Politically Challenged Budget Cuts

During Governor Mead's Business Forum in Cheyenne in November 2015, Dr. Robert Behn from Harvard University presented his theory on the budget cut challenge in the lead up to a discussion by a panel of legislators. Wyoming legislators must decide how to deal with a 25 percent reduction in revenue, a $155 million deficit in the education account for the next biennium alone and the reality that the Rainy Day Fund just isn't big enough to bail out a spending level bloated by a decade of mineral tax windfall.

Although most of the challenges confronting our elected representatives are the same as those of any business in a downturn, the political challenges help explain why the Santa Claus State mentality may plague us for a while longer.

Regarding budget challenges, Dr. Behn suggested avoiding across the board cuts. Although these seem fair on the surface, he claims they reward agencies with hidden waste and create the incentive for more hidden waste in the future. Dr. Behn also pointed out the obvious fact that closing facilities and terminating programs cost money, with severance payments and the potential for lost tax revenue streams. Lastly, once government announces cuts, some employees may move on and as the best are often the most employable, the challenge is whether remaining employees will be able to fill the void.

All these challenges face any employer when revenues fall and spending must be brought down to match the new revenue reality. But if a private sector company waits too long, it goes out of business. Government can delay reality for much longer, but your wallet gets lighter as a result.

This brings us to what differentiates politicians from CEO's. Dr. Behn calls them the political challenges. One challenge is entirely self inflicted–confronting the entitlement ethic. Once created, a program builds beneficiaries who feel entitled to continued benefits. If cut, beneficiaries lose out and while the losers are few and all taxpayers benefit from lower government spending, what we have here is the problem of concentrated costs and diffuse benefits. Because the losers are few and in a concentrated group, they are easy to mobilize and often kill budget cuts.

This takes us to the biggest political challenge of all—what really is important? After all, one man's waste could be another man's entitlement program. Our legislators seem to have few answers to that question.

The legislative panel, moderated by Representative Tim Stubson, included Representatives Rosie Berger, Kermit Brown and Mary Throne, and Senators Drew Perkins and Tony Ross. They answered a number of questions that illuminate the business-as-usual attitude among legislative leadership.

When asked whether enough was done to prepare for the downfall, Senator Tony Ross said that although they are in better shape than the downturn during the 90's, they still have to deal with the current downturn, and the Rainy Day Fund isn't big enough.

I guess that means no.

Representative Berger, on the other hand, said we anticipated this day, and have saved and invested. According to Representative Berger, we can be flexible with our investments and how we use those returns.

I guess that means yes. Some legislators look at investment returns as a way to avoid difficult decisions and continue spending. This illustrates the spending as usual attitude of Governor Mead and many legislators.

Another illuminating question was; what are the opportunities for the state now?

Representative Berger said that instead of attracting new companies to the state we can add value to existing commodities. Representative Berger seems to be alluding to the minerals-to-value-added program, one that would put millions of tax dollars at risk to provide supply guarantees to alternative energy projects that can't get private sector funding because they are too risky.

Another opportunity, according to Representative Berger, is spending on early childhood education. Recall that Wyoming has one of the highest per student education costs in the nation and a graduation rate of only 77 percent. How institutionalizing small children in another high-cost, low achievement government program will save money is a mystery.

Senator Ross also weighed in on this question to suggest keeping people employed with government infrastructure spending. Sounds like the depression-era make-work projects, the equivalent of digging holes and filling them up again. Government can create an unlimited number of jobs by paying people to dig holes, but the point is not to create jobs, but productive jobs, jobs that mean more goods and services, which means higher economic growth, improved standards of living and a better future for our children and grandchildren.

Senator Ross did state that he was OK with using the Rainy Day Fund for infrastructure spending, but not for government operations. Senator Ross also seemed very open to more government spending on tourism and building a West Coast coal terminal, both good examples of even more wasteful spending on corporate welfare.

The direction of the budget session seems clear. Political challenges are just too great for legislative leadership, and the talk of cutting programs is just that – talk. Legislators plan to manage budget cuts by continuing to spend as though nothing has happened. Unless we plan to leave our children and grandchildren with a legacy of debt and higher taxes, we must change the debate, openly discuss the role of government to decide what is important and bring spending down to a level Wyoming taxpayers can afford to fund.