During the past two to three years, the public has been treated to a plethora of news stories describing the state government’s appropriations shortfall.
This simplistic, negative narrative, constantly repeated, takes a toll on the psyche of the viewers, readers and listeners, and has convinced some to advocate for a wave of new tax increases.
Some of those who have been affected by the negativity contact my office as they try to make sense of what is going on. It then becomes my responsibility to reassure concerned constituents that the sky is not falling -- and tax increases are NOT necessary.
I explain that appropriations are just a fraction of overall government revenue. The frequent news stories regarding the "appropriations money" are almost solely focusing on about 40 percent of state government spend and are mostly ignoring the other 60 percent of spend.
Secondly, the shortfall is as much a product of the government's tendency to increase spending and obligations as it is a product of the energy sector downturn and the resulting decline in funds available for appropriations. An increase in new taxes, such as the proposed "services tax" would make the problem worse by giving state leaders a reason to spend even more money.
In order to determine the entire budget picture, the concerned person must have the patience to wait until the end of the year to review the state's certified financial report. At that time, they can decide if the sky is really falling.
A few weeks ago the state published its most recent financial statements. Those statements showed the following:
In the state's most recently concluded fiscal year, state government revenues declined by approximately 2.5% from $18.727 billion to $18.239 billion, the majority of which was due to gross production drop off.
Simply put, the sky is not falling. Is it too much to ask that government actually reduce spending by 2.5%?
Here's the problem: government isn't inclined to reduce spending -- even by this small percentage.
Despite the 2.5% drop in revenue, the state technically spent more money than before. Overall state government spending increased to a record high. This includes increased spending on education, healthcare and long term debt payments.
State government also added another 77 million of additional long term debt during the year -- with much more new debt set to appear on the books in the next fiscal year.
The payments on this debt automatically build a bigger deficit for the ensuing years. Thus, when lawmakers return for the next session they instantly face an appropriations shortfall. This isn't just because lawmakers have less to appropriate; it is because they have more to pay for.
Even more problematic, for the past three years, the state government has used the "sub-optimal" budget technique of paying for ongoing expenses from one-time funding sources. That's why it is able spend more money, even during a down revenue year.
Policymakers have regularly issued new debt, greatly expanded welfare eligibility, shored up the state's ailing retirement systems, poured millions into the Department of Human Services agency as a result of a federal court case, and in the name of "job creation" have created a series of costly holes in the tax code on behalf of special interest groups.
In past years, the new revenues coming into state government allowed policymakers to keep up with many of these new costs; however, with the most recent energy sector downturn, politicians have been unable to keep up and have resorted to sub-optimal budgeting while waiting for the local economy to rebound.
All of this to say that the state budget issue is much more complex than the "sky is falling" sound bites, and taxpayers are well advised to resist any attempt to increase taxes in order to meet the demands of the appropriations shortfall. Doing so will only allow politicians to add more expenses to the books once the state's economy picks back up.
Even during an economic downturn, state government's primary challenge is its spending problem -- not a revenue problem.