Budget Cutting Myths, Part Two

By Marc Korman.

Last time we examined a couple of budget cutting myths, which elected officials at the local, state, and federal level should remember as they try to cut deficits. Today we will examine the last three myths.

Myth#3: We Can Solve the Problem if We Just Cut Enough

Filling a budget deficit involves two major tools: cutting and raising. Budget cutting is the popular one. Raising means finding new sources of revenue, whether they be changes in tax policy or more targeted user fees. With budget deficits as large as they are at all three levels of government, it simply does not make sense to fight the problem with one hand tied behind our backs. Any serious proposal to plug the deficit will require changes in tax policy, particularly at the state and federal level where policymakers need to consider combined reporting, gas taxes, alcohol taxes, income taxes, the inheritance tax, and how much of annual income payroll taxes apply to.

But just as cutting without raising makes little sense, so does raising without cutting. There are no doubt government programs that can be cut (I would start with the Maryland Stadium Authority) and those should be considered along with any tax changes.

Myth#4: If We Just Reel in Appropriations, We Can Solve the Problem

A large percentage of government spending is not based on the annual budget process in Washington, Annapolis, or Rockville, but is the result of other legislation setting their funding level. Federally, the distinction is between discretionary and mandatory spending. Discretionary spending accounts for approximately $1 trillion and is the annually set appropriations for many government programs such as defense spending, funding for enforcement of environmental laws, and NIH research. Mandatory spending is the remainder of the federal budget, which is required spending for entitlement and other required expenses such as Social Security, Medicare, and servicing the national debt.

At the state level, approximately 50% of state spending is Mandated or Entitlement spending. This is spending based on a statutory or constitutional requirement designating a specific amount to be appropriated or formula to be used to determine the payment or requiring benefit to anyone in a qualifying group. These mandates of over $12 billion primarily go to education and healthcare. Maryland also has another category of mandatory spending, mandated purposes, but these allow more discretion for their specific use.

To address large budget deficits, major legislative changes are needed in the drivers of these mandatory or mandated costs. There are thirteen formula mandates in Maryland that automatically adjust for inflation. Healthcare costs at the federal level are driven by an aging population with access to Medicare under a Fee-for-Service model that rewards volume of services over quality. Dealing with issues such as these is not just part of the budgetary process, but requires far more comprehensive legislative action.

Myth#5: Strong Funding=Strong Policy

There is an old adage that funding=policy. To a large extent, that is true. In the 1800s, a series of US Presidents began declaring National Parks and Monuments to conserve the west, but until military patrols were authorized and funded to prevent poaching and exploitation, that conservation policy was meaningless.

Most Maryland and Montgomery County politicians will answer the question “what would you cut?” with a long discussion of our strong education system. If you saw Political Pulse the week of August 3rd, you saw a variation of this when host Charles Duffy asked some Maryland legislators what should be cut. The answer primarily involved Education Week naming Maryland number one in education and that education was off the table. The O’Malley/Brown Administration has already said that K-12 education will not be cut.

But funding alone does not determine good policy, it just goes a long way towards supporting it. For example, the Washington Post recently recognized Montgomery County’s peer review program for teachers as a national model. Although strong funding for teacher pay helps the program, it is not a strictly budget driven enterprise. Similarly, no progressive would want to cut healthcare, the environment, or other cherished programs. But using a scalpel instead of a hatchet, smart legislators may be able to find savings in these important categories of government spending while still maintaining good policies.

As elected officials at every level of government figure out how to address budget deficits, they should keep these five myths in mind.