Tuesday, April 26th, 2011 - 14:02
Cuts are in the air. Some government managers talk about making them with scalpels, while others concede that shortfalls are so large that they're going to have to use hatchets (and whether they say it or not, a few are going to wind up using napalm).
The federal budget agreement made in mid-April aimed for some $39 billion in cuts nationally. Over the course of fiscal year 2010, 39 states, accounted for by the National Association of State Budget Officers, sliced some $18.3 billion from already agreed-upon spending.
Forget, for the moment about any debates about what combination of budget reductions and revenue enhancements are most appropriate. Given the current political climate, there’s little question that service cuts are going to be a significant part of the equation, even in entities that make the choice to accompany them with some combination of tax increases.
All of which raises a critical question. Do the measures designed to reduce expenditures have accompanying costs – long or short term – of their own?
Typically, debates about cuts are simplistic, and don’t utilize any kind of analytic approach that might help answer that query on a case by case basis. Advocacy groups sometimes take a Chicken Little approach, claiming calamity is around the corner for every dollar saved. And extreme small government advocates sometimes think the answer to the question is “Of course, we’ll save money. Somebody else will do the same job cheaper, if anyone needs to do it altogether.”
The very men and women who have the capacity to provide more sophisticated, data-based information are often finding their jobs cut. “Who has time to analyze anything?” asks P. Jay Kiedrowski, former Minnesota Commissioner of Finance and current Senior Fellow at the Humphrey School of Public Affairs. “One of the easiest places to cut are analysis shops. These are cuts in the infrastructure that allow you to do good strategic thinking in the organization. It becomes a self-fulfilling prophecy --you no longer have enough good minds working in these organizations so you no longer have the seed corn that will produce good budgets in the future."
When these analyses are done, the results can be illuminating. All cuts, clearly, do not turn out to save money. Some actually wind up costing money, and it would be great to know which was which before going forward. You can put off buying a child $300 blue jeans indefinitely, with little impact on the future, but saving a few bucks by not getting immunizations. . . . well, you get the idea.
For example, according to Taryn Purdy, Principal Fiscal Analyst of the Montana Legislative Fiscal Division, “The department of revenue has long contended that if you cut from their budget your revenues will go down by significantly more than you are savings by cuts. We have analyzed that, and yes, once you cut past a certain point you can expect to lose $3 for every $1 dollar.”
Idaho, meanwhile, has enacted a number of individual cuts, leading Mike Brassey, who served as budget director for Republican Governor Phill Batt to say “Once you get to a certain point, it’s darn hard to make cuts without hurting yourself in the long run.”
Unfortunately, examples like Purdy’s that offer up real specifics about how much every dollar in budgetary cuts actually cost overall, are few and far between. Far more frequently, precise calculations are lacking, though there’s pretty clear evidence that there are unanticipated expenses associated with actions taken in order to save money. In Hawaii, for instance, according to Lowell Kalapa, President and Executive Director of the Tax Foundation of Hawaii, cutting the offices that do permitting and inspections of infrastructure to a four day week means that, “Projects are stalled because they can't get approvals and inspections. . . It lessens demand for construction workers. Until we recognize that commerce and industry still need to move on to create recovery, we will have a hard time."
Or consider the U.S. Postal Service’s decision to eliminate about 2,000 post offices. Obviously, there’s a lot of money to be saved by taking that many bricks and mortar facilities off the roles. But, there’s more to the story. “Obviously if you make Post Office less accessible you are going to discourage some of the use of those post offices so some of that revenue will be lost," says Malin Moench, Advisory Attorney of the Postal Regulatory Commission.
These examples, at least, are pretty concrete. Things get far trickier if legislators try to figure out the long-term costs of cuts in social programs. Would cutting pre-K programs mean that some number of children will wind up collecting Medicaid benefits in the future? Maybe. But go try to prove it to the satisfaction of legislators who don’t tend to be in office, in any event, when and if that bill comes due. Similarly, will cutting family planning programs mean more children will be born into poverty? Will there be more unhealthy children? As Purdy told us, Montana has no concrete numbers to demonstrate this. “We deal in credibility. We can't tell you ‘this is going to happen’ when we don't have any good reason to know one way or another. It makes intuitive sense but we couldn't tell."
Discussions about the long-term costs of short-term savings in social programs can be fraught with political tension. As Jon Shure, Deputy Director of the State Fiscal Project at the Center for Budget and Policy Priorities told us, “People who are advocating for the investments in the future often sound like special interest pleaders."
Then too, there are the difficult-to-quantify ripple-effect costs that come from cuts in the labor force; the men and women who have been furloughed or laid off often have less money to spend in the private sector which in turn means that sales taxes and corporate income taxes can go down. By how much? That’s the $64,000 Question. “Governments don’t quantify that,” says Shure. “When state and local officials lay off public workers they acknowledge (the number of) people, but the ripple effect in the private sector is not really part of the calculus.”
All of this is not to say that a number of budgetary cuts don’t actually wind up saving the money anticipated. To paraphrase Freud, sometimes a cut is really a cut. What worries us is that in days when states and the federal government are under viselike pressure to save money, the unintended consequences can all too easily be ignored, until it’s too late. Says Shure, ““The economic impact of some of the decisions state and local leaders are making now is greater than they acknowledge and maybe even greater than they realize."
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