In the Democratic party’s response to the State of the Union address, Washington governor Gary Locke noted that state and local governments are “being forced to cut vital services, from fire to health care.” Nothing could be further from the truth.
For decades, state and local government spending has risen, even in inflation-adjusted terms. In the 1990s alone, local government expenditures increased more than $1,100 per household, though that was mild compared to the $1,600 increase during the less prosperous 1980s. Now, of course, the recession has taken a bite out of government revenues, which could impose a greater amount of cost discipline than has been evident in recent spendthrift decades.
Senate minority leader Tom Daschle’s answer is business as usual. The Democratic alternative to the Bush economic stimulus plan would provide $40 billion in grants and aid to state governments over the next year. But there is every reason to believe that bailing out state and local government will provide just the stimulus necessary to spur further spending increases.
Year State & Local Government Expenditures per Household 10 Year Change
1990 $8,328 $1,582
2000 $9,445 $1,117
Source: Calculated from U.S. Census Bureau data. Inflation adjusted using CPI-U-RS
How different government is to the real world of the private sector. When US Airways and United Airlines got into financial trouble, they cut costs and got concessions from their unions, while doing everything they could to maintain service levels. When government gets into trouble, it threatens deep service cuts, all too often cuts aimed at the programs that cause the greatest public consternation, in a calculated strategy to obtain the additional funding necessary to maintain the status quo. A search of newswires reveals few, if any, mayors or governors standing in line to require from their employees the same sacrifice that has already been made by so many private employees who pick up the tab.
One is tempted to wonder why the impressive economic returns predicted for publicly financed stadiums, convention centers, and other infrastructure projects failed to provide a safety net. There’s no denying that the current fiscal crisis is real. But just as real are the spending increases that have been far too steep for far too long. If state and local government spending had been at the same level in 2000 (latest available data) — per household, inflation-adjusted — as it was in 1990, at least $110 billion less would be required per year. That’s more than enough to close the deficits faced today — indeed, state and local governments could be making grants to the federal government! If spending per capita had held still at the 1980 level, $280 billion less would be needed.
For many years, America’s private sector has had to improve its cost-effectiveness in response to both domestic and international competition. Governments do not face any such competition, which is the principal reason real expenditures go up so regularly. Only the rare external funding crisis, like that faced now, has the potential to apply private-sector-style cost discipline to government. It should be allowed to do so. Tom Daschle should get out of the way.
State and local government have a number of alternatives for reducing costs:
Many government services can be competitively contracted to the private sector for lower costs and equivalent, if not better, service quality. Competitive contracting has been used for some services, among them waste management, welfare-program management, airport maintenance, and a host of other services. But progress has been slow; indeed, governments in formerly socialist nations have been much more aggressive in their use of the private sector than has the United States. The great advantage of competitive contracting is that it applies the discipline of the competitive market to public services, and keeps costs down as a matter of course.
Government employees are well paid, both in wages and benefits, and they work fewer hours than their private-sector counterparts. Their unions may disagree, but the Bureau of Labor Statistics reports that state- and local-government employees have been on the job, on average, twice as long as private-sector employees, and public administrators average a tenure at least 2.3 times that of professional and managerial employees in the private sector. Government employees have “voted with their seats,” and the implication could not be clearer: The value of government employment, on average, is greater than that of private. State- and local-government employee compensation should be managed to the point that employee turnover rates become competitive, saving the system money.
Not everything government does needs to be done. Governments should be examined from top to bottom, in a genuine “zero-based-budgeting” exercise such as Jimmy Carter promoted (but failed to implement). Not doing the unnecessary saves money.
The present state- and local-government revenue crisis could become a chance to improve government performance — but not if Gary Locke and Tom Daschle get their “leave no bureaucracy behind” program.
— Wendell Cox is a principal of Wendell Cox Consultancy in St. Louis and a visiting professor at the Conservatoire National des Arts et Métiers in Paris.