There Isn't an Endless Supply of Money

Mark Noonan

There really isn’t:

Reasonable people can — and do — disagree about how Vallejo found itself in bankruptcy. There’s no doubt, however, that many of the city’s problems stem from its inability to recover from the 1996 closure of the Mare Island Naval Shipyard, once the city’s largest employer. The city also lost hundreds of thousands dollars per year in sales tax revenue after the closure of a Wal-Mart.

But the largest share of the blame in Vallejo has centered on public-safety salaries and benefits, which make up about 75 percent of the city’s general fund budget. Base pay for firefighters is more than $80,000 per year and employees can retire at age 50 with a pension equal to 90 percent of their salary, the result of a retroactive pension increase several years ago.

With the downturn in the housing market hammering revenues, Vallejo is asking the bankruptcy judge to void the collective-bargaining agreements that led to those salary and benefit arrangements. And the possibility of hard-fought union contracts going up in smoke has struck fear in the heart of labor groups.

The California Professional Firefighters union proclaims, “If allowed to stand, Vallejo’s attack on its own employees would send shock waves throughout the labor movement.” Gloster, the attorney representing Vallejo’s firefighters and police officers, says, “It’s very difficult to see how their politicians should actually do the hard work to balance their budgets if they can get a do-over with a simple bankruptcy filing.” Vallejo’s unions are contending in court that the city is not truly insolvent. The city rejected an offer from the unions for about $10 million in concessions.

Here in Nevada we are also in the midst of a financial crisis – a crisis created entirely by the fact that the government figured that not only is there an endless supply of money, but an endlessly increasing supply of money. We budget on a biennial schedule here and our crackerjack legislators and governor assumed that revenues would increase year after year after year…trouble is, revenues are nosediving in 2008 and aren’t looking any better for 2009.

This is the way government should budget:

Whatever the actual revenues were for the fiscal year two years previous to the upcoming fiscal year, assume that incoming revenues will be 10% less than that. Work your budget around those numbers. If, at the end of the fiscal year, you find you have bags of money left over because you lived within your means, then have at it – do whatever you want with that money. If you end up short, then you’ll have to do some trimming, but it is unlikely that you’ll have to do anything drastic. Simple and effective and it doesn’t preclude any particular spending, but it does ensure that you’re always assuming the worst and hoping for the best – which is the wise way to budget.

Will any government ever do this? Only if we insist. Will we do that? Not until we conservatives educate the populace on the connection between personal freedom and prosperity and limited government spending.

This may take a while, but its worth doing.