The state budget and the importance of being nitpicky

Friday, legislative Republicans gave us a major budget proposal. Just as the legislative Democrats had. Just as the governor had. We now have three budget proposals floating about, and what we end up with is anyone’s guess.

What I was struck with more than anything was that the GOP proposal used the biennial spending targets proposed by Gov. Paul LePage. Those spending targets represented $166 million in growth over the previous budget. The Democrats, naturally, want to spend more.

Due to the need to compromise to pass a budget with two-thirds support, I have a nagging feeling that the budget that ends up being passed will grow spending by perhaps $200 million. I would have preferred if the conservative alternative had been flatline or below, so that negotiations might end up at something lower, but that’s just me.

Nevertheless, it is a reminder that all spending proposals, be they from the governor or legislative leadership, make a set of base assumptions, which are drawn from and judged against the past. Specifically, the biennial budget immediately preceding the proposed new budget.

That got me to thinking about the incredibly large numbers we are dealing with here (billions of dollars), and what a big difference very small changes make. The difference between 2 percent growth and 3 percent growth can be tens or hundreds of millions of dollars.

Given that each budget is built upon the last, and that small changes can mean a difference of such a huge sum of money, this line of thinking spawned an interesting thought experiment.

What if we took a look at the last 30 years of state spending, and got “nitpicky,” marginally reducing the growth of spending each year, then building future budgets around that new total as next year’s baseline?

Wonky, I grant you, but stick with me.

In 1986, Maine government spent a little more than $950.5 million. The next year, in 1987, they spent roughly $1.045 billion, which represented a growth of 9.96 percent. What if, that year, the state Legislature had limited the growth of the budget by a paltry 10 percent. So in other words, instead of 9.96 percent growth, you saw 8.96 percent growth?

The result would have been a 1987 spending number that was $1.035 billion, rather than $1.045 billion. Nibbling around the edges, right? Not ultimately that big of a deal, it is really “just” $10 million less.

But what if the 1988 spending numbers had been based off that smaller number, and had likewise seen slightly smaller growth?

In the real world, 1988’s budget of $1.172 billion represented an increase of 12.17 percent over the 1987 spending numbers of $1.045 billion. What then, would happen if we only grew that budget by 10.95 percent (again, 10 percent less overall growth), and the increase was based off the slightly smaller total we just came up with for 1987 ($1.035 billion)?

Instead of $1.172 billion, we would have spent $1.149 billion.

If the Legislature had simply been slightly more nitpicky for the last 30 years, Maine would spend nearly $405 million less in 2015 alone. In 2014, that number would have been about $402 million, which would have given the taxpayers of Maine nearly $807 million of spending relief over the biennium we are currently in.

The game becomes even more fun if you use the same rules, and limit spending growth by 25 percent over what was actually passed.

In 1987 that would mean growth of 7.47 percent instead of 9.96 percent. In 1988, that would mean spending growth of 9.13 percent instead of 12.17 percent. In 1989, that would mean spending growth of 13.58 percent instead of 18.11 percent.

This is hardly austerity, folks. Even with the mild limitations, that is explosive spending growth.

Under such a scenario, Maine citizens would be spending close to $912 million less in 2015 alone. That number is $905 million in 2014, for a total of $1.817 billion in savings over the biennium.

Gov. LePage has declared his desire to completely eliminate the state’s income tax. Given that income tax collections in 2015 are estimated to amount to $1.462 billion, spending $912 million less would get us pretty close to achieving that goal.

Lawmakers in Augusta frequently throw up their hands and allow spending of tens of millions of dollars simply because they do not understand what they are looking at, and don’t have the time or energy to fight it.

That spending becomes institutionalized, and repeated in future years. Negotiators add a million here, and give up fighting against a million of reductions over there, and the entire thing is little more than a game.

But if we had exercised even the remotest discipline in spending over the years, we would be in a much better position today than we are. Instead, one bloated mess of a budget is built on another, and we are left with the incomprehensible leviathan we have today.

Matthew Gagnon

About Matthew Gagnon

Matthew Gagnon, of Yarmouth, is the Chief Executive Officer of the Maine Heritage Policy Center, a free market policy think tank based in Portland. Prior to Maine Heritage, he served as a senior strategist for the Republican Governors Association in Washington, D.C. Originally from Hampden, he has been involved with Maine politics for more than a decade.