Center for Limited Government Newsletter – December 9, 2010

1. Even Conservative States Need Constitutional Spending Restraints

By John Merrifield and Ed Robinson

One of the rallying calls of the Founders was “no taxation without representation.” In the ensuing 235 years, we have discovered that representation is not enough to restrain taxation; the political process rewards those who favor increased spending over tax reduction.

Utah is among the nation’s most conservative states, yet until the large spending reductions induced by the Great Recession, inflation-adjusted state spending grew faster than the state’s population, especially recently. For instance, between 2000 and 2009, Utah’s total state budget grew at an 8.7 percent average annual rate, based on spending data from the Governor’s Office. Utah’s population and inflation, on the other hand, each grew at an average annual rate of 2.7 percent, for a combined average of 5.4 percent per year.

That rapid growth is among the chief reasons for recent large spending cuts. A slower rate of growth would have been more sustainable, even in the face of the current historic economic downturn. The state went into the Great Recession on a spending binge, especially on improvement-resistant primary and secondary education, and without sufficient budget reserves to weather the current economic downturn.

Among economists that study policymaking, the pro-spending bias is a widely accepted fact of political life that scholars are seeking to understand better, not one that they have to establish. The reasons for considering expenditure-limiting rules are not questioned.

New programs and expansions, on top of past spending commitments, continue to appear to legislators to be more attractive uses of taxpayer dollars than tax refunds or saving for a rainy day, because the benefits of tax relief and maintaining budget reserves are diffuse and deferred. The benefits are spread over the entire population to an extent that they may go unnoticed or unappreciated, or they may fail to generate gratitude in the form of increased political support for their backers.

But spending of any non-trivial amount can be targeted at politically influential groups certain to express their gratitude in politically relevant ways like votes and campaign contributions. It’s the same reason why tax cuts above the token level needed to generate a headline and back a claim of support for tax relief are so politically unattractive. Legislators would have to upset the beneficiaries of a lot of programs – actual and potential – to generate a non-trivial check to a typical taxpayer. Absent an actual check, the tax reduction may not even be noticed. Increasing spending is seen as an opportunity to create a politically relevant benefit for a few, while failure to spend generally saves each taxpayer so little that the savings won’t be noticed.

That bias has existed in all legislative bodies in Utah’s history, so why the sudden concern, and why has the rate of spending growth been especially large in the last decade? Since those questions are the subject of ongoing debate and research, we can only offer some speculation informed by our analysis of other research. The widespread misreading of the basis of the Great Depression as a failure of free-market principles created an economic rationale for much expanded government, and, with that, an administrative and electoral situation beyond the coping ability of even the most civic-minded citizens. A government far too large to monitor alienates many citizens from politics altogether and forces most of the rest into special interest organizations; that is, to focus participation in policymaking on the policies and programs of special interest to them. Thus, most policy forums are dominated by people with an interest in a larger government role in their area of concern.

The government-growing effects of those pressures to spend nearly all available funds (or more), and to maintain current programs with additional funds, is magnified by the ups and downs in the economy often referred to as the business cycle. Low growth and recession years of the cycle create pressure to raise taxes to avoid significantly cutting programs; economic downturns produce most tax rate increases. The tax hikes used to curb budget cuts in a recession become the basis for bloated tax revenues in the good economic years, when pro-spending bias precludes lawmakers from sending significant amounts of the new revenues into budget reserve accounts and tax refund checks. Thus, the business cycle steadily ratchets up the government’s share of the economy.

These political realities call for a constitutional provision to limit spending growth in Utah. Such a provision would have the citizens approving how much of their taxes they want spent on public services, and leaving it to their representatives to decide how best to raise the funds and prioritize the expenditures. Without the discipline of a constitutional limit on spending growth, other limits, whether formally expressed in law or informally expressed through voter protest of government growth, will be systematically overridden, even in a conservative state like Utah.

Author John Merrifield, Ph.D., is a member of the economics faculty at the University of Texas at San Antonio and adjunct fellow of Sutherland Institute’s Center for Limited Government. He also serves as the editor of the Journal of School Choice and director of the E.G. West Institute for Effective Schooling. Dr. Merrifield has written several books, peer-reviewed journal articles, and book chapters in his primary teaching and in research fields that include public finance.

Author Ed Robinson has been a financial adviser to corporations, a senior executive, and a management consultant. Prior to retiring in 2006, he operated Robinson Partners, consulting CEOs on corporate strategy and mergers and acquisitions. Before that, he was an executive vice president of Texas Commerce Bank (later Chase Bank of Texas and now JPMorgan Chase), where he ran the investment banking business, and then created and ran The Private Bank; was an executive director at Azurix, an international water utility business, responsible for corporate strategy and M&A; and was a managing director at First Boston (now Credit Suisse), running the firm’s Los Angeles office and the regional M&A practice. Mr. Robinson has a B.A. from the University of Michigan and a J.D. from New York University School of Law.


2. Cities Earn C- for Transparency in New Report

In a new publication, Sutherland Institute grades municipal governments across Utah on the transparency of their websites, citing a 10-point checklist of in­formation that any transparent city govern­ment should have on its site.

The Center for Limited Government at Sutherland Institute released Grading City Government Transparency and a companion chart, Utah City Transparency Scores, on Monday in conjunction with the recent launch of as part of its effort to increase transparency at the municipal level.

The cities’ grades ranged from A- to F. Specific cities’ grades can be found in the report and chart.


3. Utah’s Government Boards: Shine a Light

New research from Sutherland Institute’s Center for Limited Government suggests that responsible citizens can find it difficult to obtain accurate information about their local government boards and that more transparency and accountability are required to avoid an environment that allows board members to seek their own interests rather than the benefit of Utahns as a whole.

Matthew Piccolo, policy analyst at Sutherland Institute and author of Utah’s Government Boards: A Case for Transparency and Accountability, writes that Utah’s 1,600 state and local government boards influence the lives of Utahns directly and indirectly, often without those citizens’ knowledge.


4. Who Won $100 for Picking the Most Obscure Board?

In conjunction with the launch of the Transparent Utah website, we invited citizens to tell us about the most obscure board they could find on the site. A winner has been named, so go to find out who won and which board earned the “honor.”