Solving The World's Problems With Money

The State Budget

The Long Bill, as they call it, should be introduced in the General Assembly this week. It is the euphemism used for Colorado's budget. There won't be many surprises. Referendum C and unexpectedly high tax collections notwithstanding, the vast majority of the state budget is already spoken for. Things like mandatory funding for Medicaid, K-12 education, and corrections, which aren't easily adjusted, make up most of the budget.

According to the Colorado Department of Revenue, the state budget breaks down as follows:

Education 43.9% [K-12 and higher education]
Social Assistance 25.7% [Medicaid is the biggest line item]
Business Community and Consumer Affairs 7.8% [Much of this is users fee financed]
Justice 7.3% [Corrections in the biggest line item]
Transportation 6.6% [A large share is ear marked from gas taxes and federal funds]
Other 8.7%

Where does it come from?

Taxes 47.5%
Federal Sources 30%
Charges For Goods and Services 13.1%
Licenses, Permits and Fees 3.9%
Interest and Rents 2%
Other 3.6%

Colorado also kindly provides every taxpayer with a detailed breakdown by income class of what federal, state and local taxes you pay.

Critics claim the budget is mostly fraud, waste and abuse. All of those are present. But, neither fraud nor abuse are a significant part of state funding, and to the extent that they are, they are hard to reduce. Probably the biggest sources of fraud in the budget comes on the Medicaid line and the tax receipts line. The cat and mouse game between providers who want to get a little more for medical services for which they are paid a below market rate, and Medicaid administrators trying to shut down inappropriate reimbursement requests (many of which will be excused as "mistakes" when the providers are called to task for them) is seemingly eternal. And, sole proprietorships are not more honest in their Colorado returns than they are in the federal returns from which the state returns are derived.

Abuse is even more rare. For the most part, it involves big businesses playing games with their tax reporeting, and small communities of contractors playing games with the bidding process for state contracts (the big software contracts recently entered into with disasterous results by several state agencies to big consulting companies are the most recent examples). There will always be, of course, the occassional state employee taking unreasonable travel and entertainment expenses. But, the dollar amounts involved in this kind of practice tend to be modest, and the risks associated with screwing up can be career ending, or even result in criminal charges. Taking a per diem is usually a far safer alternative (although as Mr. Stengle's case indicates, pushing the boundaries there, even when legal, can be perilous).

Waste is the most common of the items in the dreaded trio of government misuse of funds, and this is in large part because it is so subjective, and because it is so intimately tied to policy considerations.

Is it waste to put someone who has stolen four suits worth $600 combined from a dry cleaner in prison for four years (the average sentence for that offense) at a cost of in excess of $80,000? Is it waste to spend $14,000 a head to keep a small rural school district open, despite its very high non-instructional expenses per student, when urban school districts like Denver spend less than half of much and spend a far larger percentage of those funds on instructional expenses (an issue that has been certified to be on the ballot this year under the rubric of the 65% solution)? Is it waste to subsidize the tuition payments of children of upper middle class parents in the state at state colleges and universities? Is it waste to use tax funds to lure tourists to Colorado's already profitable ski resorts?

Most people wouldn't call those expenditures waste. Most people would call them policy decisions. And, the essence of the budgetary process is making those decisions. The end result, the Long Bill, must receive majority support from budget and appropriations committees, must be approved by both houses of the General Assembly, and must escape the Governor's line item veto pen, while complying with detailed state constitutional limitations and federal mandates on revenue increases, a balanced budget, and spending on particular programs. The line item veto leaves Colorado with few of the "road to nowhere" type projects that might farely be called waste because they serve no public purpose at all, but getting a candidate re-elected, compared to the federal government.

The Big Picture

The truth of the matter is that a great many important policy debates right now are matters of financing. With a few exceptions ensnared in the abortion debate, there is no significant political debate over what good medical practice involves, the debate is over how best to pay for it.

There is a major debate going on over how to provide good educational services, but there is no consensus in either party on one goes about doing it, and as a result, that part of the debate is muted in the face of the debate over how to, and how much to devote to education financially.

Likewise, while there is considerable dispute on a partisan basis over the impact of sentencing on crime and justice, the force that drives the sentencing debate is the cost of imprisoning those who are convicted. Many states have substantially softened sentences for non-violent offenders, not because they are any less tough on crime than they were when they enacted it, but because their state budgets can't afford to build more prisons.

Tort reform debates are ultimately debates about how to finance the cost of accidents. Colorado's decision to abandon no fault car insurance, for example, was basically a policy decision to shift the cost of medical expenses connnected with car accidents from car insurance policies (which were universal, at least in theory), to health insurance policies (which is not universal).

The big debates in federal public finance are over the questions of whether or not the budget should be balanced or not (the not faction definitely has a better track record here), and whether taxes that are collected should come from earned income or investments and inheritances (the faction in favor of shifting almost all taxation to earned income has the upper hand of late).

Not all problems can be solved with money. But, a large share of problems that are within the competency of government to solve at all, can be.