Florida Spending Cuts Show Welfare State Dilemma

In December I analyzed the latest state spending data from the National Association of State Budget Officers. It showed a disturbing trend of steady increases in state spending: during the course of the Great Recession, states have on average increased their spending by 4.5 percent per year, or 14.1 percent in three years. One of the biggest spenders in 2011 was Florida, which grew its budget by 13.6 percent over 2010 to top $70 billion for the first time ever – hardly a sign of tough fiscal times.

Today the state legislature in Tallahassee is showing a bit more restraint. Its latest budget is actually a minimal downward adjustment over 2011. If this  is a sign of fiscal restraint remains to be seen; in 20o9 Florida cut its spending by 5.8 percent, only to grow it by more than 16 percent in the two following years. But it is also possible that Governor Rick Scott, elected in 2010, will change course and put Florida on a fiscally more conservative track. However, even if he does get his state’s fiscal house in order this time around, he will be faced with tough priorities next year again. The spending programs that constitute the welfare state will not go away.

The Orlando Sentinel reports on the efforts to put together a new budget for the Sunshine State:

Florida House and Senate budget writers are crafting a $69 billion-plus spending plan that would deliver most of Gov. Rick Scott’s top priorities, from tax incentives for corporations to Medicaid cuts and a $1.1 billion boost in classroom spending. The state budget taking shape near the midpoint of the 60-day session would accomplish those goals by relying on higher tuition, less road construction, lower payments to hospitals treating the poor and fewer dollars for corporate breaks than the governor had requested. Scott signaled this week that he didn’t support higher tuition costs for college and university students, but the plans taking shape would rely on the automatic 15 percent “differential” tuition hikes that universities are allowed to impose. The House budget cuts state funding for universities by 8.4 percent and relies on $245 million in tuition hikes to offset those cuts.

Cuts to Medicaid and hospitals that treat the poor are, in essence, the same type of cuts:

Scott had recommended a nearly $2 billion cut to the $21 billion Medicaid system, financed largely by evening out rates for hospitals — which would impose deeper cuts in South Florida and some other urban markets. The House imposes smaller cuts — $453 million to hospitals, nursing homes and HMOs — while boosting overall Medicaid spending to handle enrollment growth.

That technical detail aside, the state legislators in Tallahassee are (inadvertently) illustrating what the welfare state does to government budgets. The welfare state is designed to care for the poor, and the cost of doing so is determined politically – by legislation – each year. There are no ties between the decisions on the parameters that control spending and the ability of the economy to produce tax revenues sufficient for that same spending.

Furthermore, historic trends in Medicaid spending show that its costs – in Florida as well as elsewhere – increase at rates of 6-8 percent per year. This is more than even the Florida economy has been able to keep up with, yet politicians look so surprised each time their budget does not add up.

To show how difficult it is for state legislators to accept fiscal realities, there are efforts under way in Florida to restore previous cuts to school spending:

The $69.2 billion budget advanced by Grimsley’s Appropriations Committee for the 2012-13 fiscal year would boost state spending on K-12 classrooms by an average of $141 per student. That partially restores a cut of more than $1.35 billion — or $585 per student — that lawmakers and Scott approved this year. … Senate Pre-K-12 Education Budget Chairman David Simmons, R-Maitland, said he hoped the Senate could boost school spending by $1.3 billion — a nearly 4 percent increase.

Every spending program has its own life. They will grow regardless of what taxpayers are able to keep up with. The more spending programs a state takes on, and the more they promise under each program, the tougher their budget situation will be.

There is only one way to solve this problem: long-term, structural reforms that gradually phase out and eliminate entitlement programs. This has not been tried yet in America, and only half-measured efforts have been made in Europe. But it is nevertheless the only way out of these long-term budget problems. For more on how to do this, stay tuned for my new book Ending the Welfare State: A Path to Limited Government that Won’t Leave the Poor Behind. For more details on how to pre-order, contact me by clicking here.