Budget Math

We oppose a balance budget amendment (BBA) because of the accounting problems, the big impact, and the bad decisions that will flow from trying to balance the budget in the short term.  We recognize that we have an enormous problem but we don’t see BBA as a solution.

After we wrote that there would be a budget shortfall of a trillion dollars or so in fiscal 2019 we remembered the problem of budget math.  Our state has a biennial or two-year budget. It was always took some work to understand what the annual impact was.  Switching to the federal budget somebody might reply that we could fix the trillion dollar shortfall by eliminating the $1.51 trillion cost of tax reform.  The problem is that the tax reform score is over a ten-year period.  Eliminating tax reform would get you somewhere between a sixth and an eighth of the way there.

We need to work on entitlements. Other areas could help but that is where the money is.  The changes need to be gradual.  For example, we can start means testing on Social Security now but full implementation might come in 20 years. It also gives us time to fine-tune means testing because means testing is very tricky.

Say no to the BBA and always ask about the time frame on budget proposals.

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Balanced Budget Amendment

George Will has come out again in support of a balanced budget amendment (BBA).  In fact, George thinks it should be job one for 2018:

We will discover that point [when debt influences growth]  the hard way, unless Congress promptly sends to the states for prompt ratification a constitutional amendment requiring balanced budgets. [Emphasis added]

He also has a explicit suggestion from Glenn Hubbard and Tim Kane on what it should be.  Hubbard and Kane’s proposal

would limit each year’s total spending to the median annual revenue of the previous seven years, allowing temporary deficits to be authorized in emergencies by congressional supermajorities.

We have lived under balanced budgets at the state level and found them particularly vexing because most spending is committed when the budget shortfall shows up and then you must cut where available.  It is not a system that leads to good decisions.  In addition, or perhaps related to the first problem, there are accounting problems.  In the states an obvious problem is pensions.  The WSJ highlights New Jersey recently.  New Jersey has a new governor, Democrat Phil Murphy.

As he takes office later this month, Mr. Murphy must confront the state’s biggest problem—a pension system that is about $90 billion short of what it needs to pay future benefits.

The federal government’s obvious accounting problem is entitlements.

We like the idea of a BBA but the problem of writing the amendment, bad budgeting decisions, and the accounting problem lead us to oppose a BBA.  The federal budget is such a disaster, however, we are willing to consider that the current circumstances are worse than a BBA.

Let’s assume that the BBA George suggests has passed by June 2018 and there are no supermajorities to substantially raise taxes.  We are already in fiscal 2018 so fiscal 2019 would be the first year it applies to.  FY 2019 has expected spending of $3.93 trillion.  The spending limit is trickier because it would seem reasonable to limit to actual data.  If so the limit would be $2.775 trillion.  If we include estimated years then the limit would be $3.021 trillion.  So there would be a need for cuts and tax increases from somewhere between just under a trillion dollars to $1.2 trillion.

Sidebar: We don’t see a solution in writing the amendment by making it effective in say, 2030.  Each party is aware of the problem.  There is little interest in fixing the problem as the last two presidential elections have shown.  End sidebar.

Neither party would want to pass such rule.  Spending GOP capital on a failure is a bad idea when they might do something useful in 2018.  We know that politicians always wimp out when the “out” years come.  That is they promise to make cuts later and never do.  Reforming entitlements gets harder every year.  We expect a disaster but see the BBA as an even bigger disaster.  Sorry George.

 

 

 

The Market Strikes Back

The College Fix reports (h/t: Best Of The Web) that Evergreen State in Washington has a $2.1 budget shortfall.  Evergreen State is notorious for its behavior last year related to its Day of Absence.  If you missed it the Fix article has details.  The financial details are even more interesting:

In an Aug. 28 memo to the campus community titled “Enrollment and Budget Update,” officials report that fall 2017-18 registration is down about 5 percent, from 3,922 students to 3,713. But the problem is nearly all of the students they lost are nonresidents, who traditionally pay a much higher tuition to attend, officials explained in the memo, a copy of which was obtained by The College Fix. [Emphasis added]

At Evergreen State, like almost any four-year state university, out-of-state students support in-state students.  According to Evergreen State:

Evergreen’s tuition is about $6,700 per year for Washington state residents and about $24,000 per year for nonresidents.

Attracting and retaining out-of-state students is a critical budget item for for many if not most state schools.  The reason is that in-state tuition is somewhere near the marginal cost of education but out-of-state tuition is much higher than the marginal cost.  Is is easy to see why as the $17,300 per student difference times approximately 200 students (see bold above) would be almost $3.5 million.  As the budget shortfall is $2.1 million we would suggest that nearly all bolded in the first quote above might be an overstatement.

It is hard to be sure that Evergreen and the University of Missouri are being punished for their behavior.  It does look likely that that is the case for Evergreen because the out-of-state students are in demand and they can go almost anywhere for similar prices. It looks like the market is offering advice to state schools.  Will they take it?

 

Teaching Universities A Lesson

There is a clamor to teach public universities a budgetary lesson for their behavior towards free speech and intellectual diversity.  A few weeks ago Tiana Lowe at NRO recommended that we defund Evergreen State University in Washington:

Public funding constitutes 46 percent of Evergreen’s annual revenue — $55.2 million from state appropriations and $32.3 million in state and federal grants. A public college that cannot defend the First Amendment or even the basic safety of its professors doesn’t deserve a cent of the taxpayers’ money.

Republicans in the Washington legislature have introduced such a bill.

In North Carolina it is about the UNC School of Law as Frank Pray reports:

The North Carolina Senate’s budget proposal, now being debated in the House, includes a $4 million reduction in funding to the law school, constituting nearly a third of the school’sbudget.

We agree with Frank when he says:

Instead of incentivizing greater intellectual diversity, in the long run it could endanger the school’s academic standing and embolden campus radicals. Case studies in other states show why legislators should think twice about this kind of meddling.

We think that such moves will drive all of the state schools to the left in support of their colleagues.  It might feel good to conservatives to batter the crazies financially but it will not lead to conservative results.  We need to  find ways to stop explicit behaviors and create incentives for free speech and intellectual diversity.  It is hard legislative work to create such incentives but that is the direction that we need to go.  As in most situations, the conservative solution takes time and effort.

 

University Funding Dilemma

There is a battle over the largess for the University of Wisconsin System is Governor Walker’s new budget.  The local paper puts it nicely:

University of Wisconsin System leaders are asking the Legislature to change how proposed new higher education funding in the next state budget would be distributed, saying the Board of Regents — not lawmakers — should write the rules for dividing that money among UW campuses.  Their idea would be a major shift from Gov. Scott Walker’s 2017-19 budget, which laid out a detailed plan for distributing $42.5 million in new funding for UW based on how campuses ranked against one another in a series of metrics meant to gauge their performance.  System President Ray Cross and UW-Madison Chancellor Rebecca Blank said Thursday that letting the Board of Regents decide how to measure UW institutions would be more effective.  [Paragraph breaks eliminated]

The conservative answer is to let the folks closest to the situation make the decisions.  In this case, we should support UW-System over the legislature.  The problem is that conservatives are attuned to human nature.  The folks in UW-System have not been keen to make decisions about changing campuses.  In our time in campus administration, UW-System made lots of cuts and a few additions to our budget.  All the changes were based on our percentage of the System.  It was 4.22 percent as we remember and we thought, “All those folks in System Administration could be permanent replaced by a spreadsheet created by one of our students.”  UW-System has also resisted calls from the legislature and governor about reducing administrative bloat.

Metrics are subject to manipulation and it is unclear exactly what metrics the are.  It is clear that the metrics only apply to the additional funding.  State funding is substantially less than half of UW System funding and the additional funding is a tiny percentage of that.  We go along with the Democrat,Gary Hebl, with a caveat:

“The funding (UW gets) from the state is really a very small portion of what the cost is for university operations,” he said, “so the idea of us in the Legislature micromanaging the university system is something that’s alien to me — I don’t like that idea.”

The legislature needs to evaluate what System does and reward them if they spend it wisely.  There would be bonus points if they actually reallocate some of its base budget.  The article gives a glimpse of the history:

Murphy (R) noted that the Board of Regents has always had the power to implement a performance-based funding system but hasn’t — so some might question whether lawmakers should rely on the board to do so now, he said.  “There’s a different approach within the board, and a sense of embracing this,” [UW System President] Cross responded. “We believe this is an area where we need to improve.” [Paragraph breaks eliminated]

Cross is absolutely right.  Late would be better than never.  We encourage the legislature to trust but verify.

Strange Expression: I Love PBS

One of the nonsense items on my Facebook feed is, “I love PBS.”  We suppose that this means that they want the federal government to support PBS.  The Donald has recommended otherwise for PBS and NEA.  Michael Tanner covers the NEA at NRO.  Read it all but this is nicely put:

Art is deeply personal. It touches the core of our being, and helps form our outlook on the world, even our fundamental belief systems. That is one reason why authoritarian regimes have long sought to control art, repress it, or use it for propaganda. For many of the same reasons that we demand separation of church and state, we should want the separation of art and state. It is more difficult to speak truth to power when power pays your bills.

It appears when folks say they love PBS (or NEA) they mean that they want the people with guns to come take money from other folks to fund it.  We don’t agree with either being in the federal budget.

We think that eliminating federal funding of PBS will be great for it.  Just as Michael explains how much funding is available for the arts, getting off the federal teat will be great for PBS.  PBS should take the bull by the horns and refuse federal funding rather than waiting for the shoe to fall.  Donations will skyrocket and make up the difference many times over.

California Media Arithmetic

The State of California has current budget woes in addition to its long term problems with its pension funds.  Here is a longish quote from the AP but we need it all:

SACRAMENTO, Calif. (AP) — Gov. Jerry Brown’s administration miscalculated costs for the state Medi-Cal program by $1.9 billion last year, an oversight that contributed to Brown’s projection of a deficit in the upcoming budget, officials acknowledged this week.

The administration discovered accounting mistakes last fall, but it did not notify lawmakers until the administration included adjustments to make up for the errors in Brown’s budget proposal last week. The Democratic governor called for more than $3 billion in cuts because of a projected deficit he pegged at $1.6 billion.

“There’s no other way to describe this other than a straight up error in accounting, which we deeply regret,” said H.D. Palmer, a spokesman for the Department of Finance.

The agency followed its normal practice by waiting to report the errors in the governor’s next budget, he said.

Brown’s deficit projection was driven by more than just the accounting error, Palmer said, noting that California tax collections came in below expectations for most of the first half of the fiscal year.

So they miscalculated by $1.9 billion.  Bad things do seem to happen to liberals.

Sidebar: Well, the article lists the Medi-Cal errors in millions as $487, $913, and $573 and that adds to $1,973 million so the correct rounding to a tenth of a billion is $2.0 rather than $1.9.  End Sidebar

More important and more confusing are the projected deficit and the amount of the needed cuts.

The deficit is put at $1.6 billion but the errors are larger than that and CA tax collections are below expectations.  Why is the deficit not substantially in excess of $2 billion?  That number might be consistent with the need for more than $3 billion in cuts.  It might be biennial math like we have in Wisconsin where there is a two-year budget cycle.  Or there might be two fiscal years in discussion.  Or reporters might be innumerate.  They owe us a better explanation of California’s budget woes.