The new year brings challenges galore. For me, the first, as trifling as it might seem to others, is trying to remember to date stuff ‘05 instead of ‘04. On a more serious note, the arrival of the new year signals the return of the Legislature.
Though there are few things that all Mississippians can agree on, the sad shape of our state’s financial affairs is probably one that would be undisputed. If the financial projections coming out of the legislative budget office can be believed, and I do believe them, we are in for one very tough session.
According to authorities, such as Rep. Cecil Brown of Jackson, the state’s budget hole is deep and getting deeper. I’ve known Rep. Brown for more than 30 years, and if Cecil says we got trouble, then we got trouble.
Though the solution to the problem is elusive, the cause is obvious: during previous sessions, legislators decided to spend more than the state can afford to pay. To make matters worse, they failed to face the problem head on when it first became apparent and continued the spending binge by raiding special purpose funds. Now, the special purpose funds are gone and there is no choice but to face the music.
Government finance is very similar to personal finance. When you find that you can’t pay your bills you either increase income or cut your expenses, or both. Far too many times, both governments and people make the poor choice of borrowing money to spend today in anticipation of higher income later. In most cases, this strategy leads to catastrophe as it has with our state finances.
For individuals, increasing income means getting a higher-paying job or getting a second job. For government, it means raising taxes or fees. Government growth should be funded not by raising tax rates but enjoying higher tax revenue that comes from robust economic expansion. Raising the tax rates puts a significant drag on the economy and discourages expansion. The result is similar to the economic dampening caused by higher interest rates.
Clearly, leaving tax rates alone and waiting for economic expansion to solve the problem is not going to work this late in the game. That leaves cutting expenses as the only alternative. And folks, cutting expenses is no fun. It’s going to be really tough to do it since nobody will voluntarily accept reduced funding. We should prepare for unprecedented wailing and gnashing of teeth.
Squealing like a pig
Bureaucrats and politicians threatened with budget reductions will squeal worse than a cornered pig. They will grossly overstate the impact of budget cuts in a desperate effort to maintain their individual agencies.
Get ready for the histrionics: bridges will collapse, children will starve, famine will plague us, and we’re all going to die if one single dollar is cut. None of these dire predictions are likely to be realized. We’re going to be just fine.
Nonetheless, these troubled times do present a good opportunity to think about government spending priorities. We’ve got to limit our expectations of what we want government to provide or raise taxes to pay for what we want.
Across-the-board cuts in every agency are likely this year and may be our only choice at this point. However, to avoid this mess in the future, we need to define the proper role of government and prohibit the Legislature from crossing that boundary and sticking the state’s nose into areas where it doesn’t belong.
For instance, you would think that with the repeated failures of state government entering into the private sector we would have learned our lesson. Obviously not.
The failed beef processing plant is merely the latest casualty to be added to the list. Clearly, the state had no business in putting up the capital to finance a private venture to slaughter old cows — or anything else — and the taxpayers will pay the price for this financial indiscretion. This is not the kind of thing that instills confidence with the voters and it is my hope that those responsible will be, indeed, held responsible.
Some of us will recall a similar debacle with the Magnolia Venture Capital Fund several years ago. The fund was created by the Legislature in the mid-1990s to provide venture capital for budding Mississippi entrepreneurs who couldn’t get funding through traditional channels. Now, on the surface, this seemed to be a laudable undertaking and everyone felt all warm and fuzzy about spurring new businesses in our state.
That didn’t happen.
Actually, no legitimate loans were ever made and the fund’s only expenditures were payments for exorbitant meeting expenses in faraway places for the members of its board of directors. Several political careers were wrecked as a result of the Magnolia Venture debacle.
Will the outcome of the beef processing operation be similar to Magnolia Venture? It seems likely that it will. Political careers will be smashed and, once again, the taxpayers will be left holding the tab.
What should we learn from these instances of state government going into business? Don’t do it. It’s as simple as that. Government has no skill for operating in the private sector and should treat temptations to cross the line like handling an irritated skunk. Go back the way you came and run, run, run.
This legislative session promises to offer a plethora of subject matter for critical and irreverent columns and I shall pounce upon the opportunity. No one is going to emerge from this financial juggernaut unscathed, so we might as well watch the legislators scramble and attempt to re-frame reality, frighten the public and blame it all on someone else.
Ain’t politics fun?
Thought for the Moment
This country has nothing to fear from the crooked man who fails. We put him in jail. It is the crooked man who succeeds who is a threat to this country. — Theodore Roosevelt
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at email@example.com.