A road map for sound state fiscal policy
A Road Map for Sound State Fiscal Policy
Prepared by C Morgan Edwards
September 30, 2010
Several years ago the Heartland Institute of Chicago, IL compiled data addressing as to what states could do to establish sound fiscal management policies and practices This is a summary of the findings and will address the major elements of the study. While there are specific actions defined and addressed, there may be variations as to how to achieve these goals and objectives.
A first question that maybe asked is” why do we need principles for state fiscal policy?” For most states by constitution they are required to complete and approve a balanced budget for state operations. This is primarily for the general operations of the executive branch. There are many other elements that may also include and this can vary from state to state. This budget can have a great impact on all of the local budgets and often is under pressure from the federal budget. Federal budgets, however, are not required to be balanced. The federal budget, while setting parameters for expenditures, also serves as an indicator of the state of nation’s fiscal status. For an example, a bench mark is that at 5% unemployment, the nation is stable. If the unemployment is below 5%, there is generally a surplus in the federal budget. Above 5% there is deceit.
There is no greater action for a state general assembly than to address the revenue (taxes, etc.) and spending of a state budget. Again, it must be noted that these actions often influents both the federal and local fiscal actions. For most states, only the general fund budget is addressed. All too many time dedicate and pass through moneys are not reviewed or considered as they may impact overall spending. It is most important that members of a general assembly have a very goodknowledge of all the elements and factors involved.
The Heartland Institute by their study has given some insight as to some principles for consideration and suggestion as to what should be followed. One basic question maybe “Why do we need Principles of State fiscal policy?” They found that research of the most recent years reveals that from 1991 to 2001 state spending grew 88%, an average of 6.78% annually, while the states average revenue grown was only 4.63%. Today, the total tax burden is 31.6 % of personal income. The typical taxpayer must work 116 days a year just to pay their taxes.
Heartland suggested that there should be ten (10) basic principles/policies that a state should consider as they make budget considerations.
Before we review the principles and/or policies, let us look at what legislators are faced with as they go about their chores.
Taxes: How high or low should they be what should be taxed, and what are the consequences of the changing tax policy?
Budgets: When should states outsource the production of services to private providers? How does the budget process affect spending levels and how can it be improved?
Economic Development: What policies should the state pursue to encourage maximum economic growth?
Schools, Health Care and Public Employees: What policies have other states pursued to control spending and achieve high performance in education, health care and public-sector employee policy?
Now let us look at the suggested fundamental policy topics:
1. Keep tax low
2. Do not penalize earnings and investments
3. Avoid sin taxes
4. Create a transparent and accountable budget
5. Privatize public services
6. Avoid corporate subsides
7. Cap taxes and expenditures
8. Fund students, not schools
9. Reform Medicare programs
10. Protect state employees from politics
There is much that can be said about each of these items, but this article will not do that. This writer believes that each reader and/or participant can reach their decision as to how to use this information.
This writer is a former Assistant Secretary at NCDOT from 1987 to 1993, a graduate student of the Wharton School at the University of Pennsylvania in pursuit of a Masters of Government Administration, and a 2010 candidate for N C Senate, District 37.
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