Refi plan burdens future taxpayers

Posted on January 22, 2007 | Type: Op-Ed | Author: Thomas C. Patterson
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When Gov. Janet Napolitano says she is not going to raise your taxes, the operative word is your. She has no hesitation in raising the taxes of future taxpayers, which is the certain consequence of her latest budget proposal. The $400 million in debt financing she recommends is simply a way of forcing the citizens of tomorrow to pay for programs we want today.

The Arizona State Constitution limits state debt to $350,000. That provision has been muddled at times, as bond attorneys have convinced judges to define debt less extensively than the founders intended.

But in the past, legislators and governors argued acrimoniously about spending and the taxes necessary to support budgets when appropriations were not covered by current income. Debt was never used as a device to explicitly balance the budget (which is also required constitutionally) until recently. The political joy of spending was always tempered by the pain of taxing.

NOT LIKE A MORTGAGE

No more. The governors budget this year calls for an 11 percent increase in spending over the previous year which itself was a whopping 20 percent higher than the year before. Since projected revenue growth is not sufficient to fund this level of spending, even with a carry forward of $350 million, the governor proposes whipping out of the credit card again. Adding another $407 million to our growing debt load balances the budget and allows her to falsely claim an increase of just 6.9 percent over the previous year.

Advocates argue that since the debt goes to fund capital projects, principally school buildings, it is justified in the sense that individuals use mortgages to pay for their homes. But theres a difference. Buying a home is an extraordinary onetime expense which is managed by spreading out the cost over time. But for state government, building schools is a recurring annual expense, since the court mandated Students FIRST program requires the state to furnish the necessary schools for all the districts in the state.

The mortgage analogy doesn't work here. The correct comparison to the states situation would be financing your routine expenses, like clothing and food, with an interest-bearing credit card. Its a common way to get into financial trouble, for states as well as for people.

Conservative commentators sometimes defend debt at the federal level on the grounds that high debt levels seem to compel legislators to spend less. The thought of congressmen backing off pork projects because of mounting debt levels proves the adage, There are some things even a pig wont do.

But even leaving aside the wisdom of using debt as a firewall against spending (wouldn't a prohibition on debt work as well?), its worth noting that the federal government has options for managing debt not available to states. The feds can control interest rates, print money and generally exert a modest degree of control over the national economy.

Not so for states. Although state fiscal policies obviously affect the economic health of the state, state finances are basically a money in, money out affair. Spend less than you take in, savings will accumulate. But if you spend more than you can afford, it has to be paid for down the line somehow.

NO FISCAL CONSERVATIVE

The governor, rather than invade the Rainy Day Fund, has proposed raising $400 million by refinancing existing 20-year construction bonds to 30 years. Future taxpayers would undoubtedly object to this, too, if they could. Even the fund wont provide much protection against the withering barrage of financial obligations we are passing on to them.

The governor likes to depict herself as a fiscal conservative who is so clever that she can fund lots of stuff without raising taxes. But the nonpartisan Cato Institute wasn't impressed, awarding her one of the few Fs they handed out last year for exceptionally poor fiscal performance. Unsustainable levels of spending growth and mounting debt are creating a permanent legacy for future Arizonans that will make high taxes inevitable and damage the state economy. Its embarrassing, irresponsible and a poor way to treat our grandchildren.

If the governor believes her spending recommendations are so critical, she should at least, like her predecessors, have the decency to support taxing todays voters to pay for them.

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