Tuesday, February 7, 2017

Budget Analysis 1: Bare-Bones Comes Clean

Never Bark at the Big Dog. The Big Dog Is Always Right.

Governor Mead, the man with the "bare bones" budget, has come clean. He now admits what I have been saying for months, namely: our budget crisis is not an education-funding crisis. It is an across-the-board fiscal crisis. 

Many thanks to Governor "Bare-Bones" Mead. I always appreciate an opportunity to point out that I have been right all along... 

There is a lot of information and analysis to be processed regarding the state budget, or HB1 as it is called in legislative parlance. Before we get to the "see I told you so" moment, let me point out that the budget is not only an appropriations document, but also a major policy statement. It reveals the governor's priorities in terms of how to spend our tax dollars, but it also tells us a great deal about what (if anything) the chief executive officer of our state government wants to do to help our state's economy recover.

For the best coverage of all relevant aspects of the budget, I am going to divide this article into three parts. Today, I will address the false narrative that the current state budget deficit is only about a deficit in funding education.

Let me pause for a moment and give Governor Bare-Bones some kudos. In all sincerity, his budget is fiscally prudent. It is not fiscally  conservative, but it is prudent. Almost every department, commission, board, etc - let us refer to them as "budget sections" from hereon - has to take an appropriations cut. 

In total, the cuts in General Fund appropriations amount to $275 million (according to the fiscal note; I will do my own detailed calculations later) which is spread out in varying portions across the budget. The four exceptions are:
  • The Office of the Public Defender, which gets a $24,000 boost in General Fund appropriations;
  • The Department of Environmental Quality, where federal funding is up by 30 percent;
  • School Financing (Section 205), which includes the School Foundation Program; its funding remains unchanged; and
  • The Pari-Mutuel Commission, whose Other Funds appropriations go up by $418,000.
Everyone else has to make do with smaller appropriations. For this, the governor deserves recognition.

That, however, is as far as I can go in commending the governor for his budget. It is still a defensive document - imagine trying to put out an advancing bonfire by walking backwards with a fire extinguisher in your hand - without any substantial long-term strategy to adjust the state government to a new fiscal reality. It is as though he is still hoping to ride this out. 

That, in turn, tells us that he is unwilling to tie the budget to the macroeconomic crisis in our state, with jobs being lost in almost every county and private-sector economic activity that is almost in free-fall. Unfortunately, this is to be expected from Bare-Bones given what he has said about our state's fiscal problems. Plain and simple, he is not willing to cut a dime more than he has proposed.

By implication, this means that he still believes that the state somehow can drastically increase its revenue from existing, and new, taxes.

That, of course, would have serious macroeconomic implications. More on those later.

Now for the "see I told you so" moment. For months, Governor Bare-Bones and the legislative leadership - especially Speaker Harshman - have talked relentlessly about our state's fiscal crisis as being somehow confined to education funding. Bare-Bones has even gone so far as to suggest that state's finances are perfectly in good order - except for education funding. 

This is a silly proposition that does not become more true because it is repeated over and over again. So far, the governor had gotten away with this by simply ignoring his critics, but that no longer works. With HB1, Bare-Bones puts on full display the true nature of this fiscal crisis, namely that it is budget-wide - and not at all confined to education.

Just as I have been saying since he first tried to turn this fiscal crisis into an education-only matter.

In addition to across-the-board reductions in General Fund appropriations, Bare-Bones wants to add more money to the School Foundation Program. This section 205 in the budget actually receives 3.9 percent more in appropriations in this budget. To be clear, its money comes from the Other Funds category and therefore do not affect the General Fund budget. However, at the end of the day, cash out the door is always cash out the door regardless of what pocket it was taken out of. 

As for Department of Education (Section 206), its total funds are cut by 0.7 percent, or $1.56 million. Of these funds, $1.3 million is General Fund money

Compared to $53.4 million in General Fund cuts to Medicaid, the Department of Education conveniently escapes the budget slicer.

In conclusion: Governor Bare-Bones has done a good job at holding back spending and putting his small cuts to work across the budget; now that he has come clean and in writing admitted that the state's fiscal crisis is an across-the-board crisis - as opposed to being isolated to education funding - perhaps he could also take the next step and start working for spending reforms that will permanently reduce government spending.

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