No recommendation on Proposition 302

A first for this 'blog: on one ballot question, I provide no recommendation. Perhaps (Treasurer candidate) Thane will be able to offer more perspective.

The legislature's (constitutionally-mandated) balancing of the budget depended in part on the sweeping of tobacco surtax revenue into the general fund. In 2006, voters approved Proposition 203, the Arizona Early Childhood Development and Health Initiative, sometimes called "First Things First" after the bill's supporters' name for themselves, which added an eighty-cents-per-pack surtax to the cost of cigarettes and established a far-left, Great Society style board to promote government-run pre-K schooling and well-baby care, which since its establishment is estimated by its supporters to have provided services of some sort or another to half of the children age five and under in the State.

Since the funds were set aside by voters, they can only be re-allocated by voters. This year's Proposition 302 does that. It defunds the activities of the Early Childhood Development and Health Board and sweeps the eighty cent surtax into the General Fund.

On the one hand, this is a good thing. It balances the budget and removes a California-style pre-allocation from our system of government, putting budgeting back in the hands of the legislature, which is better equipped than the single-issue ballot question voter to make cost-benefit decisions in context. And it defunds a program that not only makes Arizona children government dependents from birth, but also one that does so unsustainably, by taxing an unhealthy and ordinarily extremely rude activity that by rights we'd like to see diminished by orders of magnitude and that has over time went from socially acceptable to acceptable in all but the politest of circles to generally unacceptable, at least among educated folk.

On the other hand, it means that the budget, more so than it is already, is funded by many petty taxes that are difficult to reduce and easy for some to impose on others. Structurally, taxes--except those that amount to user fees like road taxes or obvious corrections of externalities (Pigouvian taxes) like carbon taxes--should be few in number and of the sort that affect most or all people in a fairly direct manner.

I don't see either of "yes" or "no" on Proposition 302 having a clear advantage here and will not share how I plan to vote on this. Perhaps commenters have insight or perhaps Thane will clarify, but for now: you're on your own.

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.

What isn't going to happen?

Regular commenter Thane Eichenauer asks below:

I am curious as to what _isn't_ going to happen if the legislature refuses to pass the Brewer 18% sales tax hike.

From what I've read so far all the department budgets except for government education were signed. Government education might stop but if the rest of the Arizona state government rolls along like usual there will be nothing to notice.

Aside from framing problems, he has it correct. However, if this webpage's numbers are current, there are well over a million students in Arizona's public grade schools, middle schools, and high schools. That's hardly "nothing to notice".

Eichenauer, by the way, 'blogs at This, that, and the other thing, with a rather interesting choice of URL. It took me a while to figure that out. He'll be added to the 'blogroll soon. The 'blogosphere is at its best when it is conversational. We can thank, among others, Glenn Reynolds, Matt Yglesias, and Megan McArdle for greatly improving 'blogs of nationwide focus. Arizona's 'blogosphere lags behind. It's clear that people are reading each other, but posts about and trackbacks from others' content are in order. This is one more on the "radar screen". Look forward to a unilateral increase in cross-talk in the weeks to come.

Governor Brewer's line-item vetoes and statements on the Arizona budget

The governor's office issued eight (!) releases today, seven of which pertain to the state budget:

• Governor Brewer's Statement on Budget, Call for Special Session
  
• Governor Brewer's Call for Special Session
  
• House Bill 2643
  
• Senate Bill 1188
  
• Senate Bill 1188 - Part A
  
• Senate Bill 1188 - Part B
  
• Vetoed Bills - For Special Session
  

One would think that in 2009 and in the era of LaTeX, PostScript, and word processors the governor's staff could do better than crooked scans of paper documents.

But back on topic: When Brewer took office there was quite a bit of worry that she'd be a weak governor who would rubber-stamp everything that came from the sometimes wacky legislature. If it wasn't already clear, it should be clear today that this is not the case. This morning, she called their bluff, quite effectively. There'll be no state shutdown, and they will have to more meaningfully compromise.

That having been said, some of (vetoed) the lump sum reductions of allocations to the universities were probably in order. Tuition fees are still too low, and the universities are still lobbying against the rights of their employees and spending taxpayer money on molycoddling--with a special office apiece!--organized ethnic groups. On the other hand, Brewer's statements say that these vetoes come because the legislature went beyond the compromise levels agreed to by her office, so perhaps the reductions were indeed not in order.

Also vetoed are cuts to K-12 education. Like the rest of the country, Arizona could benefit from real education reform--universal parent choice and gradual withdrawal of government from the education services "market". "Starving the beast", so to speak, isn't a means to effect that, but it can certainly deprive students who are already short-changed by being in public schools to begin with. That isn't to say that there isn't room for savings. There is, but the chances the public schools will achieve these savings in a manner that leaves kids still in the public schools at worst no worse off are slim. The incentives aren't there.

SB 1188 is 131 pages long, far too long for me to give it a thorough reading. The amount of Federal money the legislature on pp. 127-129 is counting on to balance the budget amounts to nearly a hundred dollars per Arizonan. If you spot anything interesting, bring it up on the comment thread or e-mail me backchannell.

Arizona to adopt a low flat tax in 2012?

See the Arizona Daily Star's article on the budget compromise at the House. I don't have time right now to read the myriad documents floating around about this or to make the phone calls needed to find out what's going on. A vote won't happen until Monday; we'll likely hear in the days to come about the backroom dealing that made this happen.

Major tax reform seems like a nonsequitur response to the State's budget woes. The House seems to be counting on the coming tax reductions to be offset by an influx of economic refugee businesses from high tax states, something think-tank whitepapers have been promoting heavily. While that's possible, it's not a sure thing. Modern, high-tech business clustered in (e.g.) Austin and Silicon Valley in part because those are areas where highly skilled employees will want to live. In the latter case, the presence of one of the world's top universities helps. Social climate, largely intangible, can often trump regulatory climate. Engineers, scientists, highly educated and highly intelligent people tend to like the company of their own and tend not to like when their foreign or homosexual colleagues are subject to constant hostility from the neighbors. And Arizona never attracted any major educational institutions at all; its land-grant university is the closest approximation. Tax code simplifications and rate cuts will bring business here at the margin, but it's doubtful that Arizona's (already low and relatively simple) taxes are what's keeping Californian business from coming here.

This isn't to say that the Democrats are any better. Perhaps they're worse. See (House Minority Leader) Lujan's nutty remark in the Star article: "Certainly we want to help to incentivize businesses to be successful, but we also need to make sure we are preventing this huge economic crisis we're going through now from occurring in the future." It's possible in principle for a "huge economic crisis" to be caused by underprovision or mis-provision of public goods by government, and possible in theory for underprovision of public goods to be caused by taxes being too low. But the idea that the current recession is caused by underprovision of public goods is ridiculous. Arizona's low taxes didn't cause moral hazard at Fannie Mae and Freddie Mac, didn't induce overleveraging, didn't create the systemic risk problem in the credit default swaps market, and didn't cause the money market to seize up. Taking it to still be Saturday at the current hour (a stretch), I'll say that David Lujan's remark is the most ridiculous thing I've read all week. And Friday I was helping an (unnamed) state Libertarian Party executive director get over some of his misconceptions about climate science, so I've read some pretty silly things.

Why the University of Arizona cuts make sense

Being an ABD grad student I'm a little "bothered", so to speak, by the prospect of mandatory furloughs. The "deferred compensation" alternative presented by Ted Downing--who I miss having in the legislature--seems more sensible, but at the very least the policy could have been distributed differently between higher-paid employees, departmental staff, junior faculty, and grad students. The high-paid employees can take the hit, University departments are already running on skeleton crews and can't afford to have staffers taking days off, and five days' income is so much for junior faculty and grad students that it's sure to hurt morale. (Both will come to work anyway.) ASU has taken this into account. U of A charged forward clumsily.

Then again, the details haven't yet been sent to us, so maybe the plan isn't set in stone.

But that aside, the cuts make sense. University of Arizona President Robert Shelton sent an e-mail early last week presenting them in brief. To quote:

We will also be forced to eliminate or greatly reduce many of our outreach and community-based activities. This will result in:
a.. The suspension of three-quarters of University funding for UApresents.
b.. The current Flandrau Science Center facility, Planetarium and UA Mineral Museum will be closed to school groups and the public later this spring.
c.. The Arizona State Museum will be open to the public fewer days per week, and many outreach and educational activities, including public events, will be cancelled later this spring.
d.. The UA Museum of Art will be open fewer days per week, and will eliminate its engagement in university-level education as well as educational outreach.
e.. A significant portion of the UA's outreach and extension operations across the state will be suspended.
The new partnership creating the Colleges of Letters and Science allows us to reduce the number of academic colleges from 16 to 13, and we have previously announced the closing of University College, the functions of which are being absorbed in the new Colleges of Letters and Science.

Letters and Sciences makes sense from an intellectual perspective, although some toes will surely be stepped on. But as for (a) through (d): why were these things paid for by the State, anyway? To fund museums, UA Presents, etc--highbrow stuff, all--with the taxpayer dime is simple exploitation. It's the worst kind, too: literate sorts who prefer the Academy of St. Martin in the Fields to AC/DC can put together pretty-sounding albeit half-baked arguments for subsidizing their entertainment with far more skill than the AC/DC fan can bring to bear in telling them to go fuck themeselves. It isn't a fair fight. (Full disclosure: your narrator owns a copy of Back in Black but usually prefers Sir Neville Marriner's chamber orchestra.) Back at Tulane the classical-music concerts didn't come out of our tuition fee, but were financed by ticket sales--usually free or a small peppercorn for students--and donors in the community who valued the arts.

It should be that way at the University of Arizona, too, and this is the correct way to make it so. Did you know that UA Presents was subsidized? Neither did I. (Isn't government funding of colleges and universities insidious?) Now I do, and now I know the subsidy has gone away. And I'll pay more for the ticket, and perhaps start paying a fee to drop in at the museum. And some high-minded businessman who does think that artsy stuff should be more affordable than a Rolling Stones concert or a day at the ballpark (it is, but it's less popular anyway) or who wants to be a patron of the arts will make a donation or even establish an endowment. Bread-and-circuses stuff has the public's immediate interest and attention. Elimination of a support staff position in the Department of Transgendered Jewish Chicano Studies does not.

I suspect that the set of moaners and the set of donors will be largely exclusive. Belief that everything good is the government's responsibility pretty much absolves one of any duty to support anything privately. We're far more likely to see Jim Click's name on a plaque in the Arizona State Museum than we are to see the establishment of a Paula Aboud Chair for Study of the American Political Tradition. I will, however, contribute the dollar equivalent of 19.68 euros if that last one ever happens.

Should universities be this vulnerable to State finanical probelms?

The report of the chairmen of Arizona's Joint Legislative Budget Committee proposes what amounts to an over 20% mid-year cut in the budgets of the University of Arizona and ASU. This is too much, too abruptly, and students and faculty are right to be agitated even if the report is merely a starting point in the discussion.

But cuts do have to be made in the State's budget, and maintaining infrastucture, staffing the prisons, and meeting obligations set by ballot initiative must come before providing nearly free higher education to Arizona's teenagers and discount higher-ed to slouching, mumbling California brats.

The question nobody seems to be asking right now, as most are caught up in the moment, is should the State even be able to cut 20% of the universities' budgets. That is to say, should a 100% cut of the State's subsidy even amount to 20%

The U of A and ASU are both megauniversities with hundreds of thousands of alumni apiece, and are both over a century old. There is no good reason for either to rely so heavily on the State--and we are now seeing that heavy reliance on the State is not a sustainable model for a university. Among others California, Illinois, and, most famously, Michigan went through similar periods of cutbacks precipitated by State financial crises and all responded with long-term institutional reform. It would be foolish for Arizona's universities to not transition to a more sustainable model.

As is detailed in a Goldwater Institute whitepaper, after several rounds of crisis-induced cuts, the University of Michigan underwent an orderly transition to being a privately financed public university. In 1965 the State provided 70% of its funding; by 2003 the State provided less than 10%. It is impossible for a Michigan budget shortfall to result in a 20% mid-year cut to the University of Michigan's funding! This is a model that Arizona's three universities, especially the research megauniversities ASU and U of A, would do well to emulate.