has a role to play in these areas. Private industry should have a role to play as well. But transportation infrastructure and education aren’t the only areas where state spending is outstripping income growth. (Ror example, most of our legislators thought it was important to dump taxpayer dollars into an entertainment venue last session.) Is it such a foreign thought that government growth should be more limited than it is at present? Is it impossible for state government to accomplish the necessary portions of its mission without going wild on spending?

Cameron said...

So what exactly has the increase been spent on? All I keep hearing is that we don't have the infrastructure for all the schools and roads we need now, not to mention what we're going to need in the near future. Utah's income tax does seem high when compared to other states I've lived in. So what is it going towards? (Aside from soccer stadiums)

Scott Hinrichs said...

Try going to It's a good place to start.