Posted by Charlie Arlinghaus
The Mythical Spending Cut
In an otherwise good piece of work, my colleague Steve Norton of the NH Center for Policy Studies says that one of the different ways to calculate the spending increase yields a 1% cut. Not only is he wrong but to claim such a thing is to be misleading.
Steve, whose work is generally excellent and of whom I am generally an admirer, describes the way budget numbers can include total funds or general funds, how the federal stimulus money creates an unusual gap between the total increase and the general fund increase, and describes useful historical data.
However, his train leaves the rails when he says spending can be described as a cut in one sense. How does he get to this assertion? He compares the money we will spend in the budget being debated to what we would have spent last year if the legislature hadn’t been forced to roll back some of their spending increases. So spending is a decrease from what we wanted to spend but couldn’t spend. It’s more than what we spent but less than what wanted to spend last time.
Comparing the budget number as passed this time to the budget as passed last time as Steve did is not always misleading. In fact, in typical years it is a useful tool in the effort to find apples to compare to apples. We usually spend a hair more than we planned, so absent any unusual circumstances, it can be a useful number. The slight understatement of caseloads that often occurs makes the numbers roughly comparable and it’s a good number in a typical year to correct for the slight overspending that usually occurs.
The problem with using it this time is that there were unusual circumstances, very unusual and they weren’t exactly secret. Revenues were hundreds of millions of dollars below revenue estimates and spending was forced to be cut dramatically. So, for example, the comparison used $1,625 million for 2009 spending when we know that it will actually be $1,505 million. That’s not an inconsequential difference and it should send a red flag up telling you that this comparison is grotesquely misleading.
The piece’s conclusion is in fact very good. By most measures spending increased by percentages that are well below historical averages. Total spending is unusually high because of the federal dollars flowing in to supplant state spending. Policymakers can make their own minds up about whether somewhat lower increases in spending are the acceptable or if tough times – like those which we are experiencing right now - require genuine reductions in spending..
Their judgment on this point, however, should not be influenced by the one misleading segment of Steve’s piece. Spending is not being reduced by any real measure. Nevertheless, news reports and policymakers less well versed in the budget may say instead “it’s a cut by some measures and an increase by others.”
They’ll be wrong of course. It isn’t a “cut” by any meaningful definition. Many of us, including Steve, usually try to use data carefully and explain data carefully to help clarify policy decisions. Data properly explained is not a manipulative art but a useful tool. I still believe that but I’m not sure anyone else will anymore.
Charlie has refined his post. Here is the original:
ReplyDeleteIn an otherwise good piece of work, my colleague Steve Norton says that one of the different ways to calculate the spending increase yields a 1% cut. Not only is he wrong but to allege such a thing is ridiculous and intellectually misleading. I can’t believe that an otherwise sensible person would defend such a thing if you confronted him about it.
Steve, whose work is generally excellent and of whom I am generally an admirer, describes the way budget numbers can include total funds or general funds, how the federal stimulus money creates an unusual gap between the total increase and the general fund increase, and describes useful historical data.
However, his train leaves the rails when he says spending can be described as a cut in one sense. How does he get to this ridiculous assertion? He compares the money we will spend in the budget being debated to what we would have spent last year if the legislature hadn’t been forced to roll back some of their spending increases. So spending is a decrease from what we wanted to spend but couldn’t spend. It’s more than what we spent but less than what wanted to spend last time.
Comparing the budget number as passed this time to the budget as passed last time as Steve did is not always misleading. In fact, it is almost always a useful comparison in the effort to find apples to compare to apples. We usually spend a hair more than we planned so absent any unusual circumstances it can be a useful number. The slight understatements of caseloads that often occurs makes the numbers roughly comparable and it’s a good number in a typical year to correct for the slight overspending that usually occurs.
The problem with using it this time is that there were unusual circumstances, very unusual and they weren’t exactly secret. Revenues were hundreds of millions of dollars below revenue estimates and spending was forced to be cut dramatically. So, for example, the comparison used $1,625 million for 2009 spending when we know that it will actually be $1,505 million. That’s not an inconsequential difference and it should send a red flag up telling you that this comparison is grotesquely misleading.
The piece’s conclusion is in fact very good. By most measures spending increased by percentages that are well below historical averages. Total spending is unusually high because of the federal dollars flowing in to supplant state spending. Policymakers can make their own minds up about whether somewhat lower increases in spending are the right path or if tough times require reductions. That conclusion will be overshadowed by the inclusion of the one misleading segment. Spending is not being reduced by any real measure of any sort but news reports and policymakers less well versed in the budget will say instead “it’s a cut by some measures and an increase by others.”
They’ll be wrong of course. It isn’t a cut by any measure. Many of us, including Steve usually, try to use data carefully and explain data carefully to help clarify policy decisions. Data properly explained is not a manipulative art but a useful tool. I still believe that but I’m not sure anyone else will anymore.