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Our Opinion: Budgeting process meets law of diminishing returns

Our Opinion: Budgeting process meets law of diminishing returns

March 10th, 2011 in News

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.