I told you so.
“Dedicating sales tax to specific uses bad public policy,” was the headline on a column published April 9, 2006, arguing a proposed increase in the sales tax dedicated to funding conservation and arts programs was a mistake. Minnesota voters did not take this advice, but recent events bear out the warnings.
There are a couple of problems with such dedicated taxes. First, in the long run, they add little to overall spending on the specified purposes because legislators tend to make offsetting decreases in regular appropriations. Whenever there are budgetary pressures, it is easy to say, “Well, this agency or program is going to get X dollars from the Legacy Amendment funds anyway, so we can appropriate less in general tax revenues for them and they will still survive.” That is precisely what is happening in this session of the Legislature.
Second, since a dedicated sales tax automatically generates a pot of money, agencies that have access to it without overtly going through a legislative request tend to be more casual about spending it than they are about funds for which they have to compete. Spending more than $47,000 in honorarium and travel expenses to get author Neil Gaiman to talk to 500 people is an example of this.
It is not that there is no educational or cultural value in lectures such as this. Gaiman, the nationally known author who gave the talk in Stillwater, has won Newbery and Carnegie medals for his work. The question is whether his talk was worth more than $90 in tax money per attendee.
What if the Metropolitan Library Service Agency had looked at its own budget and asked itself, “Would spending $90 per person for a less-than-two hour event be a good use of money compared with other things we might spend $47,000 on?” I doubt that they would have chosen this particular event.
But the money was just sitting there, earmarked for cultural events. If this particular agency had not used the money to pay Gaiman, the funds would not have been available to them for other uses and would have passed to some other entity.
It is not that all funds from the dedicated tax are wasted, nor that there is no system for allocating these funds (there is). But the inherent nature of such dedicated taxes is that they diminish incentives for ranking priorities and for careful consideration of competing needs. The result is that society gets fewer of its needs and wants satisfied for each tax dollar than if the same amount had gone through regular budgeting channels. This is what economists call an efficiency loss.
The name-calling aspects of the affair that drew public attention are of little economic importance. Gaiman did nothing wrong. He is a businessperson selling his services. He set a price that reflected his opportunity cost – time. Hours spent preparing and giving lectures are hours not spent writing. As a self-employed pundit who frequently gets speaking requests, I do the same thing myself. Price is a market mechanism to sort out what is of how much value to whom.
The legislator who accused Gaiman of “stealing” from the state of Minnesota needs to take an introductory econ class so he understands the essentials of how market economies work. Consumers, including libraries, are sovereign. They can spend their money or not. Exchange is voluntary. For most goods and services, including author lectures, markets are competitive and provide incentives for efficient use of resources. The fact that one market participant — the government – is not using an efficient budgeting process does not make the other party in the transaction (the author) sinful.
Agencies that draw legacy amendment funds will learn a lesson and will avoid egregious mistakes like this. But the constitutional amendment that established the fund won’t be repealed. We are going to have another two decades (the tax won’t be collected after 2034), during which fundamental incentives for efficient allocation of public funds will be deficient.
It is important to note that budget processes at local and state levels usually are more efficient. Spending more than $90 for each person who listened to a 90-minute lecture may not have been a good use of money. But it seems we are prepared for local and state taxpayers to pony up nearly as much for every person who goes to a Vikings game for the next quarter-century.
Depending on what interest rate you use and how many years for the stadium to be amortized, you come up with public outlays of $30 to $90 per-seat, per-game. That is what Bullwinkle the Moose calls “antihistamine money – it ain’t nothing to sneeze at.”
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.