Long Process Produces Visionary Budget
In the month that’s passed since the city council approved the Fiscal Year 2011-12 budget, I’ve had time to reflect on what was accomplished. The grueling process included 12 hours of budget workshops and lengthy discussions at several council meetings. When all was said and done, we had an efficient and visionary budget that, despite some painful reductions, will continue to provide excellent service to our citizens and maintain the exceptional quality of life that makes College Station such a great place to live, work and play.
The FY 2012 budget sets us on a fiscally conservative path that shrinks the size of government. In July, City Manager David Neeley announced a restructuring of the entire city organization that trimmed costs by more than $1.5 million, so many of the difficult decisions were done by staff before the proposed budget was presented to the council in August. Regrettably, the reorganization cost a number of valued employees their jobs, but strong leaders such as Mr. Neeley make those difficult choices because they are necessary for the long-term success of the organization. I appreciate not only Nr. Neeley, but also Chief Financial Officer Jeff Kersten and the department heads for their outstanding leadership.
New Economic Figures a Shot Across Bow for Governments
Several recently released economic indicators are far worse than expected.
A little more than a week ago, we learned that the United States’ gross domestic product (GDP) grew by only 1.8 percent in the first quarter of 2011, well below the projected 2.2 percent. In May, unemployment jumped to 9.1 percent as only 54,000 new jobs were added. Compare this with several months whereupon more than 200,000 jobs were added to payrolls. The dollar’s value is being whittled away by the scourge of inflation as the Federal Reserve continues to try and pump up our economy with printed money. International investors are scurrying away from dollars as our economic growth slows significantly, and the dollar is falling against other world currencies. To put it briefly, things are not looking up for our economy.
These downward-trending economic indicators represent a warning for local governments across the United States, including right here in the Brazos Valley.
The Four Ways to Spend Money
Nobel Laureate Milton Friedman, one of the greatest economists of the 20th century, often talked about the four ways to spend money. It is an interesting and illustrative lesson, and it has a great deal of relevance to every level of government.
Therefore, the four ways to spend money:
- You spend your money on yourself. You get what you want, and you spend carefully. You’re going to get what you actually want because you know your own preferences. Additionally, you’re going to ensure that your dollar goes farthest – that you spend carefully. You might research prices before making your purchase, or you might haggle with the salesman.
- You spend your own money on someone else. You spend carefully, but the other person’s preferences are likely not met (or you may not care). Even if you know someone very well, buying them a gift that they really want is quite difficult! However, you will still economize and make your dollar go as far as it can.
- You spend someone else’s money on yourself. You get what you want, but you do not spend as carefully. If you take a date to lunch, they will most certainly get what they want off of the menu, but they may not be too careful with regards to the cost!
- You spend someone else’s money on someone else. You do not spend as carefully, and you are not concerned about preferences. This point speaks for our governments at all levels. When tax dollars are being spent, an elected official has little incentive to spend the money too carefully, because it isn’t their money. They’re also not terribly concerned about meeting the preferences of the people they serve. Even if they are, how is it really possible to know what thousands – or millions – of people actually want their tax dollars spent on? Some may want one thing, and some another. Most might just rather have it themselves.
It’s a memorable, if simple lesson in how people are incentivized to spend money. The fourth point is particularly true. How is it that governments can spend money better than individuals themselves can?
We should always guard against doing things with tax dollars just because we think it’s “a good idea.” It is rather unlikely that we are spending that money in the most efficient way, or in a way that actually suits the preferences of every one our citizens.
