The Hazards of Designated Spending

With the new year, legislators already have introduced more than 2,300 bills on a variety of topics.

That's what legislators are supposed to do, of course. But among those would-be laws are bills that set up taxes with the generated funds assigned for specific uses. This designated spending approach is part of the reason California is in its current fiscal straight jacket.

On the surface, designated spending has appeal. Everyone wants to know where their tax dollars go, and laws with designated spending tell us just that. These days, about 70 percent of all dollars allocated in the legislature are designated for various programs and services.

Gasoline taxes are designated for road repairs and maintenance. Tobacco taxes are designated for health spending. A surcharge of one percent on wealthy income earners goes for new mental health programs only. In some cases, percentages of state revenues are designated, such as 40 percent of the general fund that is designated by law for K-12 public education.

This time, at least two bills have been introduced with specific audiences in mind. One bill would add a tax of one cent per ounce to sugar-sweetened beverages, with the $1.7 billion collected annually designated to fight childhood obesity.

Another would add $1.50 to each pack of cigarettes, with the $1.2 billion collected annually designated for cancer research and smoking prevention. Fighting obesity and cancer are certainly noble objectives, so what could be so wrong with these legislative efforts?

The more the state relies upon designated spending, the more it is unable to move funds to where they are needed most. This lack of flexibility keeps the state from spending efficiently and wisely. What if we don't need all $1.7 billion to fight obesity? Too bad. The new beverage tax would just go into that fund, period. And the same goes for all the other designated spending categories.

At a time when resources are more precious than ever, we might want to think about separating revenue sources from spending priorities. Keeping money flexible may not provide the assurance that X dollars are going to Y causes, but it will allow the legislature to set priorities of where and how those funds should be spent as the times dictate.    

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