Monday, May 23, 2011

Gotta Spend Every Penny

Obviously, plenty of people have failed to learn the lessons of the economic downturn.  It took less than an hour after the Department of Revenue released new projections for the next two years before every advocacy group started sending out press releases calling for the rollback of budget cuts.  Restore all funding to schools, restore all cuts to shared revenues, save Seniorcare, bring back the high speed train.  If there was a way to spend that projected $636-million some political action group was pushing for it.

What seems to be lost on everyone is that these are merely projections of tax revenues.  Let's keep in mind that the reason we are in the gigantic budget mess is that the Doyle Administration and the Legislature based its budgets on far-too-optimistic revenue projections--and used one-time funds to balance any shortfall.  Could anyone really have justified a projected five-percent growth in tax revenues in 2009--based on all of the economic indicators at that time.  But so long as you believe you are going to have that money--you are going to have that money--right?

If you want an everyday example to consider, think of the state as a commission salesperson.  This salesperson has some long-term contracts that have provided a revenue stream that he or she could reliably count on.  But then, those clients had their own financial difficulties, and the salesperson lost some contracts--while other cut back on what they were spending.  Now if that salesperson is responsible, he or she would make the cuts in his or her personal budget to live with the actual income that is coming in.  He or she wouldn't pretend there is less money available and continue to spend what they spent before--and they certainly wouldn't decide to spend even more.

So after making those responsible budget cuts, that salesperson has a couple of good meetings with potential clients--who say they will consider doing business.  Should the salesperson immediately adjust his or her personal budget based on the potential commissions that might come in?  Should they just abandon the effort to control their expenses and just go back to racking up debt and having to use bookkeeping tricks to make it look like their budget was balanced?  Or would the responsible person wait until those contracts were signed on the dotted line and the revenue was actually in the bank before adjusting their spending habits?  And would someone who went through the pain of making major cuts maybe consider putting away some of the new income to make sure things aren't so nasty the next time the economy takes a downturn?  Or would they just spend every penny again--because that's what he or she had always done before?

I guess the way you answer that depends on what lessons you have learned over the last few years.

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