- The following data are from a recent federal budget:
| 2000 | 2010 | |
| Defense Outlays | 294,363 | 693,586 |
| Non-defense Outlays | 319.7 | 658.2 |
| Composite outlay deflators (2005 =1.00) | ||
| Defense | 0.8147 | 1.1327 |
| Non-defense | 0.8900 | 1.1256 |
- Compute the percentage change for federal defense and non-defense outlays in current-year dollars from 2000 to 2010. Divide that change into its real and price components.
- For non-defense outlays, convert the deflator base to 2000 =1.0000, and re-calculate the absolute change in these real dollars. Convert the deflator base to 2010 = 1.000, and recalculate the absolute change in real dollars. Why might budget strategists try to use one or the other of these two numbers to argue for more or less spending? Is either of the two base years more correct? Explain. Compute and compare the real percentage increases using the two different base years.
Identify the strategy represented in each of the following arguments taken from
budget discussions:
- A bill to increase the number of women eligible for Medicaid-funded prenatal
assistance in this state would not only save lives, but also cut state costs for
care of low-birth-weight babies and children with disabilities. Studies have
shown that every dollar spent on prenatal care reduces long-term health-care
expenditures by $3.38.
- The change in the Board of Health sanitation position from full-time to part-
time will demolish the inspection program. Rather than accepting the weak-
ened program, we would prefer that the program be terminated.
- Faculty salaries at Enormous State University rank seventeenth among eigh-
teen universities with which it competes. Substantial improvements in pay
must come in this budget year if major defections are to be prevented.
- In March, the second of two school-funding referenda failed (by a 2–1 mar-
gin) in the Riverside-Brookfield (Illinois) School District. The school board
responded by proposing the elimination of the girls’ badminton, swimming,
and cross-country teams; the boys’ soccer, tennis, and wrestling teams; seven
additional coaching programs; the cheerleading program; and the Pup-ettes (a
pompom squad). A phase-out of the German language program at the school
had been started before the failure of the referendum.
- The Unipacker II will return its full purchase cost in lower labor and mainte-
nance expense within two years of initial operation.
- An editorial in the Philadelphia Inquirer (September 24, 2008) argues for a regional sales tax to support funding for the arts on these grounds: “Making
sure attractions thrive is about more than satisfying the need for creative out-
let. It’s about dollars and good economic sense: The groups surveyed for the
study provide 19,000 jobs, generate $657 million in yearly revenue, and raise
$526 million in contributions.”
- The AIDS education program I have proposed for the biennial budget carries
a price tag of only $200,000. This cost represents an absolutely trivial percent-
age of the $10 billion the state spends each year and will have no impact on
the state fiscal crisis. Furthermore, the medical expense to the state associated
with even one AIDS case is more than $100,000, so it is the most misguided,
mean-spirited, and shortsighted of economies to deny this proposal.
- The governor proposes major reductions (80 percent of the $321 million per
year program) in state general assistance, a program that provides medical
coverage at about $120 per month to its 131,000 recipients (adults with no
children or other dependents). This reduction may cost more than the amount
it saves if only a fraction of the recipients end up in mental institutions or
shelters. For example, keeping one-tenth of the current recipients in the state
psychiatric hospital for ninety days would cost more than $200 million, and
keeping one-tenth of the recipients in a shelter for ninety days would cost
$22 million. The reduction is clearly a false economy.
- In response to budget reductions driven by a declining tax base, the Detroit
school system announced that parents would have to purchase toilet paper
for the public schools for the upcoming school year.
- An internal memo leaked to the media said that cuts to the National Weather
Service budget in FY 2005 would have a critical impact on its life-saving
mission. For instance, “warning lead times will shorten and tornado detec-
tion rates will decrease (as will most other NWS performance standards)
leading to the troubling and tragic conclusion that there will be unwar-
ranted loss of life.” Its operating budget for FY 2005 had been reduced by
2 percent.
- Former President George W. Bush left his request for funding to support the wars in Iraq and Afghanistan out of his budget submission for the total government and then submitted a separate request a few months later.
- In response to a countywide instruction to constrain spending, the Fairfax county, Virginia, fire department announced that it would eliminate “First Team,” a program of support to family members of injured firefighters, for an annual saving of $6,000.
- The police department of the City of Palm Bay, Florida, announced that, in response to a reduced budget and higher fuel costs, it would discontinue responses to burglaries in which the home or car owner had failed to lock his home or car.
- In response to a state fiscal crisis, the director of the Michigan Department of Human Services proposed cutting money for food banks and homeless shelters and for burials for the dead.
- Economist and former Secretary of Treasury Larry Summers argues in the (October 13, 2015): “if we were able to raise the gas tax by 40 cents and repair our highways and roads, we would create no new net burden on consumers: the benefit in reduced vehicle operating costs would at the very least offset their higher gas bills. In fact, since our cost estimate is conservative, the net effect on consumers would most likely be positive.”
