[Speed Gibson,
Monday June 4, 2007 at 9:46am]
Adjusting for Inflation
At first glance there would appear to be merit or at least equivalence in the DFL's position of automatic indexing of state budgets to inflation vs the current "it is what it is" system implemented a few years ago. Actually, the current system is the best.
King Banian, chair of the Econonics Department at St. Cloud State University has detailed here, here, and here why this is wrong from a public policy perspective, even if it doesn't trigger automatic spending increases.
Now that Pawlenty has rejected the change via a veto, the DFL is somewhere between arguing and whining that such adjustment is what businesses do routinely, something the GOP should appreciate. This is false. As a veteran of many a budget cycle and observer of many others, I assure than businesses that want to stay in business do nothing of the kind. There are no tacit approvals for increases in any budget category, particularly when it comes to personnel.
The question isn't what will providing the same function cost next year if nothing else changes, for something if not everything always does year to year. There are shifts in consumer demand, challenges from competitors, governmental changes in taxes and regulations, market fluctuations and technology innovations to be considered.
The question is first what is needed to support next year's business plan and what options exist to provide them. You consider hiring more people or laying some off. You consider outsourcing to consultants. You consider not doing some tasks at all, exploring the effects. You question the hierarchies, to see if key processes are being handled by the right people in the right departments.
Adjusting for inflation is a reality, but only figured at the end of extensive introspection and review. To simply observe that total company expenses tend to rise with inflation in no way means that business plans such an outcome. Indeed, you will see some years where expenses rise dramatically more than inflation, others dramatically less, as in actual cuts.
To paraphrase King Banian, asking for a larger budget to do the same work is an admisssion that you (the area's manager) cannot further control rising costs, be they inflation-related or not. To bypass that truly does help put government growth on auto-pilot as Governor Pawlenty says.
King Banian, chair of the Econonics Department at St. Cloud State University has detailed here, here, and here why this is wrong from a public policy perspective, even if it doesn't trigger automatic spending increases.
Now that Pawlenty has rejected the change via a veto, the DFL is somewhere between arguing and whining that such adjustment is what businesses do routinely, something the GOP should appreciate. This is false. As a veteran of many a budget cycle and observer of many others, I assure than businesses that want to stay in business do nothing of the kind. There are no tacit approvals for increases in any budget category, particularly when it comes to personnel.
The question isn't what will providing the same function cost next year if nothing else changes, for something if not everything always does year to year. There are shifts in consumer demand, challenges from competitors, governmental changes in taxes and regulations, market fluctuations and technology innovations to be considered.
The question is first what is needed to support next year's business plan and what options exist to provide them. You consider hiring more people or laying some off. You consider outsourcing to consultants. You consider not doing some tasks at all, exploring the effects. You question the hierarchies, to see if key processes are being handled by the right people in the right departments.
Adjusting for inflation is a reality, but only figured at the end of extensive introspection and review. To simply observe that total company expenses tend to rise with inflation in no way means that business plans such an outcome. Indeed, you will see some years where expenses rise dramatically more than inflation, others dramatically less, as in actual cuts.
To paraphrase King Banian, asking for a larger budget to do the same work is an admisssion that you (the area's manager) cannot further control rising costs, be they inflation-related or not. To bypass that truly does help put government growth on auto-pilot as Governor Pawlenty says.