Our Opinion: Budgeting process meets law of diminishing returns
Thursday, March 10, 2011
If there is truth in the adage that one must spend money to make money, the ensuing question is: How much?
The question now is before state lawmakers in the form: How much must the state budget to advertise its Lottery, which channels proceeds to education?
The House Budget Committee is considering a proposal to reduce the Missouri Lottery’s advertising budget from $9.3 million this year to $1 million for fiscal year 2012.
Under the proposal, the $8.3 million difference would be transferred to an education fund where a portion of Lottery proceeds are directed.
Would the budget cut diminish anticipated Lottery revenues by more than $8.3 million?
Lottery Director May Scheve Reardon says yes.
She told the committee the budget cuts are expected to decrease revenues for education by $24 million, from $259 million this year to a projected $235 million.
But House Budget Committee Chairman Ryan Silvey, R-Kansas City, disagrees. He pointed out the Lottery’s approximate $1 million advertising budget in fiscal year 2010 generated about $250 million. He wondered why the dramatic budget increase this year isn’t translating into a significant hike in revenues.
“It seems to me that instead of doing more with less, you’re doing less with more,” he said.
His reference raises another economic concept — the law of diminishing returns.
The basis of the theory is that continued effort, or money, declines in effectiveness once a certain saturation point has been reached.
Discussion also focuses on variables — competition from other state lotteries, the price of gas — that influence projected and actual revenues.
Despite those variables, we believe Silvey advances a valid argument. If a $1 million advertising budget generated $250 million in 2010, why is a $9.3 million budget expected to produce only $259 million?
Has the Lottery advertising budget reached the point of diminishing returns?
And doesn’t state government have financial experts — in legislative research or the offices of treasurer or auditor — able to make realistic projections?
In the final analysis, budgeting must be about efficient, effective spending.
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