The Mythology of State Spending

by John Hood

In 1991, 30 states facing budget deficits raised income, sales, excise, and other taxes a total of $17 billion, with more tax increases promised for 1992 and beyond.

Most commentators blamed Federal aid cuts and the tax revolts of the 1980s, which supposedly left the states unprepared for the 1990-91 recession. But rather than simply suffering the effects of a slower national economy, many state and local governments, by raising taxes and squandering resources, were a primary cause of slow growth.

According to Stephen Moore of the Cato Institute, state spending increased at an annual rate of 8.5 percent from 1982 to 1989--twice the inflation rate. Meanwhile, per capita state taxes almost doubled from 1980 to 1989, and "Tax Freedom Day"- -computed by the Tax Foundation to identify when Americans effectively stop working to pay their Federal, state, and local taxes and start working for themselves--fell on May 8 in 1991, the latest date ever. State employment rose by 19 percent in the 1980s, while the general population grew by only 9 percent. Federal aid to states and localities, after dipping in the early 1980s, increased by an inflation-adjusted 20 percent in the late 1980s. From 1989 to 1991, state spending rose at an average annual rate of 7.6 percent, 2.7 percent above the inflation rate.

Most of these facts are well-known by state budget officials and policy analysts, but conflict with mythologies promulgated by the news media.

For the past two years, I have worked for a state think tank in Raleigh, North Carolina, that has been engaged in budget debates. I've observed the cozy relationship between reporters and public employee unions, teacher unions, and oft-quoted university "experts" on public policy. I have come to believe that the facts about state budgets don't make it into most news stories and commentaries because of the composition of news sources and interest groups in state capitals.

It isn't a nefarious process, but one of necessity: Reporters rely on advocates to generate story ideas, provide information and quotes about public issues, and to set the agenda for public debate. Much more so than in Washington, where a legion of reporters covers the federal government, and citizens' lobbies and think tanks point out wasteful spending, representatives of state employees, contractors, and consultants dominate the news gathering process in state capitals.

A recent example in North Carolina demonstrates how budget myths are created. During the 1991 legislative session, the North Carolina Association of Educators was growing nervous about the prospect of not receiving pay raises promised in previous sessions. Indeed, early in the session, public educators warned that the state's largest budget deficit in many years would result in education cuts, though as it turned out the cuts were minimal. Major newspapers ran stories extolling the achievements of particular teachers or decrying the state's low test scores and graduation rates.

Meanwhile, our office provided the news media with statistics showing a tremendous increase in public education administration (from 75 teachers for every administrator in the 1970s to 50 teachers for every administrator now) and in non-teaching personnel (from two teachers for every non-teacher in the 1960s to one teacher for every non-teacher now). In addition, we showed that the average salary of the state's teachers was closer to the national average for teachers than North Carolina's private sector wage was to the national private sector wage. In other words, compared with other workers in the state, teachers were fairly well off. We also identified a massive increase in state employment during the past two decades.

State media organizations paid little attention to these figures, although outside media such as National Review and The Economist reported them in stories on state fiscal woes. Instead, reporters continued to do stories without statistics or other hard facts and which focused on quotes from union lobbyists and their legislative allies. It worked. Rather than cut significantly into non-teacher positions or other government waste, the North Carolina legislature enacted the largest tax increase in the state's history.

Even if more press attention had been focused on numbers and fiscal trends, the result might have been the same. That's because the policy-makers who raise taxes and create government programs are beholden to teacher unions, public employee unions, and industry lobbies with an interest in state contracts. These groups provide political contributions and campaign volunteers. They hire lobbyists to haunt the halls of state legislatures, providing "information" and in some cases virtually writing the legislation that will protect their industry or their members. They host dinners, breakfasts, teas, parties, receptions, and other events to foster contacts and provide venues for deal-making. They manipulate media coverage by holding rallies and "marching on the legislature," although the ability to mobilize a couple hundred people doesn't really suggest public support or even news worthiness.

These groups have been largely successful during the past decade in promoting their agenda: Public employee unions are the only healthy segment of the American labor movement. Andrew Bates of The New Republic reports that these unions added 1.2 million new members during the 1980s, a 30 percent increase, and that state employee salaries nationwide increased by 59 percent from 1980 through 1987, while private salaries rose 35 percent. Benefits also expanded rapidly, with retirement and health plan costs becoming the fastest growing category of state spending.

Ignoring the Appeal of Facts and Figures

In classic public choice style, those with an interest in government programs and higher taxes to pay for them exercise inordinate influence in state capitals and, to some extent, in city halls. The average citizen, whose interests lie in smaller government and lower taxes, often cannot meaningfully influence the process. The continued growth of state think tanks and taxpayer associations will help offset some of the advantages pro-government lobbies have, but no one should expect rapid change. In most state capitals, relationships between reporters and sources are chummy and take a while to develop. Also, legislators and other policy-makers have an interest in information and analysis, but an even greater one in political contributions-so the appeal of facts and figures isn't overwhelming.

Still, recent elections show that voters across the country are angry about taxes, dissatisfied with the way their governments are being run, and disgusted with waste and political scandal. To translate these feelings into specific opposition to programs, advocates of limited government and free markets have to be savvy, timely, and effective purveyors of information about the history of government taxing and spending in their states and the potential impact on economic growth. It may take a while for the message to crystallize, but it is crucial that it do so. The immensity of state and local tax increases during the past two years will translate into significant economic costs. A repetition of the 1991 state budget debacle could wreak irreparable harm on the incomes and livelihoods of American families.