Expendable Expenditures

By Cory L. Shreckengost

 Posted ~ June 25, 2003

 In a paper presented at this year's Pennsylvania Economic Association Conference, Thomas O. Armstrong of the Pennsylvania Manufacturers' Association and Grant R. Gulibon of the Commonwealth Foundation for Public Policy Alternatives teamed up to set forth their recommendations for improving the Keystone State's fiscal policy.  Their paper, "Principles and Strategic Recommendations for Pennsylvania State Government Expenditure Policy," took a close look at our state's recent economic performance and made some recommendations that, if approved, would save the state an estimated $2.154 billion in the fiscal year 2003-04.

Armstrong and Gulibon analyzed PA's economic growth, in relation to the country at large, and came up with some rather startling discoveries.  From 1991 to 2000, PA had the "second-largest real per-capita state government spending growth rate among the 50 states, at 61 percent."  During that period, however, the state's real personal income growth rate per-capita was 19 percent lower than the national average.

The authors concluded that a casual inverse relationship exists between state government spending and economic growth.  Furthermore, they argue that after a given point, an increase in real state government spending per-capita is an increase in the demand for private sector resources thereby slowing real economic growth per-capita.

How can one arrive at such a conclusion?  Reasonably speaking after a given level, the increased spending will only serve to expand the frequency and depth of the state government's inefficiency.  This additional spending will introduce government "failure activities" into PA's economy.  Armstrong and Gulibon recommend reversing this trend by limiting government spending according to the five primary expenditure principles outlined within the paper.

Simply put, the principles presented in the paper center around limiting government’s role to "core functions" such as: "law enforcement, the court system, the corrections system, maintenance and expansion of roads and bridges, regulatory agencies that provide for only essential public health and safety standards, and provision of a basic set of social services for truly needy citizens."  These core functions are vital to "safeguarding the lives, liberty and property of a state's citizens, or to maintain the infrastructure used by all citizens."

When government spending goes beyond its core functions, as the Keystone State has apparently done, the economy is often negatively affected.  Examples of non-core functions would include "most (if not all) business subsidy programs, tourism and agriculture subsidies, workforce development subsidies, and a number of other wealth redistribution programs." 

Even so, a failure to limit spending on core functions could have a negative effect on the economy as well.  When the costs of both core and non-core functions alike clearly outweigh the benefits, trimming or eliminating those services should be considered. The remaining expenditure principles address issues such as neutrality, fairness and equity, economical administration, and accountability, as they relate to state government spending.  All of these economic precepts are meant to diminish the cost of state government, and in turn, lessen the burden on the taxpayer.

Keeping these basic principles in mind, Armstrong and Gulibon have devised a strategy for reducing state spending: (1) the elimination of non-core government functions, (2) a 15 percent reduction for general government operations, (3) improving governmental efficiency, (4) privatization and competitive contracting, and (5) the transfer of spending responsibility to other levels of government.  All of these strategic recommendations are described at length in the paper.

The implementation of these recommendations would not only save the Keystone State about 11 percent of fiscal year 2002-03 General Fund budget, but it would also set a serious precedent for prudent expenditure policy in the future.  Our lawmakers would do well to heed the message conveyed by Armstrong and Gulibon: 

“Meaningful state spending reductions based on sound economic principles and consistent strategy will lead to a state government providing core function services to all its citizens.  Excess spending burdens impose upon taxpayers unwarranted higher costs of state government....Shedding unwarranted higher state government costs that can be translated into tax reductions will stimulate Pennsylvania's economy to reach its true potential.” 

Cory Shreckengost is an author and Policy Analyst at the Shenango Institute for Public Policy.  For in-depth analysis, as well as a more detailed account of this paper’s principles and recommendations, please visit the Shenango Institute’s official website, where the paper is posted in its entirety: www.shenangoinstitute.org