Have Dedicated Funds Become a Fiction No One Believes?

Charlie Arlinghaus

May 13, 2015

As originally published in the New Hampshire Union Leader

It has become trite to say in budget debates (as I did this week to a friend) that “I am generally opposed to dedicating revenue sources but believe that, once dedicated, that arrangement should be honored.” It sounds good but none of us really mean it.

The state’s budget can be divided into two pieces: That part paid with federal funds and that paid with state taxes and fees. The state portion includes the general fund — the regular state operating budget in which every program and department are competing priorities for state taxes and fees. But some portion of state spending is set aside or “dedicated.”

The largest and most obvious example is the highway fund. A provision of the constitution restricts the way in which taxes on gasoline and other vehicle related fees can be spent. To help ensure that happens, those monies are segregated in a dedicated fund.

Similarly, some licensing fees are spent on the regulatory costs associated with those licenses. Those monies are dedicated on the theory that if the state stops spending a license fee on the license or the activity, you must stop charging the fee.

Over time, however, the number of funds has skyrocketed and the portion of the state budget that is dedicated — and therefore separate from most budget debates — has increased.

The non-federal portion of the state budget in 1998 was 48% general fund and 52% dedicated funds. Sixteen years later, the split was 38% general fund with 62% dedicated.

Program after program fretted about being unable to compete in the budget so they tried to find dedicated revenue sources and thereby avoid being part of the budget debate. While legislators ought to consider every dollar of spending whether dedicated or not, human nature is such that non-general fund spending is routinely ignored. The theory is that cutting spending paid for by a dedicated fee only lowers the fee, it doesn’t allow the savings to be spent elsewhere. In the quest to balance the limited dollars available in the general fund budget, these dedicated funds are ignored as a side issue.

There are now a few less than 300 individual dedicated funds. The Highway Fund  is the biggest. The Turnpike fund must be dedicated because specific bonds are backed only by the tolls. But there are many smaller funds as well.

The Japanese Charitable Trust Fund had a balance of $88,887 at last report. In 1905, the government of Japan gave us $10,000 in gratitude for the Treaty of Portsmouth negotiations which ended their war with Russia. Why politicians haven’t scarfed this up yet isn’t clear. Saving up for cherry trees I suppose.

The Public Interest Payphone Fund reclaims abandoned deposits in the name of the state and requires the phone company to occasionally install a “public interest payphone,” a payphone in a place where it might be needed but has little commercial need. You’ll be surprised to know that the fund paid for 5 PIP payphones as recently as 2012.

More likely to be raided are the bigger funds that are less directly connected to their revenue source. We have a special license fee for moose plates which funds a wildflower program among other things. We tax recorded deeds and use the money to fund land and historical conservation. Legislators have shown a willingness — perhaps eagerness — to raid these sorts of funds as needed.

Experience suggests that finding a dedicated revenue source for your program is a speed bump not a road block. A dedicated source — as opposed to a strictly regulatory fee — is simply a tax under another name. We tax deeds for this program, use license plate fees for this, and tax electric companies for something else.

When there is little pressure the money goes where the group who got the dedication wants. But in tougher times, everything competes against everything else. It seems disingenuous to pretend a fund is dedicated. But by the same token does it make any sense at all to say that developmental disabilities programs must fend for themselves in the budget process while the wildflower program is sacrosanct?

I’d prefer to honor the dedication of as many sources as possible but let’s not pretend there is much of a difference between the taxes that fund wildflowers and the ones that fund mental health programs.