Posted by Kim Reeve Delong & Brett Kincaid on February 15th 2013
Spending caps are budget gimmicks that cause more problems than they solve. They have failed to work in the past, and there is no reason to believe they will work now. Lawmakers need to be able to react and adjust to changes in the budget and the needs of critical programs. The inevitable outcome of these arbitrary caps means less investment for public services - like roads and schools - that serve as the cornerstone to economic development.
Not only would HB1041 put arbitrary spending caps on state general revenue, the bill's language is so ambiguous, there is no way to know exactly which gross domestic product number should be used in the calculations, the current or real GDP? (The current GDP is calculated with today's actual dollars, not including inflation. The real GDP is calculated including inflation. If lawmakers choose to make spending calculations based on current GDP, it will hamstring the budget even further). Without this clarification, there is a possible gap of millions of dollars between the two numbers.
The chart above shows how much the state spent over the last three years. The blue line is what we actually spent. The yellow line shows the level at which state spending would have been constrained were a spending cap based on real GDP imposed over the course of this time. While it is reasonable to assume that calculations will be completed using the current GDP estimates (RED line), HB 1041 does not specify that. This ambiguity puts all services at significant risk.
The next chart takes a look at the impact of this arbitrary spending cap on state services, assuming K-12 education adequacy and Medicaid are fully funded. Corrections and Child & Family Services receive their funding out of the remainder of the budget, which as you can see shrinks very quickly once these caps are in place. The gap between what the state spent on these programs (blue) and what they would have been able to spend (yellow or red, we don't know) is enormous.
Arbitrary spending caps do nothing to reduce the costs of protecting our kids or keeping our communities safe. The only thing spending caps accomplish is handing over legislators' decision-making responsibilities to a formula. That puts the budget on autopilot - even if it's headed for a brick wall.
The chart below shows what the state spends on child and family services (in blue). This amount is arguably too low already. The red bar shows how much the state would be able to spend on these programs if an arbitrary spending cap was written into law. Arkansas already dedicates far too little resources for protecting at-risk kids from predators. The Department of Child and Family Services has been stretched far too thin for years. They already do not have the resources they need to investigate and provide follow-up services for all abused or neglected kids in Arkansas. HB 1041 would make their job even more difficult by slashing their budget under this reckless Spending Caps bill.
Spending caps do not ensure tax fairness or prioritize spending. They simply tell lawmakers that our tax dollars cannot go to investments we all want or basic protections we all need. That's why ideas like this have failed to gain approval in any state other than Colorado, which ditched the idea once citizens saw how badly financed their schools, roads, and prisons became once the caps were in place. Arkansas can learn from Colorado's mistakes and not get HOGTIED by arbitrary expenditure limits.
Legislators also need to understand how HB 1041 would impact public safety. Corrections facilities, prison guards, and parole & probation programs require significant state support. Without them more criminals would roam the streets, putting all of us at risk. Under this bill to cap state spending, the state would have spent almost $20,000,000 less on those services this past fiscal year. And they would forever be burdened with small increases in funding, never adequately serving the needs of the public.
In addition to putting the public at risk, these spending cuts create a fundamentally flawed formula for capping state spending and make it impossible for the state to pay for important services. This means large, annual cuts that get deeper and deeper overtime with no hope of ever catching up to current needs.
Because of the recession we are investing less in education, transportation and other services - like child protection and prisons - than we have in prior years. Under HB 1041 future recessions will be even worse. By forcing the state budget to grow by a fixed amount, Arkansans will have fewer options the next time they are out of work or in need of health coverage. Economic downturns require the government to stabilize the economy when private entities decide to hoard their money and stop spending. HB 1041 prevents the state from providing for the general well-being of all Arkansans. Capping state spending now will make it impossible for us to regain the ground lost during recessions like the one we just experienced.
Lawmakers already have the ability to do everything outlined in HB 1041. They do not need a new law to limit spending. Forcing future legislators to abide by their demands hurts the Arkansas people and the legacy of the 89th General Assembly.