Gary M. Galles – July 7, 2019
The Los Angeles Times is upset that California state cap-and-trade funds — legally earmarked for projects to reduce greenhouse gases — will be diverted elsewhere. As documented in a June 14 editorial, when the legislature nixed Governor Newsom’s “water tax” to fund cleanups of contaminated water systems in the state, they simply decided to take $100 million in cap-and-trade funds to pay for it (despite a $20 billion-plus budget surplus).
Politics as Usual
The Times’ worry is that “Lawmakers undermine public trust in — and public support for — the states’ climate program.” But that concern is far too narrow. Bait-and-switching designated spending is a ubiquitous aspect of government and provides more than ample justification for a lack of public trust that it will accomplish what it promises.
For instance, in late 2016, Oakland passed a tax on sugary beverages to finance health and education programs, including an advisory board to ensure the money was well spent. But within a year, the mayor already wanted to divert $6 million of it to help fill a budget hole. And there is a long history of bond funds going to different projects than promised (anyone remember Los Angeles’ Propositions BB or K?), which has generated such distrust that citizen oversight boards are routinely formed (though with little success or credibility) to “guarantee” that the government has reformed and will now “go and sin no more.”
There are many other examples of diversions of earmarked funds. One that mirrors the current bait-and-switch effort is the state lottery. Its funds were promised to supplement education spending, but politicians simply took those additional funds into their considerations and reduced other budgetary support, freeing up that money to be spent however the state government decides, just as if the lottery proceeds went directly into its general fund. In fact, as professors Patrick Pierce and Don Miller concluded in a study, “Regardless of the state, the educational spending rate declined once a state lottery went into operation.”
Outcomes Matter More Than Intentions
Even when government expenditures go where they are promised, the effects are often far different than advertised. For instance, food stamps (now SNAP) are largely equivalent to cash because the vast majority would purchase more food than their food stamp allotments. That allows food stamps to replace money that recipients would have spent on food anyway, freeing it up to use however they choose. Housing, winter heating, and other subsidies have similar effects because to the extent they replace money that would have been spent on those items, earmarked funds can be diverted wherever recipients select.
Similar diversions have also often hobbled the effectiveness of humanitarian aid. It frees up resources otherwise required to buy such supplies, allowing them to be spent wherever the recipient government chooses. As a result, much is lost to corruption or converted to other uses, including military spending, which is sometimes used to threaten citizens or neighboring countries.
The Times is right to object to what they call the “cap-and-trade fund heist.” However, similar mechanisms are at work in many government programs and policies. And while they provide many reasons for cynicism and anger, they offer little reason to trust government promises of what they will do. Further, even it does what it promises, the results are often far different than those promises. Neither fact offers assurance that government can reliably advance our general welfare. That is worth remembering beyond the heartburn over the latest diversion, as it will not be the last, and recognizing the problems before the newest disappointment-to-be presents itself for voter support is much better than afterward. In this case, The Who’s commitment that they “Won’t get fooled again” offers us a very good model.
This article was originally published at Fee.org. Gary M. Galles is a professor of economics at Pepperdine University.
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