Thursday, September 03, 2009

Does Arizona need a budget? Should Arizona have a budget?

Last Saturday a few University of Arizona-affiliated 'bloggers--Laura Donovan, Evan Lisull, Vishal Ganeshan, and myself--got together at a local bar to say "hello" and get updatd on an upcoming project. All three are far more capable writers than I am--working with optical tweezers and Markov chain models all day doesn't provide much practice--and are also interesting enough to be worth following, so add them to your RSS aggregator or 'blog feed. (I'd say that a broader get-together should happen, but some partisan or ideological 'bloggers haven't yet learned that the 'blogosphere is improved when it becomes a conversation--e.g. when Wilkinson and Yglesias read each other and the ideas are allowed to develop--and if you don't even link, can you socialize?)

That, eight weeks past its deadline, the legislature has yet to produce a meaningful, workable budget compromise with the Governor, came up briefly in discussion and my memory was instantly loosened up a bit as though sprayed with PB Blaster: former Congressional Joint Economic Committee senior economist (among other things) Joe Cobb, now hiding from the fuzz in Arizona, had said at one point that governments do not need budgets and that until around 1900, normally did not have budgets. I couldn't, however, remember the particulars or the arguments for it, although as Lisull noted, having to re-approve spending items each year could possibly lead to more sunsetting of (on net) worthless programs.

After leaving I gave Joe a call, trying to get him to write a guest post on the subject. No such luck. (The invitation to guest post on AZ policy still stands, and readers are welcome to send him bribes on my behalf. "Did anyone order a pizza?") But I was able to get a few minutes of his time, an explanation, and referral to an explanatory draft article on his website.

To quote:
Governments pass laws to spend money. Households and businesses don’t. Those laws make it much more difficult to change if they get things wrong.

Whereas households and businesses can predict wages and sales, governments have a difficult time predicting tax revenues when inflation and tax brackets have a large effect on actual revenues collected the following year.

The idea: have government Appropriations Committees fund projects based on tax revenue received, not tax revenue predicted. In Cobb's words, "This is...actually how households and private businesses control spending." The current system is biased heavily in favor of borrowing and increasing taxes when an economic downturn causes revenues to fall, and towards ballooning a budget unsustainably during short term "boom times" such as the construction-based expansion Arizona saw in the decade leading up to 2008. Going to the sort of "reality-based budgeting" where government spends money in hand restores the symmetry between spending cuts and tax increases.

Elimination of forward-looking budgeting would help Arizona to avoid, when the next downturn comes, the sort of scrambling legislative breakdown we're seeing now. It may also force a bit more rationality out of the voters, as rent-seeking will become (even more) transparent, and politicians would have to get more honest about their vote-buying spending programs. "You want the schools and prisons funded first, right? If you also want the UA Presents subsidy of highbrow entertainment, we will have to raise your taxes.

The main trouble in going back to the pre-budgeting way of doing things is the changeover. The old system worked, and in good years the new system works, but to go from the new system to the old system requires money in hand and for payment takers--both private and governmental--to get used to a bit of uncertainty and for institutional culture to change accordingly. Also, given that a switch will make it much harder for government to do everything we think would be nice, we can expect the Left to very strongly oppose such a switch when it does not appear necessary. At the risk of having a fictional villain named after me in the next Naomi Klein novel, I'll say that the current crisis provides the natural time to switch.

I hesitate in writing "crisis." Commenter Thane Eichenauer was right: government failure isn't going to happen. The legislature is already, out of necessity, switching to Cobb's prioritized, "reality-based budgeting" and for example those million kids I mentioned in a previous post aren't finding themselves locked out of grade school. It'd be nice for the change to become permanent. What it will take is for someone or several someones to get this idea to legislators and opinionmakers--for newspaper opinions and think-tank whitepapers promoting such a switch to start to appear.

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