Almost every state has serious budget problems, with legislators scrambling for spending cuts and tax increases. The cuts being made in state spending are deeper and more widespread than in any recent recession. A major reason for this is, obviously, that states have overspent in a way that we have not seen before.
This overspending has both economic and moral consequences. The economic consequences are destabilizing deficits and the perpetual threat of tax increases. Private entrepreneurs find it less affordable and more uncertain to do business. On the moral side, each spending cut is effectively a promise being broken by the government. A good example is the budget cuts being made to higher education in New Hampshire. The Concord Monitor has the story:
After facing significant cuts in the House phase of the budget, officials of the state university system had lobbied the Senate for increased appropriations. But the Senate approved less spending. Yesterday, the university system announced it is preparing a budget based on the 45 percent reduction in state appropriations approved by the House. University system officials have recommended eliminating up to 200 jobs across the system, changing employee benefits, deferring facility repairs and depleting reserve accounts. The university system said tuition for in-state students will increase between 7.4 percent and 8.6 percent at residential campuses.
There is no doubt that universities, especially the state-run ones, have a bloated faculty and unnecessarily large administration. Some cuts will not harm the actual educational experience that students enjoy. At the same time, above a certain limit, the cuts will negatively affect the quality of the education that the universities produce. When that happens, the state starts breaking promises to families who planned their finances around sending their kids to a lower-cost state university.
Government should definitely spend less money. That is the only way to avoid recurring budget deficits. That said, there are good ways to do it, and bad ways. The bad way to cut government is to simply slash appropriations across the board. These cuts shortchange taxpayers by giving them less back on the taxes they pay. Tax increases have the same effect: they raise the price of government services without improving the quality of those services.
Deficit-reducing budget cuts do not solve the underlying budget problem. The spending programs that caused the deficit are still there; they may have been scaled back somewhat by the budget cuts, but the spending structure remains intact. In the case of the University of New Hampshire, this means that families across the state still plan their children’s education around the existence of the tax-subsidized academic institutions. The educational bureaucracy within the university will lobby to have their funding restored.
So long as government maintains its spending structures, such as a state-run college system, it will inevitably fall back in the same spending-as-usual tracks as soon as the economy picks up again. Legislators tend to forget that it was those very spending structures that brought the state budget into a deficit in the first place.
The good way to cut government spending is therefore to reform away the spending structures themselves. This means privatizing the University of New Hampshire and let it function as an independent, charitably supported non-profit entity. This is a far more realistic idea than it might seem at first glance: the Mackinac Center for Public Policy has developed a plan for privatization of the University of Michigan system. It is fairly easily adapted to New Hampshire.
Once in private hands, the university system has to operate on the same market conditions as other private schools do. Families are let off the hook: in fiscal year 2010 New Hampshire used $208 million of its taxpayers’ money toward higher education. If the privatization of the university system is coupled with corresponding tax cuts, the end result will be a win-win. The university system operates on market-determined conditions – a guarantee for higher quality and lower cost – while taxpayers can spend more money in the local economy. While students get a better, more affordable education, more of them will get jobs right at home as the local economy benefits from the tax cuts.
