Questions for Idaho Economist Mike Ferguson
When Mike Ferguson was appointed chief economist for the state of Idaho in 1984, he was 34 years old. He went on to serve six governors, monitoring the state’s revenue streams and producing economic forecasts for the next twenty-six years. One of his proudest achievements, as he recently told me, was helping Republican Governor Dirk Kempthorne push through a sales tax increase to safeguard public education during a period of economic contraction in the early 2000s. Since then, the state’s Republican Party has become increasingly vocal in its anti-tax stance, and Ferguson has watched with growing dismay as the state has drifted rightward. He retired in 2010, but a year later—having “failed miserably” at being a retiree—he launched the Idaho Center for Fiscal Policy, a nonpartisan organization that examines the state’s government spending, budgeting and fiscal policy. Here, he talks with The Nation about taxes, education services and the consequences of shrinking government until, as Grover Norquist pungently puts it, it can be drowned in the bathtub. —Sasha Abramsky
On April 13 you issued a report on Idaho’s public school funding that identified long-term trends from 1980 to the present. What were the key findings?
What I found was two core issues: one thing was that over the 1980s and ’90s, public school funding was relatively stable, hanging in at about 4.5 percent of Idaho personal income and a relatively constant share of the state’s overall spending on state programs. In 2000 the state’s share of spending on public education, or what I call "investing in children," began to decline. It fell to a low of 3.4 percent of personal income in the executive budget presented in January of this year.
The other thing I found was that up until 2006 the state used a considerable amount of property taxes to fund public education. About a quarter of public education funding came from the property tax. The largest share of that was equalized, meaning that vast disparities of wealth across school districts were essentially eliminated. In 2006 a special session of the Idaho legislature essentially swapped sales tax for property tax, [which led to] a $260 million reduction in property taxes used for schools. To replace that, the sales tax was increased from 5 to 6 percent, a $210 million increase. So you had a net reduction of $50 million. Since 2006 there has been a continuing decline in public school funding and a use of supplemental override levies to fund public schools. [Such levies aren’t equalized, so rich districts end up being allowed to spend far more on their schools while poor districts are left to wither.] When you’re using supplementals, the abilities of local districts vary dramatically.
Idaho seems to have pioneered a lot of the small-government, anti-regulation rhetoric in the West. How has this affected decision-making in recent years?
It’s a real decline that’s happening. In 2003 Idaho had a fiscal crisis related to the 2001 recession. The governor at the time, Dirk Kempthorne, made a decision to push for a 1.5 cent increase in the sales tax, from 5 to 6.5 percent, for three years. I was very heavily involved in that process. I presented information to legislators and other folks. It created the longest legislative session in Idaho’s history. In the end, the governor prevailed with a 1 cent increase for two years that was sunsetted. It worked. It prevented very serious cuts in public services, including public schools.
In more recent years, we’ve seen worse economic conditions, with the Great Recession. Rather than consider temporary measures to deal with that, we’ve seen a desire or a willingness to deal with whatever the existing revenue stream provides without making any adjustments. It means that we’ve had the first-ever nominal cuts in public education funding from the general fund. We also saw, in 2011, some pretty drastic cuts in the provision of health services through Medicaid. We had a $35 million reduction in state funds, which led to a corresponding drop of $70 million in federal matching funds. There’s a very significant impact in terms of the basic functions of state government: education, healthcare for people with disabilities, low-income pregnant women, mothers of young children. And then very vulnerable parts of the population, the people with severe disabilities—there were pretty harsh cuts.
Economics is intimately tied in with politics, of course. What’s happening to Idaho’s politics?
There’s a hardening of positions. During the 1980s, Idaho had pretty difficult economic challenges. We had a very severe recession in the early ’80s, as severe as the Great Recession. From 1983 to ’87, Idaho increased its corporate income tax, personal income tax and sales tax—and that allowed public services to continue uninterrupted. From the late ’80s to the early 2000s, Idaho had some spectacular economic performances. I’m not suggesting tax increases created a vibrant economy, but it certainly didn’t impede it. Now the storyline goes that we need to cut taxes in order to get Idaho’s economy out of the doldrums. And the evidence doesn’t really support that notion.
Why does it carry so much traction?
I wish I knew. It’s often guided more by emotion than it is by actual analysis and fact-based information. We’ve seen the rise of the Tea Party, and that’s had a lot of traction in terms of influencing public policy, both nationally and at the state level. There is a distinct bias against the public side of the ledger. We have things like the GSA scandal that reinforce the notion that government’s incompetent. But you can find those sorts of things in the corporate world, and nobody’s suggesting we eliminate the private sector. In my mind, what’s missing is a balance, the idea that some things we do collectively as a society are done through the public sector, and other things are done through the private sector.
What are the broader consequences for the cuts in spending on Idaho’s schools you’ve identified?
Education is among the—or the top domestic policy issue. Our strength as a nation springs from our economic success, and I believe our economic success springs from our investment in human capital. We need to keep sight of that. It starts in early childhood and continues through higher education. One of the things that happened after World War II was the GI Bill; a lot of people were able to go to college. And we had a strengthening of the middle class because of access to education. There are lessons from the past that we’re losing, we’re forgetting.
What would you do differently?
I’d recognize there are times when you have to make adjustments to the revenue stream in order to be able to keep providing essential services. That was what Kempthorne did in 2003. It went against every grain in his body—but he gave a very memorable State of the State message in which he said he wasn’t going to preside over the dismantling of state government. That has not been the recent history in Idaho. Since about 2000 Idaho has been, in general, cutting taxes. In the Great Recession, we went in earlier, went deeper, and have come out slower than other states.