I’m beginning to become impatient with Stein’s Law.
Economist Herbert Stein, head of the Council of Economic Advisors for Presidents Nixon and Ford, famously said, “If something cannot go on forever, it will stop.” No, this isn’t about the interminable special session in Olympia.
Rather, I’m thinking about lawmakers’ capacity to fool themselves about the state’s fiscal future. The inability to confront the new economic realities, of course, took the Legislature into extra innings, with most of the players picking flowers in the outfield.
Stein’s useful formulation applies primarily to economic trends. Think about it the next time you hear someone say something like, “If health care spending continues on its present pace it will consume 100 percent of the economy by 20whenever.” It can’t, so it won’t. And, while we will want to pay attention to negative trends, we should keep Stein’s law in mind when we hear alarmist extrapolations.
My impatience stems from this: The longest and deepest recession since World War II has yet to produce a fundamental reappraisal of the services state and local governments can realistically afford in the coming decade. Instead, the majority continues to treat the budget crisis as a spasm, a temporary contraction that will soon pass.
Rather than reset, lawmakers have again bet on the come. Sen. Joe Zarelli, R-Ridgefield, recently released a report identifying $8 billion in future costs stemming from budget decisions made by the 2009 and 2010 legislatures.
While suspending the Initiative 728 “class size” initiative, lawmakers promise to restore it with interest next year. Ditto the I-732 cost-of-living pay hikes for teachers. And their failure to adequately fund pension obligations will increase costs in coming years.
As they duck current obligations, they commit themselves to new spending in the future. Among them: more taxpayer support for state employee health care, expanded early learning programs, and increased state aid to schools with low property tax bases.
Meanwhile, to prop up spending, the budget relies on disappearing federal aid and a one-time raid on construction funds. Compounding future problems is the large increase in state Medicaid obligations baked into the federal health care reform.
In a new analysis of the California budget mess published by the libertarian Reason Foundation, David Osborne, a leader in President Clinton’s “reinventing government” efforts, endorses something he calls Budgeting for Outcomes. It’s essentially a rebranding of Gov. Gary Locke’s successful “priorities of government” (POG) budgeting during the 2001-2003 recession. Osborne’s consulting group led that effort. We would have benefited from a similar effort this year.
Having participated in several of the state POG exercises, I think the effort is worthwhile for two reasons: It imposes a discipline on budget development by setting a limit on how much money can be spent. And, it increases the transparency of decision-making.
What it doesn’t do is make the trade-offs any easier. Lawmakers must still muster the will to realign spending. Even with economic recovery, revenues will not grow enough to cover current obligations.
Oregon Gov. Ted Kulongoski gave his final State of the State address last week. In it, he issued this warning: “…while we are striding toward recovery — we are also speeding toward a budgetary cliff.”
To avoid a decade of deficits, he said Oregon must avoid “relying on temporary fixes” and stop “believing that all we need is a short-term vision.” The first step, he said, is to “dial back the starting point — to in effect create a new current service level.”
Few outside the legislative fog would disagree. Yet lawmakers continue to expand on an unsustainable base. In addition to the items Zarelli cites, current Washington state Senate budget proposals couple a sales tax hike with a “working families credit,” essentially a new cash assistance entitlement for low-income people.
Despite all the talk of austerity, lawmakers have failed to demonstrate any commitment to structural, systemic change. Granted, no reforms initiated today (privatization, asset sales, reworking collective bargaining agreements) would save enough money to close the multibillion dollar shortfall. Nonetheless, the failure to begin such efforts makes a bad situation worse.
State government is doing too much and paying too much to do it. It can’t go on forever. So when will it stop?
Richard S. Davis, president of the Washington Research Council, writes on public policy, economics and politics. His e-mail address is richardsdavis@gmail.com.
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