When expenses exceed revenues during a given period it is called
a deficit.
When expenses exceed revenues during a given period it is called a deficit. You’ve probably heard a related term, structural deficit, many times identified as the cause of our economic difficulties. To solve the problem it’s critical to understand its technical meaning. A structural deficit exists when the economy functions normally and we’re still obligated to spend more than we take in on a regular basis. The Office of Obfuscation came up with the term; they rejected, “We’re going broke,” because it was too easy to understand.
If anyone claims the recession caused the structural deficit, they do not understand the term. Perhaps they believe that recession is now the normal condition; if so, the recession is the “new normal.” New normal is another government term; it means, literally, “Oops, where the heck did that come from?”
The opposite of a structural deficit is a cyclical deficit. A cyclical deficit is caused by changes in the economic cycle. A cyclical boom can generate a surplus. That’s where we take in more money than we spend – yes, it’s technically possible even if you’ve never seen it.
Human nature and political opportunism pushes us to believe that every recession and deficit is temporary while every boom and surplus is permanent. That results in over-spending during bad times and under-saving with excessive long-term commitments during good times. An ongoing structural deficit will eventually drain all accounts. It does not happen by itself; someone puts the structure in place.
A recent New York Times article said that policy makers were working behind the scenes to allow states declare bankruptcy and “get out from under crushing debts, including the pensions promised to retired public workers” and investors in state bonds could possibly end up at the back of the line as unsecured creditors, all because of structural deficits.
Locally, the city has two problems, a cyclical deficit and a structural deficit. A recent report from Hollister’s Measure T Oversight Committee detailed the diversion of $3.5 million in Measure T funds to cover the combined deficit. Measure T supporters had pitched the one-percent sales tax increase as a way to provide extended public services, but the funds were never legally restricted; therefore, the city could use the money for any General Fund expenditure and that’s what happened.
Measure T took in about $3.9 million during the last fiscal year. A little over 10 percent – $400,000 – went as originally promised, to pay for enhanced services. The remaining $3.5 million went to pay ongoing expenses. Even after that massive transfer, we came up $200,000 short. In other words, we need an additional $3.7 million a year just to maintain the current bare bones service levels and some reserve.
About two-thirds of the diverted funds, $2.3 million, were used to maintain, rather than enhance, public safety costs, which continued to rise on a per employee basis. The remaining 1.2 million went to “other administrative expenses.” That split reflects the usual General Fund allocation, so it appears the city just filled the holes in the budget rather than permanently change its long-term spending patterns.
As the City of Hollister maneuvers to find a way to replace or extend the Measure T sales tax scheduled to expire in April 2013, remember this, no temporary solution can fix a structural deficit. The only way is to earn more, spend less or implement a combination of the two – all permanently.
That generates an interesting question. Why did the city, prior to and since the economic crash, increase their structural deficit when they only had forecasts of temporary funding increases?
Marty Richman is a Hollister resident.
