How Wasteful Spending Happens

In 2001, I worked on a project for the Taxpayers League called “Back to Basics” a compendium of wasteful government spending in State Government. As part of that project, I wrote an introduction to the booklet to explain to citizens unfamiliar with the process. Today, with the start of the legislative session, I’ve pulled this from the archive, dusted it off and tweaked it a bit for relevancy. 

1. Crowding Out the Private Sector

The first question to ask of any government expenditure is whether or not it crowds out the private sector from providing the same service. If the service could better be provided by private enterprise, government should not be involved. In some cases, the program or service duplicates services or goods already available in the private sector. President Ronald Reagan called this “the yellow pages test;” if the business can be found in the yellow pages, it should not be done by the government.

2. Perverse Incentives

Economists often judge programs and policies by how they impact behavior. A government program that is poorly designed can create perverse incentives that distort behavior in such a way as to mitigate against the program’s desired outcomes. An example of this is the state’s Integration Revenue Program, which provides grants to school districts for integration programs. This program provides a disincentive to integrate because the grant award is reduced the more integrated a district becomes.

3. Duplication

Many government programs duplicate each other. The state is big and complex and often bureaucrats in one agency don’t know that there are bureaucrats in another agency working on the same subject matter. There is an urgent need to address these overlaps, which would both stop the waste of hard-earned taxpayer dollars and ensure that state policies and programs are carried out fairly and consistently.

4. Corporate Welfare

Much of what is passed off as “economic development” by the state simply provides a windfall to select companies. Development subsidies rarely create any net new jobs for the state; they simply shift jobs from one part of the state to another. Most of the time, they underwrite investment that would have been made without the subsidy. Government’s role in economic development should be to provide the basic public goods conducive to economic growth (such as transportation infrastructure and education) and low tax rates on business. In fact, many economists argue that the optimal tax rate on businesses is zero.

5. Political Correctness

Just because something is “nice” to do doesn’t mean that taxpayers should be footing the bill. There are plenty of ways that private, nonprofit organizations make Minnesota a better place to live. Their donors choose to support their efforts. Taxpayers are not donors; they do not choose to give up their money.
Government should get out of the charity business and provide for basic needs that cannot be met by individual citizens or private sector contributions. Government largesse also crowds out private charity giving when donors can rely on government contributions rather than their own.

6. Bureaucratic Blackmail

Blackmail, or “hostage taking,” occurs when budget cuts are mandated but do not specify that essential or popular programs or services are not to be affected. Bureaucrats then cut back these programs, even if they do not bring much in the way of cost savings and blame legislative action for the cuts. In this way, they can create a public backlash (from the constituents of the program or service).
Example: The Department of Natural Resources (DNR) doesn’t get the funding it asks for. Instead of cutting back on administrative costs it threatens to shut down some campgrounds and cancel moose- hunting season. The public then demands that money be spent on all DNR programs—whether or not they are effective or necessary.

7. Dependency

The term dependency is often used in the context of the welfare debate, when welfare benefit recipients are said to become dependent on government checks and do not seek employment. But dependencies are also created with all kinds of groups under a variety of circumstances. Public-private partnerships can be a source of dependency, for example, if it is unlikely that the private sector will ever take over the responsibility for funding the objective of the partnership for a project that could be funded privately simply because the government aid is there. In times of budget surplus, legislatures may be pressured to fund “quality of life” projects or programs such as sports or arts facilities, which will continue to require infusions of funding on a permanent basis. Once these activities are funded, a constituency for the activity will arise which will continue to demand funding each budgetary cycle.

8. Confusing Private and Public

People of good will can disagree about what should be administered through government programs and what should be handled by the private sector. When public money is used to fund private nonprofit institutions to provide services to the public, there is a blurring of public and private. Public, sometimes monopoly, powers are delegated and citizens have no recourse to complain, to vote, or to know how their money is spent.

9. Heartstring to Purse String Legislation

The worst time to pass laws is when legislators think there is a crisis. A tragic accident, a unique set of circumstances or the call to pass a law in someone’s “memory.” Too much money, too many regulations, and too many diminutions of our freedoms occur because legislators feel the need to express their feelings through laws.

10. Other People’s Money is Yours, Too

Federal funds are often used by the state to create a clientele that previously did not exist or was served by private funding. This can be done in a variety of ways: Seed money is provided to start a program but funding cuts off at some point in the future; or money is made available for a program but the state must reapply each year or multi-year period. If federal funding cuts off, does the program go away?
No, the state is asked to pick up the tab. The temptation to take federal money is great—”Hey, if we don’t take it some other state will get it…” but there are costs which aren’t covered by federal money or which will occur in the future. Recent transit “investments,” would never have been approved without the federal subsidy.

11. Gilding the Lady Slipper

Taxpayers’ money is wasted when a good idea started by a Minnesotan or Minnesota community gets state government support and becomes a grandiose government project, straying farther and farther from the original need or purpose. An example: The River Falls Fishing Museum started out as one Minnesotan’s collection of fishing lures and is now part of the state-promoted “Great River Road Tourist Attractions,” complete with a multimedia center for environmental education presentations.

12. The Incredible Shrinking Matching Funds

A small town wants a new museum or a new arts center. Local politicians promise to raise a percentage of total funding privately; the state agrees to match it if they can raise it by a certain date. What happens when they don’t make the match amount? Often, the match amount required is lowered significantly but much later, after the debate on the merits of the project has occurred. In the case of the Judy Garland Museum in Grand Rapids, the required match of non-state resources was lowered from $1.2 million to
$200,000, making the state’s contribution to the museum jump from 17 percent to 50 percent of the total amount of state-non-state resources needed. The Minneapolis Shubert Theater, which promised to raise all of its funds privately (after spending millions of tax dollars to move its building), is now costing taxpayers, city county and state many millions of dollars.

13. The Shell Game

Bureaucrats hide the most controversial program appropriations or programs with escalating and uncontrollable costs in a general appropriation for a whole department. This ensures that the only recourse that legislators will have to address questions about spending is a confrontational hearing with a commissioner who will inevitably blame partisan politics for an aggressive line of inquiry and give as little information as possible. Any explanation given will be attributed to (a) a natural disaster or act of God, (b) cost increases that everyone already blames such as “the rising cost of healthcare” or (c) “you didn’t give us enough money last time.” Although there may be an element of truth in these explanations, bureaucrats from the commissioner on down have considerable discretion in setting priorities within their agencies. There is an even more advanced version of this game—a sort of shell game level II where the department gets the legislature to agree to a separate funding source, such as funds from a fee or tax where revenue generated goes directly into the coffers of the agency to use at its discretion. The funds are not part of the general fund and often receive much less scrutiny.

14. One-Time Funding Means “See You Next Year”

Many of the programs documented in the Piglet Book were stipulated in the law as “one-time funding” and “not added to the agency base.” This doesn’t mean that such an entity won’t get funding in the future; it only means that future appropriations have to be requested in the same way in the next session. Some of these “onetime” appropriations may in fact, if not in law, be ongoing.