Does spending less money on state government stimulate the economy? That’s a question raised in a Los Angeles Times story Friday about states that have not restored budget cuts made during the belt-tightening of the recession.
The story focuses on Kansas, where general fund revenues have increased but spending is still down since 2008. Gov. Sam Brownback argues that income tax cuts, rather than spending, will stimulate the economy; local government leaders say that services have eroded so much that the state is becoming a less attractive place to live.
We talked to advocates in four other states; two who believe states should not restore cuts made during the recession and two who think they should, and gave them the opportunity to argue their case.
Arguments for more spending
In his State of the State address this week, Ohio Gov. John Kasich said that he had come into office with an $8-billion shortfall and turned it into a $1.5-billion surplus. How did he do that? By cutting the inheritance tax, small business taxes and income taxes, he said.
“When Ohioans have more money in their pockets, we’re being true to the fundamental idea that made our nation great — government works for the people, not the other way around,” he said.
But Dale Butland disagrees. Butland, the communications director for the pro-state spending advocacy group Innovation Ohio, says that by cutting taxes, Kasich has significantly downsized the amount of money the state government shares with local governments. That puts pressure on local governments to put local levies on the ballot to raise the money on their own. Some wealthy areas can do that. Other areas can’t.
“Our school districts are so diverse that you’ve got some districts that can raise a lot of money -- and a lot of us that can’t,” he said. There were 72 ballot issues around the state in November that asked taxpayers to approve new operating money for schools, he said.
Some districts that can’t raise the cash are eliminating school busing from high schools, cutting arts and science programming, and requiring students to pay fees to participate in extracurricular activities. They’re just teaching the subjects that are on tests, he said, and also shortening the school day.
“Whenever the state cuts money, it disproportionately hurts districts that can’t raise money,” he said.
Wisconsin Gov. Scott Walker has been mentioned as a potential 2016 GOP nominee, especially since he has been credited with getting the state’s economy back on track. The state’s projected surplus neared $1 billion in January, and Walker and the state legislature hope to spend it on income tax cuts.
“Thankfully, the days of double-digit tax increases, billion-dollar deficits, and major job loss are gone,” Walker said, in his State of the State speech in January. “We replaced them with massive tax cuts, growing budget surpluses and significant job growth.”
But Larry Arft, the city manager of Beloit, Wis., and the president of the League of Wisconsin Municipalities, says that the state budget cuts have been felt hard at the local level. That’s because local governments have limited ability to tax on their own. They depend largely on the state budget process, which occurs every two years.
In the 2011-2013 cycle, municipalities took a $100-million hit, and almost none of that funding has been restored, despite the surplus. Beloit eliminated 20 government positions, including five police officers and five firefighters, Arft said, and response times have slowed. Other municipal cuts included a fund that helps cities implement recycling programs and reductions in transit and road funds for local governments, he said.
“It’s hard to be against tax cuts -- no one wants to pay more in taxes than they have to,” he said. “But restoring some of that funding to cities, making sure they remain high-quality places that are capable of attracting new business -- that’s important to any state.”
Arguments against more spending
According to the National Assn. of State Budget Officers, Michigan’s general fund is will bring in $8.9 billion in 2014, more than the $8.1 billion it collected in revenues in 2008. But it’s spending less: General fund expenditures will be $9.6 billion this year, compared with $9.9 billion in 2008. Still, Gov. Rick Snyder has projected a $1-billion budget surplus and floated the idea of tax cuts in this year’s budget proposal. But a poll conducted by EPIC-MRA, a Michigan firm, suggests that taxpayers may prefer higher spending, rather than tax cuts. In the poll, 38% of Michiganders wanted the surplus to go to education, 36% wanted spending on roads, while only 11% wanted income tax cuts.
But Michael LaFaive, with the Mackinac Center for Public Policy, argues that increasing spending on state services isn’t necessary. Many organizations had to deal with state funding cuts during the recession, and they figured out how to operate without subsidies, he said. The Ann Arbor Film Festival, for instance, saw state funding drop after it aired a controversial film in 2006; but it somehow still thrived, he said, by turning to private groups for money. Citizens of Michigan haven’t noticed the service losses from some programs cut during the recession, such as reduced funding for libraries, he argued. If citizens miss their libraries, they can raise private funds to sustain them, he said.
“There’s a moral hazard here -- if we insist on making every institution whole -- should every institution really be made whole in better times?” he said. “There are a lot of institutions that could be made private and we’d be better off.”
Oklahoma has cut education funding per student by the highest percentage of any state during the recession, according to a report from the Center for Budget and Policy Priorities. The state is spending nearly 23% less per student in 2014 than it did in 2008, the report shows. But Gov. Mary Fallin wants further cuts to the state budget. In her State of the State address, she called on the state legislature to cut the state’s highest income tax rate by 0.25 percent, and suggested that the way to pay for that tax cut was a 5% cut to the budgets of most state agencies.
“Any business worth its salt can find 5% costs savings without crippling the services it provides,” she said.
It may seem that now that the state is rebounding from the recession, it could spend more on services -- but that’s not so, said Jonathan Small, the vice president for policy at the Oklahoma Council on Public Affairs. It’s time to break the pattern of state budgets growing and growing until a financial crisis hits, he argued, and then cutting services until the economy gets better. More spending on education doesn’t necessarily mean that schools will be better -- many states try to spend more and don’t get results.
“When government focuses on limiting itself and giving citizens more of its income, it does generate income and jobs for others,” he said.
Some state services may be less necessary as technology advances, he said. There may be less spending on libraries now, but that’s because there’s less use of them, he argues.
“My 2-year-old can download a movie on my iPhone now,” he said. “He doesn’t need to go to a library.”
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