Answers to the $400 Million Question

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Answers to the $400 Million Question

by Ari Armstrong, July 28, 2005

Vincent Carroll's "On Point" column for the Rocky Mountain News is one of my favorite newspaper columns. It pains me, then, when he succumbs to silliness, as he does on July 27. Actually, he addresses four issues, and he brings his usual penetrating insights to three of them, and three out of four ain't bad. Yet in his section about the budget he falls for the self-serving funny math of a bureaucratic number cruncher.

Carroll writes, "If you're inclined to vote against Referendum C... and want to confront the issue with intellectual honesty, you need to answer a $400 million question. Explain how you expect lawmakers to trim that much revenue in fiscal year 2006-'07 from unprotected programs (hands off K-12 education and Medicaid, in other words) if Referendum C fails to pass. The $400 million estimate is the latest from the Office of State Planning and Budgeting. That immediately makes it suspect in the eyes of those who now revile Gov. Bill Owens as a traitor to the cause of fiscal restraint. But OSPB employed the same methodology before Owens was so much as suspected of heresy. Critics of C might retort that slightly more than half of the $400 million is slated to replenish the state's reserve - as if meeting this statutory requirement should be a matter of legislative whim. They might also argue that whatever the real needs of the state, C is overgenerous -- and they'd probably be right about that."

At least Carroll's final sentence is on the right track. As I've already reviewed, the Office of State Planning predicts that Referendum C would bring in $498.3 million in 2006-07.

The first answer to Carroll's question is simply that the $400 million figure is arbitrary. The budget is expected to increase next year, not decrease. So the alleged $400 million in "cuts" is really just a reduction in the increase that some desire. The governor's economists merely assume that the legislature must increase state spending in certain areas disproportionately, and thus "cut" funding in other areas -- i.e., redirect funding from some programs to others.

The budget numbers from Legislative Council reveal the magnitude of already-scheduled budget hikes. True, the general fund, a portion of the total budget, took a hit in fiscal years 2001-02 and 2002-03. However, since 2001-02, the total budget (which has increased every year) has increased from $12.96 billion to $14.61 billion, a 13 percent increase. By next year -- without Referendum C -- the general fund is expected to grow to its largest level in state history. The general fund is expected to increase relative to its previous high-water mark in 2000-01, which was $6,500,800,000, to $8,209,100,000 in 2009-10, a 26 percent increase.

The governor's economist reaches his $400 million figure by making the following bogus assumptions:

1. Spending on the reserve fund must increase from $84.1 million to $238.8 million.

2. Funding for Medicaid and K-12 education must increase by "some $200 million."

Sure, when the legislature rapidly increases spending on certain programs disproportionately to already-scheduled budget increases, it must "cut" spending on other programs, even as the total budget increases.

In my criticism of the governor's pet economist, I already explained why Carroll's claim that legislators must keep their "hands off K-12 education and Medicaid" is false. The legislature can and should address both those issues. In can address K-12 spending by referring a measure to the ballot next year to fix Amendment 23.

When it comes to Medicaid, I've already noted one problem with the program: it purchased Viagra and other sex drugs for sex offenders. Here's what Democratic State Senator Dan Grossman told the AP: "The fact that our system is so loose and so ad-hoc that it would allow sex offenders to receive sexual enhancers at public expense is not that surprising, but it [is] outrageous nonetheless."

Perhaps Carroll caught the New York Times July 18 article titled, "New York Medicaid Fraud May Reach Into Billions." Well, I don't have the resources to conduct that kind of study for Colorado's Medicaid program. But Carroll's paper does. Rather than repeat the claims of the governor's economist, why doesn't Carroll attempt to convince his publisher to conduct a study of Colorado's Medicaid program? If Grossman is correct that the system is "loose" and "ad-hoc," such a study seems to be warranted. (My hope is that either the News or The Denver Post is already working on such a study, unknown to me.)

Even absent any further findings of waste and/or fraud in the Medicaid system, the Independence Institute's paper Priority Colorado already describes how the state might save $45 million to $90 million on Medicaid. If Carroll disagrees with that assessment, perhaps he can explain what's wrong with it.

The same paper outlines numerous other ways to save money -- does Carroll dismiss all those suggestions?

In addition, the paper I'm working on regarding wasteful state spending will outline ways to find significant cost savings. There are also a number of other questionable projects that merit review, as they seem to involve wasteful or low-priority spending. (I realize this part of my answer is a little vague at this point, but to quote the late, great James Doohan, "I'm working just as fast as I can, Cap'n!" Unfortunately, given restraints of time and resources, there's little chance I will be able to pursue even close to all my leads for sensible cuts within the next couple months.)

Carroll claims the $400 million figure is "suspect in the eyes of those who now revile Gov. Bill Owens as a traitor to the cause of fiscal restraint." However, the figure is not suspect because it came from Owens's economist, it is suspect because it relies on bullshit assumptions.

Carroll writes, "Critics of C might retort that slightly more than half of the $400 million is slated to replenish the state's reserve -- as if meeting this statutory requirement should be a matter of legislative whim." Nobody is arguing that the reserve should be matter of legislative whim. However, in recent years it has been precisely that. My previous point was that the portion of the budget that dips, according to the governor's economist, is "general fund appropriations," and it dips only next year before increasing to higher levels. The main reason for this dip is the increased spending on the reserve account. I would have no problem spreading out this increase in reserve spending out over an extra year in order to resolve this kink, but perhaps others will disagree with that suggestion.

Even if the reserve spending increases as predicted, arguably a good thing, that still doesn't imply the state should collect and spend even more tax money. Essentially, the governor's economist is arguing that taxpayers should fork over even more money because the legislature failed to meet the reserve requirements in previous years. Put another way, the argument is that taxpayers should reward political irresponsibility by giving the same politicians more money. All that would do is train politicians to be as irresponsible with tax money as possible so as to create the illusion that spending is not sufficiently high.

Even with the increased reserve spending, there is plenty of wasteful and low-priority spending that can be cut such that spending remains within the already-scheduled spending hikes. The legislature is already working with a budget expected to increase every year into the future. If the legislature cannot find enough wasteful and low-priority spending to cut to keep pace with annually increasing budgets, the answer is to find some new legislators.

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