Tuesday, February 16, 2010

Which spending limitation amendment? 

A couple months back I mentioned that Governor Tim Pawlenty was pushing a constitutional amendment that would tie spending in any biennium to be no greater than the amount of revenue produced the previous biennium. Senator Amy Koch and Rep. Paul Kohls wrote over the weekend in favor of the amendment, which they say they will introduce (it is not yet online.)
... we are offering a proposal in the current legislative session to let you vote on a constitutional amendment that would restrain state spending to the amount of money actually collected during the previous budget. Apply this concept to your own situation: If you make $40,000 this year, you don't set a larger budget for next year based on the possibility that you will make more money. You certainly can't storm into your boss's office during a recession and demand a 20 percent raise to meet your lofty spending visions. But that is exactly what government does. It sets a budget based on what it hopes to have, and comes calling for more of your money if that hope turns out to be wrong.
Which sounds lovely as far as it goes, but what follows next is troublesome.
Our amendment would inject reality back into the budget process. But unlike attempts in other states, we would not be backing ourselves into a corner. On the occasion that government should take in more than it spends, the money would be used to build up rainy day funds, given back to taxpayers or spent on meeting a one-time need, like repairing a bridge or a building. That would be the case under the most recent budget forecast, which shows future revenue exceeding current spending by nearly $2 billion. The key is the Legislature would maintain the flexibility to use the surplus for one-time expenditures as it sees fit. The last time the budget had a surplus, in 2007, the money went primarily to support on-going spending that we can no longer afford. Had it been spent on one-time construction or maintenance costs, our spending problem would be less severe and our infrastructure much improved.
The government currently budgets for repairs and maintenance. It takes nothing to shift spending so that all of those maintenance expenditures show up in extra monies in one year and then put into continuing expenditures in subsequent years. I can also imagine DFLers complaining that maintenance of our bridges and roads depends on the state of the economy.

Giving any legislative body flexibility is unwise, as the history of government spending has chosen. As I wrote last time, this formula assures higher spending when times are good, and a reason to hold huge reserves to prevent any cut in government's role in the economy when recessions force a re-evaluation. When I asked gubernatorial candidate Marty Seifert about this amendment he indicated he thought it would encourage more spending in boom times than wise. A $5 billion deficit for a future biennium focuses the mind of the Legislature and the next Governor to think about what is sustainable. Why not keep the legislature constantly focused on that sustainable level?

On Rod Grams' radio show this morning we talked about this very issue. I suggested there that the only way to hold the government to a spending limit is to give them a real limit, established beyond their control and without wiggle room. There are models around us right now: Kansas has a proposal before its legislature to restrict growth of spending to inflation only. Other variations are out there. A population-and-inflation limit provides a slow steady increase while holding the real cost of government per capita constant. If government can make itself more efficient it can generate new public goods. Any funds obtained in excess of that limit can be placed in the rainy day fund or returned to taxpayers only. There's ample lesson from California's Prop. 4 to tell us what happens when you let the legislature and governor game that system for spending on designated areas. So don't.

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