LIMIT STATE SPENDING,
CREATE JOBS & PAYCHECKS
“Government,
in order to be lean and effective, needs to be infused with market forces, less
of a monopoly provider of services and measured for accountability and
performance.” Murphy Commission, Policy Foundation project, 1998.
Summary:
State government does not have a revenue problem. The people of Arkansas face weak employment
and income markets.
(August 2013) Arkansas state government does not have a revenue problem. State revenues have recorded surpluses for
the last three fiscal years: $300 million1 (2012-13), $146 million (2011-2012) and $94 million (2010-2011).2 The people of Arkansas, by
contrast, are faced with weak employment and income markets. Arkansas payroll employment has increased by
less than the U.S. average since the recession ended in mid-2009.3 Arkansas per capita and median incomes trail
the U.S. averages.
Two economic facts stand above the hype and headlines that trumpet
alleged “conservative budgeting” at the state Capitol in Little Rock:
·
The number of employed
Arkansans is lower than in January 2007;4
·
The most recent Arkansas
median household income level reading (2011) is barely above the 2007 level.5
Current economic policies must be reformed if Arkansans are to
prosper.
State Government’s Role
State revenues discussions generally ignore state government’s basic
functions. These can be defined as
ensuing safety and protection of rights; a
fair and impartial justice system; helping Arkansans who cannot meet basic needs;
assuring educational opportunity is provided; and responsibly managing public
property, the environment and public infrastructure.
Murphy
Commission Reforms
State government has strayed from
these functions, creating the need for reforms.
The Murphy Commission, a Foundation project suggested three:
·
Adopt performance-based budgeting
throughout state government;6
·
Incorporate Activity Based
Costing (ABC) into the state's accounting system with expenditures tied not
only to costs but to measurable performance outputs;7
·
Provide for an independent audit
of state government.
Instruct
Department Heads to Limit State Spending
The next Arkansas
governor, working with the legislature should instruct state department heads
to use these reforms to limit spending.
The goal should be to freeze overall spending at existing levels or
reduce it by small percentages, not target specific programs. Increased spending proponents have defeated
counter-proposals when this approach was tried in the past.8
Link
Revenue Growth to Inflation or Income
Net available
revenues were $4,751.6 million (FY2012), a $178.7 million increase (3.9%) from 2011.9 This was greater than CPI (3.2%, 2011; 2.1%,
2012)10 and median income growth. A CPI-revenue restriction, using the average
(2.65%) could have funded a $60 million middle-class tax cut.11
Conclusion
Arkansas employment and income are near
2007 levels. Reducing tax rates is one solution. This goal can be achieved by relying on
Murphy Commission reforms, instructing department heads to limit spending, and capping
revenue growth (CPI, household income).
--Greg Kaza
1 “State’s budget surplus 4th highest
in 20 years,” Arkansas Democrat-Gazette, July 14, 2013
2 Policy Foundation memo (June
2013) “Surplus State Revenues & A 6.5% Top Income Tax Rate.” The surpluses ($540 million) were enough to
fund state capital gains and grocery tax phase-outs, a top income tax rate cut
(7.0 to 6.5%), and a rainy day fund.
3 Bureau of Labor Statistics: Arkansas payroll
employment expanded 2.2% versus U.S. growth of 4.1%.
4 BLS: Arkansas nonfarm payroll employment
(January 2007), 1,201,200; (June 2013, preliminary) 1,184,900
5 U.S. Census Bureau:
Arkansas median household income, $41,302 (2011), $40,795 (2007),
http://www.census.gov/hhes/www/income/data/statemedian/
6 The Murphy Commission, a blue-ribbon panel
established by Gov. Mike Huckabee proposed appointment of a performance
management director working for the governor through the state Department of
Finance and Administration; and a small volunteer performance accountability advisory
group to conduct oversight operations.
Governor Mike Beebe supported a pilot performance-based budgeting
program while serving in the Senate (1999).
7 The Marine Corps
started the practice in 1999. ABC is explained in the 1998 Foundation report, Making Arkansas’ State Government
Performance Driven and Accountable: Four Reforms State Government Can Implement
Now To Save Taxpayers Millions
8 The
‘Home Instruction for Parents of Preschool Youngsters (HIPPY)’ program under
Gov. Huckabee is one example.
9
http://www.dfa.arkansas.gov/offices/directorsOffice/Documents/greForecast.pdf
10 Federal Reserve Bank
of Minneapolis CPI calculator
11 A middle-class tax
cut would increase the likelihood of capital gains abolition if one accepts
that politics is the art of the possible.