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Finding the Money to Pay the Bills

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By Lowell L. Kalapa

Whether the public employee unions would like to believe it or not, the other shoe has dropped in the debate over whether or not the state, or for that matter the counties, has the money to meet its obligations under the arbitrated contract with the state’s largest public employee union.
In this case the shoe is the announcement that the state – and the counties – will have to come up with a good chunk of change – $93 million for next year alone – to fully fund the employees’ retirement system. This shortfall occurred when lawmakers “skimmed” what they thought were the excess profits the system’s investments were making during the stock market’s hey day. Of course, when the market went south, managers of the system realized that there wouldn’t be enough money in the system to meet its future obligations.
And like refinancing the debt discussed a few weeks ago, policy makers were hoping that the market would come back to once more replenish the pot or the economy would improve so much that the tax revenues would come rolling in in the massive amounts needed to meet the shortfall.
However, now that the market has made the correction on what were overpriced equities, it appears that the comeback will be a long time coming. And because lawmakers gave so much away in tax incentives and tax credits, even a recovering economy will not help the state’s tax revenue picture for sometime to come.
The result is that both the state and the counties will have to come up with the funds to meet the obligations of the state retirement system. And just where will government find the money to meet this obligation?
What is known is that government just does not have the money and the proof is in the recent track record of both state and county governments. State lawmakers have had to raid special funds for the past eight years in order to balance the budget while county officials have not only resorted to transferring balances from dedicated funds but also imposed new charges for all sorts of government services that used to be underwritten by the real property tax.
All of this financial wizardry of raiding special funds and paying for specific services with user charges and fees has been undertaken to avoid having to raise taxes. Because the money could not be found under some rock, elected officials at both the state and counties have avoided doing the really tough job of deciding what should be priority programs for government. Elected officials have pandered to constituents by funding this or that program while neglecting the core services such as education, prisons, human services, parks and sewers.
As a result, constituents have come to believe that many of these other programs are essential to the community and demand that they be funded all the while complaining that taxes are too high. The truth of the matter is that the taxpayer is his or her own worst enemy because they demand many of the services that government now cannot afford. But that should not let the elected official off the hook.
No indeed, the elected official is there to make the decisions and set the priorities. And elected officials should be held accountable if they cannot set those priorities for what limited taxpayer dollars they have at hand. Because the legislature has failed to set those priorities, taxpayers will more than likely be asked to pay even more in taxes as obligations, such as debt services and funding of the retirement system, come due.
Would elected officials even dare to raise taxes? In the end, lawmakers have always responded to shortfalls when there is no fund to raid with a fee or user charge increase. For example, this year after trying to grapple with the problem of providing emergency medical services for the past five years, lawmakers resorted to an increase in the state motor vehicle registration fee. So it is almost a sure bet that when lawmakers can find no special fund to raid or some user fee to increase, they will be hard pressed to raise taxes.
So is a tax increase inevitable? Well, maybe. If lawmakers can’t muster the political will to do the other unmentionable – cut spending – then, yes, a tax increase will have to be in the cards. If government can’t operate more efficiently with less people by using technology or a novel approach to providing public services, then yes, taxes will have to be increased.
As for taxpayers, the choice is doing with less public services or paying more for government in higher taxes, fees and user charges.

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