Fiscal Responsibility
There are important reasons that voters
value fiscal responsibility in their elected officials.
Managing public money is a matter of public trust, and a
charge that should not be taken lightly. But what is
fiscal responsibility? My definition involves three
components:
wisely managing resources,
preparing for the future, and
avoiding debt.
In
Utah, we do a
good job of avoiding waste. We don’t generally have
the kinds of “pork-barrel spending” and ear-marking that is
such a problem on the national level. We have a
tradition of frugality that has required departments to run
efficiently. We have spending caps in place that
prevent runaway spending and out-of-control government
growth. We’re generally good at applying the breaks.
Still, we should always be watchful and eliminate
waste wherever possible.
But managing resources involves more
than “not spending.” It also includes assessing needs,
setting priorities, and appropriating funds as well.
This is the more difficult part of managing resources.
It’s very easy to say “no” to everything. It’s much
harder to research the state’s responsibilities and past
performance, to assess the needs in various departments, and
to decide where the money should go.
Setting the state’s annual budget is
one of the legislature’s most important responsibilities.
But effective annual budgeting relies to a great extent on a
long-term view of our state’s resources and needs.
Population growth brings increased need for transportation
infrastructure. A rising student population requires
more school buildings, more teachers, and increased
operating funds. Looking ahead can help us avoid
problems, rather than having to fix problems as they arise.
Fiscally responsible lawmakers follow the old Boy Scout
admonition to “be prepared.”
Although fiscal analysts use complex
formulas that take many factors into account, future
economic performance is notoriously difficult to forecast.
No one could have predicted, for example, the economic
downswing that followed the terrorist attacks of 9/11/01.
Similarly, we now find ourselves in an economic downturn,
facing an uncertain future, despite several previous years
of prosperity.
Making large-scale cuts in revenue during the good times can
prevent the state from meeting its obligations during more
difficult times.
A long-term view of specific tax cuts, exemptions, and
credits should be considered, and the public should be made
aware of the future costs.
Requiring five- or ten-year fiscal notes on tax cut
bills and creating an annual Tax Expenditure Budget would
greatly improve transparency in this regard.
According to
Dr. Sarah Wilhelm, former economist for Voices for Utah
Children, a tax expenditure is “any tax provision that
exempts certain persons, income, goods or services, or
property from paying taxes that would otherwise be due.”
Although tax expenditures represent indirect government
spending, revenue lost due to tax exemptions is currently
not reported to the public or used in the annual budgeting
process. An annual report detailing tax expenditures,
their purposes, the people and entities benefiting, and
estimates of lost revenue would provide valuable information
to lawmakers and the public alike. Thirty-three states
currently issue such reports.
When tax exemptions are offered to
specific businesses as “economic incentives,” they should be
attached to accountability provisions protecting other
taxpayers in the state.
If the entity receiving the tax exemption does not
fulfill its commitment to the community, in terms of job
creation and other promised economic benefits, then it
should lose the exemption and be required to pay taxes like
everyone else.
This provision is important to ensure that local small
businesses and families are not forced to carry the burden
of larger corporations.
Utah has a strong history
of avoiding deficit spending. When times have been
tough, we have traditionally cut spending rather than live
beyond our means. We have a rainy day fund to help
balance the budget when revenues are lower than expected.
Of course, state and local governments
can raise funds through bonding against future tax revenues.
This is similar to a person securing a mortgage to buy a
house. Most people cannot afford to pay cash for their
home, but borrowing for a house is a wise, long-term
investment. Because we have used this resource
judiciously in the past, Utah has a very high credit rating and has
access to low interest rates for important long-term
projects. Wise bonding can free up annual revenues for
operational expenses, preventing deficit spending.
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