May 14,
2010
GUEST EDITORIAL
Keith Allard and the dangers of free money
By PAUL AUGROS |
Apparently the Goffstown school district stands to lose a portion of its funding from the state as the result of new allocation guidelines approved by the house in 2008.
Keith Allard, the only school board member we ever hear from for some reason, tells the Union Leader that this development will likely mean higher taxes in the years ahead: "It's certainly a revenue source. Obviously, it really affects your local tax rate."
As it turns out, there are actually three ways for a tax-funded entity to respond to a decrease in revenue: it can assume debt; or it can cut costs; or it can lobby to increase taxes.
By convention, the debt option has rightly been relegated to cases where the credit and integrity of the borrower is of the highest caliber, as with the federal government, or ambitious home purchasers circa 2005, or crack addicts experimenting with high-stakes poker.
Allard instinctively offers the third option (tax increases), absent any reflection on the possibility of the second (cuts).
This is particularly unfortunate because tax increases don't truly belong on the list, as the tax rate is not directly under the control of the school board (though an attendee of this year's school board deliberative session could be forgiven for believing otherwise).
I'm not sure whether Allard's increase-reflex has been triggered once again because it is the only recommendation he deems worthy of making, or because he can only identify cuts where they
do not
exist. Either way, it would seem more appropriate to look inward at the organization he's been tasked with administering rather than outward at the tax rate, which, at least for now, is not his to set.
Regarding state funding and non-tax revenue sources in general, I am of two minds. Funding of this sort can be good for defraying the cost of services to taxpayers.
It is important, however, to consider the methods and circumstances of the funding program in order to determine its true effect. There are three arrangements of non-tax revenue streams, and I believe only one to be of any benefit in the long term.
The other two can actually be harmful.
- Funding from the state or federal government.
This one sounds great because, well, free money, right? Of course, this money is first gathered from us and everyone else in the state or country, and then dispensed by a bureaucracy that absorbs a substantial portion of it and insists that it knows better what to do with our money than we do. If this arrangement were more often viewed as the necessary evil that it is, we would be less inclined to support its use in places where it isn't actually necessary. Unfortunately, once we're on the stuff, it is extremely difficult to wean ourselves off, which makes us vulnerable in two ways. First, the source of this money can decide to withhold it unless we agree to adhere to the guidelines of some agenda not our own. Second, the money can simply evaporate, as will happen in times of economic distress, and our dependence on it will mean that preventing a tax increase will be an uphill battle. In general, levying taxes where it will be felt most is a great mechanism to prevent overspending and inefficiency.
- Funding from fees, sales or endowments that are absorbed into the general fund.
This arrangement is quite a bit better than the first. It is purely local, giving residents more say in the operation. However, revenue streams not targeted at a specific program have a tendency to become new spending rather than offsets for existing spending. Consider the following situation: a school district has a budget of $10 million. It then institutes a revenue-generating program that brings in $1 million, which flows into the general fund. The school board, as most do, has lots of ideas about how to make the district better, many of which will cost money. How likely is it that the $1 million will go toward existing spending, rather than simply increasing the budget to $11 million? You may think, "at least it won't affect taxes," but what will happen if the program falters for some reason and its revenue is no longer available? The district will now have $11 million in obligations, with no way to pay for the last million (they will tell you) except by a 10% tax increase.
- Funding from fees, sales or endowments that are designated for a specific program, with the ultimate aim of making that program self-sustaining.
This arrangement is similar to the one above, except that we apply the million dollars against an existing program (often the one that generated it) and restrict it from being used elsewhere. In our example, this reduces the tax-funded portion of the budget to $9 million. The program can of course still fail to bring in money in the future; but even if that happens, at least we will be facing cuts or tax increases in service of a $10 million budget, not an $11 million one. Self-contained revenue generation resembles the business unit model in the corporate world, and while it isn't free money, it is the only sort of non-tax revenue that will not ultimately increase taxes.
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