“EVERYONE DOES IT”
(December 2004) The Murphy Commission, a Policy Foundation project, noted in 1998, that the number of Arkansas state employees had increased at a high percentage rate in recent decades.1 A Commission report observed, “(O)ver several decades Arkansas has seen phenomenal growth in state government.” The panel recommended a major reorganization that featured fewer agencies to save tax dollars but Arkansas legislators ignored the idea and the problem has worsened.
Gov. Mike Huckabee revived state government reorganization in 2003. He used an 8 ½-by-25-foot organizational chart created by the Commission to illustrate the need for more efficiency in state government. The chart is large because there are so many state employees, agencies, boards and commissions, and operational units. Huckabee’s proposal passed the state Senate but fell one vote short in a House committee.2 House members argued further study was needed but the Commission spent three years (1995-98) studying the issue before releasing its report.
Officials Ignore Private Sector Job Losses
Most Arkansas officials have sought to maintain government sector inefficiencies, while enacting policies that have harmed private employment sectors such as Manufacturing. The Commission identified state government inefficiencies. It also noted Arkansas’ high tax rates on capital investment place it at a disadvantage. Some legislators attacked the Commission’s findings. But a firm retained by the legislature to survey Arkansas' ability to attract a manufacturing superproject compiled a "Tax Strength-Weakness Analysis" that found the state was at a competitive disadvantage in key areas of tax policy. The study’s authors noted:
"A state's tax structure can be beneficial or detrimental to a company's long term profitability. Firms seeking to locate or expand a facility understand that taxes are a necessary burden that enables the government to provide services to all businesses and citizens of the community. Businesses realize that any location they choose will result in a tax burden for the company. Therefore, companies take into consideration the tax and assessment rates at which taxes are levied in areas being evaluated.”3
"The State of Arkansas," the authors said, "must understand this fact and take the necessary steps to minimize the state tax burden on companies interested in locating or expanding their operations in the state."
Officials have failed to follow this expert advice. Instead, they have passed tax increases that place Arkansas at a greater competitive disadvantage with other states. Their failure to lower tax and regulatory burdens has contributed to job losses in Manufacturing, the state’s second largest private industry sector, which employs more than 200,000 Arkansans. Manufacturing employment peaked nine years ago--in 1995. By contrast, total Arkansas Government employment continues to grow.4 The Policy Foundation noted in a 2003 memo (“Convergence”) that Government jobs would exceed Manufacturing employment. Government did surpass Manufacturing in the November labor market report (Arkansas Employment Security Department), released last week:
The “Everyone Does It” Argument
The preservation of Government jobs is more important to reorganization critics than the loss of more than 50,000 Arkansas Manufacturing jobs.
Officials have defended their failure to reorganize state government by raising a number of objections. First, they argue reorganization would not save tax dollars. This objection is easily disposed of. The Commission studied other reorganization efforts and found they did save tax dollars. Second, officials claim Government employs more than Manufacturing in every state. This argument, tantamount to asserting “everyone does it,” does not withstand serious scrutiny, as the following chart illustrates:
Third, officials make another “everyone does it” argument by claiming every state has lost Manufacturing jobs. They overlook Nevada, which has led the U.S. in employment growth since the 2001 recession ended. Nevada Manufacturing employment has increased by 6.7 percent in the last three years. The absence of a corporate or individual income tax in Nevada is one reason the state has led the U.S. in employment growth.
Arkansas state government reorganization is needed more today than in 1998 when it was first proposed by the Murphy Commission. Reorganization would save tax dollars. These savings could be earmarked for other purposes, including tax cuts that would make Arkansas more competitive in attracting good-paying Manufacturing jobs.
Reorganization critics have sought to maintain and expand Government employment. They have not expressed similar concerns or taken action to stem Arkansas’ massive loss of Manufacturing jobs. Since Manufacturing employment peaked in 1995 Arkansas has lost nearly one in five jobs in this sector. Officials who raise “everyone does it”-style arguments are seeking to avoid responsibility for massive job losses.
1.The Commission noted the number of state employees had increased more than 200 percent since 1965. Policy Foundation, 1998: “The Role and Function of State Government” and “Current Structure of State Government in Arkansas: Trends in Growth, Organization, and Spending.”
2 Policy Foundation memo, August 2004. “State Government Reorganization Plan Deserves Second Look.”
3 Policy Foundation memo, “The Fluor GLS Study And Arkansas’ Hunt For A Manufacturing Superproject.”
4 Total Arkansas Government employment includes federal, state, and local components. Federal employment has been flat. State and local employment, including public education, has expanded.
5 Source: U.S. Bureau of Labor Statistics, October 2004 data.