As state and local officials work through budget-related COVID pandemic challenges, they should pay heed to Benjamin Franklin’s counsel – “out of adversity comes opportunity.” In this case, the opportunity is finding more efficient uses for taxpayer dollars and then providing permanent state and local tax relief.
The amount that states and local entities tax is solely determined by the amount each chooses to spend providing services. The vast majority of both groups found ways to reduce costs and offset some revenue losses during the pandemic, and a great deal of the savings was in personnel.
The December jobs report shows a reduction of 350,000 state government jobs compared to the year prior, and local government units collectively had 863,000 fewer workers. In Kansas, there were over 5,000 fewer state jobs and almost 11,000 fewer local government jobs.
With more than 1.2 million government jobs gone, state and local legislators should ask agencies some frank questions, like:
- What essential functions were not performed in 2020?
- What is the annual all-in cost of jobs that were cut (pay, benefits, pension, etc.)?
- How much does the unfunded pension liability decline by not filling these jobs?
If the average all-in cost is just $60,000 per job, there would be almost $73 billion on the table for possible tax relief. The number could be much higher, however. Some states bizarrely added government jobs while the private sector was being decimated; those governors may blame the COVID pandemic for the need to add more staff, but that doesn’t wash since most states made significant reductions.
Five states – Alaska, Iowa, Montana, New Mexico, and Oregon – reported more state government employees in December compared to the year prior. The 50-state average state job reduction was 6.4% but some states only made smallish cutbacks.
Utah and Idaho, both rapidly growing states, showed strong fiduciary responsibility toward taxpayers. They were the only states with more private-sector jobs compared to a year ago, but they still managed to reduce some state jobs; Utah cut state jobs by 3.3% and Idaho by 8.9%. This builds upon prudent decision-making from this duo of states, which ranked 1st and 3rd respectively for economic outlook in the latest edition of the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.
State and local legislators will be lobbied heavily to replace every government job, and some may need to be replaced. However, policymakers can push back against the arguments for more government jobs with logic and facts.
Those who say government workers contribute to the economy should be reminded that every dollar to pay government workers is first extracted from the economy and hardworking taxpayers. That’s not to diminish the value of necessary government workers; it’s just a reality that is too often overlooked.
‘We’re already cut to the bone’ and ‘we are very efficient’ are two more justifications that will be thrown at state and local legislators. Here, legislators can respond with questions like, ‘how do you measure that’ and ‘have you analyzed whether these functions could be provided more efficiently by outsourcing or by collaborating with another government unit.’
Comparing the number of government workers per-capita across states is a good start at measuring efficiency. Using the July 2020 population estimates and the December 2020 jobs report, New York has 59% more state and local government employees than Florida (682 per 10,000 population vs. 429). Both states have similar populations and provide the same basic services, but Florida does so much more efficiently – and their residents benefit by having a much lower tax burden.
Even with the December job reductions, Kansas is 30% above the national average for state and local government jobs per 10,000 of population, with the 6th-worst ratio in the nation. That means Kansans are paying a lot more property, sales, and income tax than necessary.
State and local legislators should seize this opportunity presented by the COVID pandemic to insist on prioritizing spending and using savings to provide permanent tax relief. Everyone deserves a lower tax burden, especially the 7.5 million Americans (including 45,000 Kansans) who lost jobs and are still expected to pay property tax. Moreover, real tax relief that enhances economic competitiveness for states and localities will create a pathway for those currently unemployed individuals to rejoin the workforce.
A version of this column appeared in InsideSources.com, co-authored by Dave Trabert and Jonathan Williams. Trabert is the chief executive officer at Kansas Policy Institute and Williams is chief economist and executive vice president of policy at the American Legislative Exchange Council.