January 11, 2007

The Politics of “Surplus”

According to dictionary.com surplus is "an amount, quantity, etc., greater than needed."

Many state, including Kentucky, Arkansas, and Montana, are experiencing revenue that is higher than previous projections. The word many legislators and reporters have been using to describe this type of fiscal situation is "surplus". However, this word is disingenuous and often doesn't give taxpayers a good understanding of their state's fiscal situation.

For example, many Washington State reporters have been writing about higher than expected revenues as a "budget surplus." Calling it a surplus encourages policymakers to think of this as extra money to be disposed of somehow, whether through added spending for specific programs or even permanent tax cuts. But before legislators start spending this money, it's important to not think about this money as being extra or more than is necessary.

Certainly, the creation of a surplus in no way means that there is more money than needed. Every state can identify an area where increased revenue could be put to good use.

In fact, in most states the baseline for judging projected revenue is quite low. Over the past decade or so many states have slashed education, health, foster care, and environmental program spending. This "slashed" budget is what is used as the baseline for making projections into future years. Therefore, the baseline by which this surplus is calculated is arguably too low already.

Finally, these increases in projected revenue can also be quite temporary. Increased revenue this year hardly guarantees more revenue in future years.

Decisions about how to spend increases in projected revenue should be made with much care. Frankly the word surplus is a loaded term and implies something that may not be true.


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