(Released on 6/29/08)
Now that the governor has approved the supplemental budget, various interest groups are lining up to request that the money be released. While some of the appropriations are for the next fiscal year, others are for the fiscal year that just closed, while others are for past fiscal years.
For example, legislators are joining in with nonprofit organizations to demand the funds be released for grants in aid that were approved by the legislature to supplement various programs provided by nonprofits in the health and human services sector. Then there are the doctors who have provided medical services to the indigent and poor under the Medicaid program asking the governor to release state funds to reimburse them warning that, if not, then the federal matching dollars will be lost. Even the media is jumping on the bandwagon asking the administration to release the funds for both the grants in aid and the Medicaid reimbursements.
The problem with the limited view each constituency has is that there is a much bigger picture of state finances that must be taken into account, especially in light of the recent revisions made by the constitutionally mandated state council on revenues. In a matter of months, the outlook for state general fund tax revenues plummeted by more than $200 million for the two years of the biennium. That reduction would not have been as bad had the change taken place at the beginning of the biennium when lawmakers were still working on the two-year budget. But this reduction comes midway through the two-year budget cycle when a good portion of the originally projected tax revenue has already been spent.
However, what is causing state number crunchers to be even more cautious is the fear of the unknown. The unknown in this case is not knowing how much of an impact some of the tax provisions lawmakers approved years ago will have on the state general fund tax collections. By far the biggest unknown is the targeted business tax credits like those available for high technology research and development, infrastructure improvement and investment. Because there is no limit on the amount and number of credits that may be claimed, the sky is the limit and this is what has budget analysts worried. One might suggest that based on past experience one can estimate the impact, but there is nothing like human behavior and the investment opportunities that will attract investors. So budget analysts have to take a conservative course of action lest the amount of credits claimed exceed the ability of the state to make good on those credits while still having enough money to keep the state running.
If there is anything that the wishful nonprofit organizations and medical professionals should be protesting it is the open-ended tax credits that must be paid regardless of worthiness of the investment, be it in high technology film production or ethanol production. The tax credits represent poor tax policy as they are available to those taxpayers who have the means to make the investment and they lack accountability as there is no means by which the taxpayers who foot the bill know who is claiming the credit and in what amounts.
So unlike an appropriation, or in this case a grant in aid, taxpayers don’t know how many public taxpayer dollars are being doled out to a credit claimant nor can they assess the worthiness of the project or activity for which the claim is being made. At least with an appropriation, taxpayers can judge whether or not the expenditure is worthy of their tax dollars. With a grant in aid, taxpayers can judge whether sufficient funds are being given out for the desired provision of services and they can judge whether or not the service provider has a track record of quality services.
As revenues begin to become scarce, the competition for what available tax dollars are left will become intense. The question lawmakers must answer is what are the priorities for the state. Is the state in the business of deciding which enterprises should survive this upcoming downturn or is it in the business of providing the services and infrastructure to insure that all businesses and taxpayers can survive the bumpy economic road ahead?
Tax credits and back door appropriations which lack accountability and transparency insure that those programs that deserve public support will leave the table empty handed. Those programs that fail to get the grants in aid promised need to look at where the money that could have funded those programs went.