Budget Crunches Supply Golden Opportunities for Governmental Reform

Unprecedented budget deficits at the local, state and federal levels of government should not be cause for despair, but rather taken advantage of to force the public sector to confine itself to its constitutionally delegated powers.

In last Thursday’s (June 18, 2009) Orange County Register, columnist Shawn Steel jumped on a bandwagon I’ve been playing lonely drummer for since California’s last major budget “crisis” in 2003 (see here, here and here). Facing a revenue shortfall variously estimated to amount to as much as $21 billion for the fiscal year beginning July 1, and $48 billion over the next 18 months, Sacramento’s political class threatens “draconian” cuts to popular public programs, compromising, among other things, Californians’ safety and access to higher education, unless they bend over and accept significant increases in their tax bills, which already rank among the highest in the nation and have been driving private businesses and ordinary residents out-of-state for at least the past two years.

There is another option, however, as Mr. Steel and I have written. The government of California is the state’s biggest landlord. It owns nearly 33,000 properties, ranging from modest storage facilities at ranger stations in state-owned parks and at rural Highway Patrol offices, to Berkeley’s Sproul Hall, to San Francisco’s Cow Palace, to Los Angeles’s Memorial Coliseum, to San Quentin State Prison. Estimated to be worth something on the order of $167 billion, such state-owned assets are by-and-large what Hernando de Soto has in other contexts called “dead capital”—poorly managed, underutilized, costly to maintain and therefore ripe for sale to the private sector, which has the proper incentives for deploying them to their highest-valued uses.

Selling some—or all—of these state-owned properties would, to be sure, provide only temporary budgetary relief. The public revenue raised in this way certainly is no substitute for fundamental reform initiatives that limit state and local governments to their core functions of defining and enforcing private property rights and safeguarding citizens’ lives and liberty. But it’s a start. In addition to plugging the current budget gap, holding such a yard sale would get the public sector out of businesses that it should not have gotten into in the first place. Where in the constitution is the authority for public ownership and management of convention centers, sports venues, fairgrounds, golf courses and many other such white elephants?

What is true for the State of California is true for the federal government as a whole: It might surprise you to learn, as it did me, that Washington owns nearly 85 percent of the land in the State of Nevada, 69 percent of Alaska and about half of areas of the Pacific and Mountain states. As of September 30, 2004, the value of federally owned real property within the 50 U.S. states was estimated by the General Services Administration to be worth almost $327 billion. That might not come close to covering the current fiscal year’s federal budget deficit, but it might “pay for” a zeroing-out of the capital gains or corporate income taxes, which conceivably would.

William F. Shughart II is Research Fellow and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.
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