Archives: 07/2008

State Budget Problems Can Be Solved, Without Cuts

Chris Edwards rightly takes the Wall Street Journal to task for its breathless report that “the stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year.”

Like he says, smaller spending increases are “certainly no crisis after the orgy of budget expansion in recent years.”And Medicaid spending is dangerously out of control.

I’d only add that states are spending much more on k-12 education than Medicaid. At 25 percent of all state-derived expenditures, it’s almost double Medicaid’s 13 percent share. State spending on k-12 education dwarfs any other category.

And while cuts in government spending are a good thing, saving money with a huge expansion of freedom is even better.

That’s why the best way solve state budget problems is something no one is yet considering; broad-based school choice.

Here’s what the five states in our recent fiscal analysis of the Public Education Tax Credit stand to save if they do what’s right and greatly expand educational freedom:

Texas saves $15.9 billion in the first 10 years and $5.4 billion every year after the program has been in operation for 15 years.

New York saves $15.1 billion in the first 10 years and $4.8 billion every year after the program has been in operation for 15 years.

Wisconsin saves $9.3 billion in the first 10 years and $3.2 billion every year after the program has been in operation for 15 years.

Illinois saves $5.1 billion in the first 10 years and $1.6 billion every year after the program has been in operation for 15 years.

South Carolina saves $1.1 billion in the first 10 years and $350 million every year after the program has been in operation for 15 years.

Stewart Baker Crosses a Line - What’s the Strategy?

I’ve been nothing if not dogged about responding to DHS’ advocacy for REAL ID and E-Verify. I’ve had fun responding to post after DHS post on the “Leadership Journal” blog promoting E-Verify. But I let one recent post from DHS Assistant Secretary for Policy Stewart Baker go by. Enough people have pointed me to it and asked me what I thought that I’m finally drawn to comment.

Baker’s post, “Exactly What Do They Want?,” addressed none of the substance of the E-Verify program, but simply attacked a group called the Society for Human Resource Management (SHRM).

 Here’s a taste:

SHRM lobbies for the HR execs who do corporate hiring. It also opposes E-Verify. I suppose corporate hiring is easier if you can hire illegal workers, so perhaps I shouldn’t be surprised that SHRM wants to kill a program that makes it harder to hire illegal workers.

But SHRM has taken Washington arts to a new level. SHRM says it doesn’t want to kill E-Verify. SHRM says it wants to replace E-Verify with a new, better program to prevent illegal hiring. A closer look shows that the SHRM alternative is doomed to fail – and will take years to do so. So for a decade, while the SHRM alternative is failing, no one will have a good tool to actually prevent illegal hires. Which may be precisely what SHRM wants.

Politics can be ugly. And attacking the motives of your opponents is ugly politics. But what matters in the first instance is that it’s politics at all. Stewart Baker is an executive branch official who was appointed to his office, not elected. His role is to administer the laws, not to participate in the political processes that decide what the laws are. He crossed a crucial line by becoming a critic - and a harsh critic at that - of a private association because of its public policy stance.

It’s interesting to speculate about what caused Baker’s fit of pique. A theme in his post is the potential transfer of responsibilities for verification of workers from the Department of Homeland Security to other agencies like SSA and HHS. Job #1 for government ministers is to build their fiefdoms, and the SHRM’s preferred employment verification vehicle, the New Employee Verification Act, would be a DHS bureaucrat’s biggest outrage.

But everyone who knows him knows that Stewart Baker is savvy and cool. It’s not like him to lose his temper - especially not in such a public way. So I expect that this is part of some clever strategy, but I just don’t know what it is. Baker’s vitriol has drawn justified indignation from the folks at SHRM. The comments on Baker’s post have lots of interesting tidbits, including allegations that Baker consistently declined to meet with SHRM. He got written up in Politico for starting this public imbroglio. And the human resources blogosphere is popping with discussion of Baker’s explosion.

So, does Stewart Baker surprise us all and pull a rabbit out of a hat? Or has he really lost his cool? It could be frustrating, as he winds down his stint at DHS, to look down the road behind him at his key issues: the E-Verify program limping along, and the REAL ID Act in full collapse.

If the Swedish System Is Socialist, What’s Ours?

As a recent AP story helpfully points out, big government, dirigist Sweden has had a private school choice program since the early 1990s, and parents are loving it. Private school enrollment is up from one percent to ten percent of total enrollment, and still climbing.

Interestingly, Sweden’s education system was described today in a separate news story as “socialist.” Now I’m the first to acknowledge that Sweden’s system is far from a completely free market (see the AP story above), but it is certainly less socialist than our own public school systems in the United States, which automatically assign most kids to government-run institutions.

So if reporters think the Swedish system is socialist, why don’t they describe ours in the same way?

One Set of Rules for the Peasantry, Another Set for the Political Elite

Until the seedy practice was exposed, the host committee for the Democratic National Convention in Denver was dodging state and federal taxes by filling its cars using the city government’s gas pumps.

Defenders of the scam tried to say the GOP elites were doing the same thing in Minneapolis (plausible, but not true in this instance). They also have the absurd excuse that city pumps were being used for security purposes (I suppose we should be happy that these nonentities are not demanding 24-hour police protection):

The committee hosting the Democratic National Convention has used the city’s gas pumps to fill up and apparently avoided paying state and federal fuel taxes. The practice, which began four months ago, may have ended hours after its disclosure. An aide to Mayor John Hickenlooper released a statement Tuesday evening saying that Denver 2008 Host Committee members would pay market prices for fuel and would also be liable for all applicable taxes. However, Public Works spokeswoman Christine Downs told City Council members just hours before that host committee members were fueling up at the city pumps.

…”There’s something there that just doesn’t seem right to me because, in a sense, you’re saying then that the officials who pass the laws are not willing to live by them,” said Councilwoman Jeanne Faatz.

Hickenlooper said the practice isn’t unique to Denver. “I do know for a fact that they’re doing the same exact thing in Minneapolis,” Hickenlooper said, referring to the city that along with St. Paul is hosting the Republican National Convention. But Teresa McFarland, a spokeswoman for the Minneapolis-St. Paul host committee, said its members are getting their gas at public pumps.

…The host committee, which is responsible for raising money to put on the convention, is using the city’s pumps “for safety and security reasons,” Lopez said.

State Budget Crisis?

The Wall Street Journal reports today on the front page: “States Slammed by Tax Shortfalls.” According to the story, states are in “pain” because they are having to “slash” spending, which is causing some services to be “hit hard.”

The story illustrates the curious way that many newspapers report on state budget issues. The coverage is generally uncritical of state policymakers, treats any needed spending restraint as a crisis, and is devoid of hard facts about actual dollars spent by the states. It is as if the woe-is-me press releases of government groups such as the National Conference of State Legislatures are simply reprinted without any independent analysis by the reporters. Seven journalists contributed to the Journal story, but their job seems to have been to simply gather anecdotes in support of a new NCSL study on state budgets.

Oddly, the Journal undercut its own crisis tone in places, with reporting such as: “In Minnesota, the city of Duluth plans to stop operating its Fun Wagon—a free trailer stuffed with games and cookout supplies for a neighborhood party.” Geez, what a tragic loss for the city.

Anyway, the Journal is not alone in its pro-spending view of state budgets. A March 31 piece in the Washington Post (“States Hit Hard by Economic Downturn”) was of the same genre. It reported: “at least half of the nation’s states are facing budget shortfalls, some of them severe, and policymakers in most of the states affected are proposing and passing often-painful measures to trim costs and close the gaps. Spending on schools is being slashed…”.

The economics reporting of the Journal and Post is often outstanding. But the papers don’t apply a critical approach to state budget issues, as they do, for example, to federal budget issues. When the federal budget deficit increases, federal policymakers are often criticized for their bad decisionmaking. But when state budget “shortfalls” arise, state policymakers are almost always treated as innocent victims of uncontrollable events.

Are state governments in a fiscal crisis? Let’s look at a few hard facts, not reported in these two stories. Data from the U.S. Bureau of Economic Analysis show that total state and local tax revenues increased 8.4 percent in 2004, 8.9 percent in 2005, 6.6 percent in 2006, and 4.9 percent in 2007. Data for the first quarter of 2008 show that tax revenues are up 3.2 percent over the first quarter of 2007. Thus, government revenue growth has slowed from the large increases of recent years, but that is hardly a fiscal crisis. Indeed, it indicates a needed respite for overburdened state and local taxpayers.

Alternately, consider data on state government general fund spending from the National Association of State Budget Officers. Spending across the 50 states increased 6.5 percent in 2005, 8.7 percent in 2006, 9.3 percent in 2007, and 5.1 percent in 2008. Spending growth is projected to slow to 1 percent for 2009, but that is certainly no crisis after the orgy of budget expansion in recent years.

Nonetheless, there a real state fiscal crisis. But it is the longer-term problem of exploding spending on Medicaid combined with the huge growth in debt and unfunded retirement promises made to the nation’s 16 million state and local employees. Because of those problems, the real crisis in coming years might be headlined ”States Slam Taxpayers with Huge Hikes.”