Monday, November 16, 2009

The Coming Battle Over Tax Increases/Spending Cuts In Utah

They ain’t taxes if we call ‘em fees, right? At least, that’s how many members of the political class see it.

As the St-Ex reports, the State of Utah is facing a budget shortfall of somewhere around $650-$850 million. Politicians must be longing for the heady days of ’05-’07, when figuring out how to spend multimillion- and billion-dollar budget surpluses were among their biggest headaches.

Here’s how economic cycles work in government. When times are good, you grow government as much as possible. It’s easy and gratifying for politicians to do so. Times are good for taxpayers, so they don’t pay much attention to government growth.

Politicians get to play hero by doling out money to as many of the perpetually outstretched hands as possible. The willing media plays this up (i.e. spending someone else’s money to make yourself look good) as altruism. Some of this bread cast upon the water comes back buttered in the form of campaign contributions and other perks. During these times, politicians are even known to occasionally throw out the bone of a small tax cut from time to time.

When lean times hit, as they inevitably must, politicians find themselves in the unenviable position of cutting spending. State politicians, that is. Federal politicians increase spending instead. They call this “stimulus,” which is similar to what my farmer neighbor says about the stuff he spreads on his fields in the spring. It smells similar too. Only his, uh, fertilizer actually helps grow a productive crop.

During austere times, some politicians inevitably argue, as does state Sen. Stuart Adams as quoted in the St-Ex article, that “There is only so much you can cut” from the budget. You see, increasing spending brings the politician a lot of friends. These fair-weather friends (and their lobbying dollars) dry up when spending is cut.

The natural alternative is creatively increasing taxes. It’s so much easier to look longingly at the pocketbooks of people you will never know than to tell people with whom you’ve developed a relationship that their funding is being reduced.

But ‘tax increase’ is the phrase that must not be uttered by politicians, because it tends to anger constituents. That can mean popularity challenges, perhaps even to the point of having to worry about being re-elected.

The Salt Lake Chamber of Commerce, which has proven itself to be a reliable supporter of big government, has “offered its budget plan, outlining what it called “targeted” fees.” SLCoC President (and former Utah Senate President) Lane Beattie says the plan includes a 10-cent/gallon fuel tax increase and yet another tobacco tax increase. Others also want to roll back the 2006/7 sales tax decrease on unprepared foods.

Gov. Gary Herbert is talking tough against tax increases at present. He says, “With the down economy right now, raising taxes would have a dampening effect on economic growth.”

Herbert has more incentive to not raise taxes than many members of the state legislature. Although he served as lieutenant governor for over four years before assuming the governor position when Jon Huntsman, Jr. left to become ambassador to China, Utah voters don’t know Herbert very well yet. He will face voters to keep his assumed office in a special election just under 12 months from now.

This next legislative session will be a major factor — perhaps THE major factor — in determining how voters feel about Herbert. While legislators in ‘safe’ districts can get by with raising taxes, Gov. Herbert knows that he probably can’t. At least, not this session. And probably not in 2011 or 2012 either, if he hopes to be re-elected in the 2012 regular election.

This may pit the governor against the legislature. The budget shortfall has to be made up somewhere. If cutting spending becomes too painful to endure and tax cuts are too politically unpopular, be on the lookout for California style book cooking on a smaller scale.

It doesn’t take a crystal ball to predict that the dependent class will be on full parade during the legislative session decrying the evils of ‘heartless’ and ‘severe’ budget cuts. The competition between members of this class in the halls may resemble a roller derby. But most players will be competing with the real giant — the UEA-PTA team.

For Utah political hacks, the 2010 legislative session will likely be a great spectator event.


RD said...

ohh yes UEA-PTA, such an easy target in the state with the lowest per pupil funding in the country, lowest teacher salaries in the country, lowest health benefit costs in the country(their are advantages to the privately ran socialism known as IHC), tho I suppose their around average pension must be it.

I wouldn't worry about that pension fund however I have been hearing the state is looking for a way to cut some of that out of the budget, It's not like the government should be required to live up to its contractual agreements sense it is with a trade union after all.

The state didn't do much expanding during its boom days a few years back, Utah did cut its tax's well below the rate needed to maintain the state during a recession however. At the very least they did create a rainy day fund which will help a bit.

Scott Hinrichs said...

I have addressed the concerns about Utah's perpetual last place standing in the race to spend more money per pupil in the nation without regard for outcomes. See, for example, this April 2008 post.

During the boom years, the state expanded government to the tune of 78%, far exceeding the combined increase in population and inflation. Right before the economy went down the tube, Sen. Valentine caused a bit of a controversy by saying that this was no big deal. In the continual keep-up-with-the-Joneses strategy, the good senator noted that we were barely keeping pace with the growth of neighboring states, as if that's any excuse.

The state should be required to keep its pension commitments, just as should any corporate entity. Not that that happens either. But balancing the budget via the pension fund poses an ethical problem. (Not that I would accuse our politicians of being ethical.)

RD said...

During those boom years congress passed CHIP(good chunk of that growth) and closed some loopholes states where using to dump people off medicaid, also a certain amount of growth is expected due to inflation.

also is that 78% a number calculated before or after the 2007/2008 crash? if calculated after did they account for the distortion cause by the sudden decrease in economic size while government size remains unchanged but looks bigger as a percentage?

Scott Hinrichs said...

78% was the pre-crash figure. There was a bit of a kerfuffle a few months before the crash about the expansion of state government. That's what Sen. Valentine was responding to. Some folks were opining that the state should have grown less during those fat years. Of course, it was only in the news cycle for about 15 minutes.

RD said...

also over what period of time is that 78% number measured for?

Cameron said...

I've been to a couple of recent meetings, and listened to some legislative interim meetings online lately and I think this year's session will be very interesting. Some very hard choices are going to have to be made, and I'm really hoping for a good discussion about what exactly constitutes essential government services. Most everyone sees the writing on the budget wall, but so far all I've heard are groups justifying why their funding should not be cut, that we simply cannot afford to underfund their programs. I will be very interested to see how this all plays out over the next few months.

RD said...

Due to where I work I get to see a lot of whats going on in many state agency's. **note I am not employed by the state**

Specifically DTS(Department of Technology services), and DEQ(Department of Environmental Quality). Both have already had their budgets eviscerated. The annual/quarterly layoff lotto has destroyed moral in state employee's. Along with a massive upswing in excessive CYA behavior productivity has collapsed.

Utah is sitting on a budget nightmare, They have a huge underfunded state employee's pension fund that's going to need an extra $400 million annually to stay afloat in addition to the $850 million dollar shortfall they already have. The coming health care bill is greatly increasing the medicaid mandate as well(along with closing loopholes that let the state dump people off of it).

The amount of cutting Utah can do at this point is extremely limited, Playing musical chairs with where the tax's come from to defund things without saying their defunding them won't help much either. The state legislature needs to hunker down swallow its pride and raise the income tax.

Scott Hinrichs said...

Those that favor raising taxes when times get tough rarely consider the negative impact on the economy, which causes a further impact on tax receipts.

The way to avoid situations like the one we face today is to be vigilant when the economy is good --- including keeping government within its proper scope. Alas, there is little political payoff for doing so.

The 78% growth figure, as I understand it, covers the figure from the recovery following the 2001-2002 recession up through the results of the 2008 legislative session.

RD said...

"2001-2002 recession up through the results of the 2008 legislative session."

Given that time period that 78% would be inflated by atleast 2x what it actually is.

"including keeping government within its proper scope."

2008 crisis was created by deregulation.

Cameron said...

"The annual/quarterly layoff lotto has destroyed moral in state employee's."

And in the private sector, including the company I work for. Everyone is in the same boat, yet giving more revenue to state offices means taking revenue from me and the company that employs me.

RD said...

Many in the construction(Asbestos, and Lead paint abatement among other things) industry depend on DEQ-DAQ(DAQ- Department of air quality) inspecting their demolition projects on a timely basis, slow downs here cost the private industry money.

And trust me you don't want a large reduction in inspections, illegal dumping of toxic products would go through the roof. This could also result in multi hundred million dollar loses in the private sector from increased water filtration needs.

The lead monitoring guys had a rather hefty load over the last year with the lead in Chinese products problem. Was fun watching them use their detection guns(uses radiation to determine lead quantity).

It's not so cut and dried as you think. The state has cut and cut valiantly, however we are at or very near the end of being able to do that further.

This state doesn't to my knowledge run any extra entitlement programs they are not mandated to do. This state uses every trick in the book to prevent people from being on medicaid. This state has not increased medicaid coverage above what is required by law. This state has not increased CHIP coverage beyond what is required by law.

Just saying they should cut the budget is great and all, but what is left to cut. I want to know specifically what they should cut and legally can cut and not just the generalization that they should cut.

I should also note their are alternative funding options as well, allowing Energy Solutions to bring more LLW waste here for one. Allowing Tavaputs to get his CNG wells going. The Green River nuclear plant could bring additional funds into the state.

Maybe Bennet or Hatch could get Mineral access rights opened up in the grand escalate national park in exchange for their votes on health care(they won't be able to stop it might as well get something out of it).