Stop State Spending Insanity Part II - Out of Control!

…. Continues from Bob Lemer’s previous post:  “Stop State Spending Insanity Part I – Background”

So How Does Actual Growth In Spending From State-Generated Revenues Compare To State Economic Growth Since 1978? 

The answers to that question are presented in Exhibit A.

State revenues from the federal government first must be deducted from both total revenues and total expenditures in order to examine what is truly happening regarding spending of state-generated revenues.  The federal government furnishes only cost recoveries, with a zero bottom line effect.  Additionally, the state has no control over the revenues to be given it by the federal government.

It is interesting to note that from 1978 to 2006 the state’s revenues from the federal government increased 1,076.2% and the federal share of the state’s total revenues increased from 25.3% to 34.1%.  Clearly, Texas, like all states, is becoming increasingly dependent upon the federal dole.  Seeing this, one can better understand why the comptroller general of the US Government Accountability Office is on his Paul Revere ride around the country warning of the impending probable federal financial disaster.

Looking at state spending just from state-generated revenues, Exhibit A shows such spending increased 660.3% from 1978 to 2006.  That is greatly in excess of the 435.2% combined rate of growth (multiplicand calculation) in the state’s population (208.8%) and inflation (73.3%) during that period.  Combined growth in population and inflation is the purest measurement for governmental revenue and expenditure caps.

The other two economic measurements, gross state product and total state personal income, shown in Exhibit A for illustrative purposes only, include value added by the state’s industries and income received by persons from all sources, respectively.  If either of these two measurements were to be used for evaluating the state’s cap then the assumption would be implicit that the state is entitled to participate in private sector productivity gains, rather than the government creating its own productivity gains. 

If either of these two measurements is used to measure the cap, then the cap could be construed as an income tax device.  In any event, the 1978-2006 expenditure growth rate of 660.3% still exceeded the 606.9% growth in gross state product and the 638.9% growth total personal income. 

By the way, any time the subject of voter control of the overall rate of growth in governmental spending is brought up you immediately hear a howl that it would be a disastrous limitation during recessions.  But the truth is, according to Exhibit A, state-generated revenues declined in only three years from 1978 to 2006 (1983 - 0.2%, 1987 - 3.6%, and 2002 - 2.1%) and expenditures from state-generated revenues declined only once (2004 - 1.3%).  These amounts are miniscule compared to how recession years often impact individuals and business.  It is an insult to Texas individuals and businesses and an economic mockery to assert that state or local governments, unlike the private sector, should be immune from the belt-tightening required by economic tough times.

How Can The State Possibly Freeze The 2008-2009 Budget At The 2006-2007 Level And Issue $100 Sales Tax Rebates To Every Legitimate Texan, Yet Still Meet The State’s Funding Needs? 

It should be self-evident from Exhibit A that the current rate of state spending is excessive and actually needs to be pared back from even its 2006-2007 level.  But enforcement of a cutback should wait until the suggested special commission concludes its findings and arrives at a properly reduced budget total.

To place the subject of the excessive budget in more specific and perhaps better understood terms, one should read Paul Burka’s tremendous article, “The Bloody Billion”, in the March 1985 issue of the Texas Monthly.  Mr. Burka laid out a veritable laundry list of more than $1 billion of aptly described and chronicled “boondoggles, sacred cows, and hidden fat” that should have been cut from the state budget at that time.

Mr. Burka’s article was over 20 years ago, at a time when the spending from state-derived revenues was only around $13 billion.  So his $1 billion would extrapolate now to more like $4 billion.  Mr. Burka apparently stopped after he arrived at his message-delivery target of $1 billion.  I suspect he could have found much, much more if he had been so inclined.

Now you can understand why I suggest that Mr. Paul Burka, current senior executive editor of the Texas Monthly, serve as chairman of the special commission.  Regarding the $100 sales tax rebates, what better way to show Texans that their state government recognizes that the money belongs to the taxpayers and not to the state and that the legislature is dead serious about becoming fiscally responsible? And, yes, the money is there for the rebates.

According to the state comptroller’s biennial revenue estimate for 2008-2009, the beginning general revenue balance will approximate $7 billion. That $7 billion is equal to an extremely healthy 15% plus of expenditures from state-generated revenues for the last full fiscal year (2006).  There are now roughly 24 million Texans.  Even if every resident were here legally, a $100 rebate to every Texan would amount to only about $2.4 billion.  So if the rebates were made the state would still have a very healthy fund balance, not even including the operating surplus that will probably be generated in 2008-2009.

… Continue reading: “Stop State Spending Insanity Part III – Solutions”

Disclaimer from the author: This piece was written just before the legislature "solved" the school finance problem via the business tax.