Since almost all policy ultimately is driven by financing, I thought I would start with a few principles that guide my thinking:
1. Balanced Budget – I believe that the state government should operate safely within a balanced budget and should seek to avoid debt-based financing and bonding wherever possible. The state should anticipate future needs and save up for major expenditures.
2. Dealing with Cycles – Revenue sources tend to be cyclical and needs tend to be counter-cyclical. Good planning suggests that we set aside some of the surplus from the times of plenty to ease the burden in the lean times. Forecasting budget cycles is difficult for even the best-trained budget experts, so a certain degree of playing it safe is warranted.
3. Revenue Distortions – Taxes cause distortions that should not be ignored. Decisions about what goods, services, and activities to tax should be carefully evaluated and tax policy should seek to minimize disincentives on economic investment, growth, and productivity.
4. User Fees vs. Taxes – Many state-provided services can and should be funded through user fees instead of taxes. In cases where it is reasonable to determine the cost of providing a service, it is also reasonable to expect those who benefit directly from the service to pay for it in the form of user fees.
5. Federal Funding of State Projects – Some would say that accepting federal funds for state programs and projects is a no-brainer – we are just getting back what we put into the system. While there is some truth to that, in many cases federal funding comes with significant strings attached. The state should carefully weigh the loss in autonomy as part of the decision to accept federal funds. States should also encourage the federal government to get rid of terms and conditions on legitimate federally funded projects that impinge on state autonomy. Even better would be for the federal government to lower tax rates and allow states to make those decisions at the local level.
*Note: I may expand and clarify this note in the future.
