Feds should follow Oklahoma's lead with budget

Oklahoma Governor Fallin has grown the state’s economy. Now she wants Photo: Gov. Fallin/ AP

WASHINGTON, October 31, 2013  The federal government recently reported that for the fiscal year 2013, spending decreased by almost 2.5 percent from last year’s level. This is a major accomplishment for the House of Representatives. They managed to reduce spending in an environment where the president and the Senate continued to refuse to consider significant spending reductions.

Much of this reduction is due to the sequester which the House was able to push through as part of the deal to raise the debt limit in 2011. Can they do more?


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Since tax revenue for fiscal 2013 was at an all-time high of almost $2.8 trillion, the combination of the sequester and the increase in tax revenue reduced the federal deficit to less than $700 billion, down from the more than $1 trillion last year.

While many applaud this, we still have a significant problem with government spending and annual deficits. The problem will worsen once the full impact of the Affordable Care Act is felt and the government offers subsidies to tens of millions of Americans. The fiscal 2014 deficit will likely exceed $1 trillion.  We can, however, intelligently reduce spending. To see how, let’s look at Oklahoma.

Governor Mary Fallin wanted to reduce state spending, reduce or eliminate the state income tax, grow tax revenues by increasing the tax base rather than raising tax rates, and increase employment. She has taken a number of specific actions to reach these goals, like encouraging energy production. Her state auditor, Gary Jones, has suggested a method that could painlessly reduce spending, a technique once proposed by President Carter in 1976.

Carter was elected president after a successful career as a businessman, primarily farming peanuts.  As a businessman, he was careful to ensure that every dollar spent by his business was cost-justified. Once he became president, he suggested that the federal government adopt a “zero based” budgeting technique rather than the “percent increase over last year” technique that was previously used and continues to be used today.


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Gary Jones agrees with that policy for Oklahoma. He said, “It’s time for the state to discard its ‘history-based’ method of budgeting and instead use a more responsible and accountable ‘needs-based’ approach.” This “needs based” is a similar concept to Carter’s plan.

When preparing a budget for the next year, government today looks at last’s year’s spending, increases it by the inflation rate, then adds a percentage above that figure for the coming year. All prior budgets were prepared the same way — that is, adding a percentage to what was spent in the previous year to determine the coming year’s spending level. The question of whether we need the increase is never asked.

Jones says that it is time to ask that question. He has suggested that for next year’s state budget, the “needs based” approach be adopted. While this technique will admittedly be more time consuming, it will result in a lower spending level than the current policy. And it will eliminate wasteful spending. It’s time for the federal government to do the same.

President Carter was unable to get Congress to go along with his proposal, so federal government budgets continue to be bloated. Governor Fallin may be more successful. Perhaps the U.S. should follow her lead in this, as well as other areas.

Fallin notes that some of the states surrounding Oklahoma — Texas, Missouri and Kansas — have completely eliminated state income tax. By reducing state spending, she hopes to be able to do the same. She says that almost 15 percent of Oklahoma’s workforce is employed in the energy sector. She is encouraging more energy production of all kinds.  

The results of her policies are worth noting. Oklahoma’s unemployment rate, for instance, is just over 5 percent, more than 2 percent below the national average. Household income is growing by more than almost every other state. State spending has been held in check so that a rainy day fund in excess of $600 million has been established. As she said in her last State of the State address, she credits the success to prioritizing spending, promoting pro-business policies and lowering taxes.

This is a model that works and will continue to work as Oklahoma state government becomes more responsible. Zero-based budgeting will help it on its path to greater responsibility.

Are you listening Washington?


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Michael Busler

Michael Busler, Ph.D. is a public policy analyst and an Associate professor at Richard Stockton College teaching Finance, Financial Institutions, Introduction to Financial Management, Game Theory, Graduate Managerial Economics, Graduate Financial Management. 

 

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