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How to beat the squeeze of mandated spending

During the last four years, some otherwise conservative Arizona legislators have voted for huge spending increases. Arizona’s general fund budgets have increased by an average of 11 percent per year since 2003. That’s more than double the average increase in Arizona’s population plus inflation, and significantly higher than increases in personal income.
If you ask would-be fiscal conservatives why they’ve voted for huge spending increases, they will often complain that they are being squeezed by mandated spending. Among the many excuses for overspending, this one comes closest to being legitimate. Mandated spending is a very real problem. In recent years, voter initiatives and activist judges have created a morass of entitlements that force legislators to spend by formula for many government services, especially in the areas of education and health care.
According to the Joint Legislative Budget Committee, mandated spending has grown from 54 percent of the general fund budget in 1996 to 66 percent in 2006. As mandated spending eats up ever-larger portions of budgets, legislators have less and less control. According to a frequently heard complaint, “Pretty soon, we won’t need a Legislature, because the entire budget will be on autopilot.”
Thanks to voter-approved and judge-made mandates, this year’s general fund budget was pegged to increase by roughly $600 million, or 6.9 percent, even before the legislative session began. That’s already higher than the conservative standard of population plus inflation, which has been averaging about 5 percent over the last decade.
Faced with mandated spending increases, legislators have two options. The Weak Option is for legislators to add their favorite spending projects to the mandated spending, and then moan loudly when Governor Napolitano adds even more spending. That is not the conservative path. The result of choosing the Weak Option is a rollercoaster budget that ramps up spending rapidly during good years, then forces either massive spending cuts or massive tax increases when revenues dry up during the next recession.
Choosing the Weak Option, Arizona’s legislative leaders submitted a budget last week that included roughly $500 million in “one-time” expenditures on border security and transportation infrastructure. The result is a $9.9 billion budget, or a reckless 13 percent increase in spending — almost double the estimated 7.4 percent increase in Arizona’s personal income for 2007. (Even a moderate knows that spending shouldn’t grow faster than income!) Worse, the budget will probably be $10 billion after legislative leaders get steamrolled in negotiations with Arizona’s big-spending governor.
The Strong Option — the conservative choice — is to pursue a four-part strategy for controlling government spending:
1) Limit the growth of government spending (or revenues) to the rate of growth of population plus inflation. Because legislators apparently cannot do this voluntarily, they should enlist the aid of the voters and refer to the ballot the constitutional spending limit known as the Taxpayer Bill of Rights (TABOR), also known as the Budget Stabilization Act.
2) Make sure that voters understand the constraints imposed by mandated spending. Every legislative press release and public address should contain the following phrase: “We would love to spend money on Program X, but because of mandated increases in spending for education and health care, there’s no money left.” If the public hears that message enough, support will build for removing some of the mandates.
3) Offset all new spending with savings in other programs. Legislators must become very creative in cutting costs. If a program cannot be eliminated or privatized, legislators should explore private contracting. Among the many policy options available are toll franchises for new highway construction, greater use of private prison space, and a more aggressive pursuit of school choice programs that get children out of expensive (and underperforming) government schools.
4) Refund to taxpayers all excess revenues above the limit. Permanent rate cuts are preferable, but one-time tax refunds will get the money off the table so that it doesn’t add to the spending baseline for future budgets. If Arizona’s politicians adopted the Strong Option now, they would return $600 million to taxpayers this year, rather than the $250 million currently proposed.
By choosing the Strong Option, conservative legislators can stay true to their ideals and beat the squeeze of mandated spending.
Chad Kirkpatrick is chairman and Tom Jenney is executive director of the Arizona Federation of Taxpayers (www.aztaxpayers.org).

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