Mero Moment: Avoiding Yo-yo Spending

This week I want to talk about government spending in Utah. Periodically, Governing Magazine, in partnership with The Pew Center on the States, releases its rankings of the “best managed state.” In the last two outings Utah has been ranked first in the nation. It’s an honor and distinction that our state’s policymakers can and should be proud of.

One thing the award doesn’t grade is the amount of state spending in comparison to state population. I don’t know for sure, but my guess is that Utah would look pretty good there as well compared to the other states. But if we do look at state spending in this light, we might be surprised at how we’ve grown government over the years.

As good as Utah’s decision-makers are in relation to government spending, no decision-maker, no legislature, no state is immune from slipping into an often subtle pattern or habit of spending bias. It’s to Utah’s credit that I didn’t use the term “runaway spending.” But a spending bias can be just as deadly over time – before you know it, state spending has advanced way beyond our population. In very practical terms, a spending bias exists when a state spends more when times are good and agonizes over cuts in spending when times are bad.

Here’s what I mean: Consider the fact that between 1969 and 2009, the amount of time required for a median-income Utah household to earn what the state spent in an hour rose almost fivefold – from a hefty five years in 1969 to a back-breaking 24 years by 2009. Utah’s population, on the other hand, grew only 2½ times over that same time period.

For the past two years, Sutherland Institute has been working on a government spending limitation that would rein in this spending bias in Utah. It’s a constitutional amendment that helps us to be even more prudent about long-term fiscal matters, avoiding the yo-yo effect of good times and bad. Our hope is that this government spending limitation proposal will make some decisions easier because we took time to plan better for downturns in the economy.

None of us want state and local governments to cut essential programs. It’s hard when a city has to chop its police force or a school district has to fire teachers. Sutherland thinks we have a way to avoid those difficult cuts and smooth out the peaks and valleys in our state finances.

Sutherland’s policy director and one of our brilliant scholars wrote a paper on this subject for the peer-reviewed Journal of Public Budgeting and Finance. They argue that if Utah had a government spending limitation in place since 1990, the state wouldn’t be suffering many of the difficult cuts it has faced with the economic downturn of 2008.

Cumulatively between 1990 and 2009, the average family of four would have had more than $31,000 in extra income – enough for four years of college at the University of Utah, with almost $4,000 to spare. Just as important in today’s weak economy, the additional economic growth that Utah would have had in 2009 would equate to over 19,000 more jobs in the state at the 2009 average monthly wage. And with proper savings measures included, a government spending amendment would have set aside $4 billion by 2009 in savings to use to help the state recover from a natural disaster or emergency and/or to stabilize government spending on law enforcement, public schools, and safety-net programs during the current recession.

This plan was introduced at the state Legislature last session but showed up too late in the process to pass. But we’ll see it again this coming session. And it’ll have its opponents as well. Like undisciplined teenagers, government spenders often think good economic times are those moments to push for even more spending. They don’t take the long view, so they’ll likely be against this idea.

Utah’s rate of state government spending has reached an alarming level. When it takes a median-income Utah household a quarter of a century to earn what its state government spends in an hour, significant policy changes are called for to insure the freedom and prosperity of Utahns across the state against the perils of government growth.

For Sutherland Institute, I’m Paul Mero.