Budget Gimmick: Using Fines and Fees to Pay Down Unfunded Liabilities
Every budget process typically uses some sort of gimmick to patch budget holes. These gimmicks come in all shapes and sizes, but they never truly bridge the gaps and can have major unintended consequences on budgets as well as society in general.
Funding pension plans is something ALEC covers extensively in Unaccountable and Unaffordable, and, unsurprisingly, loads of gimmicks are used in an effort to pay down unfunded liabilities every year. One gimmick that can be tempting to use is paying down liabilities with court-imposed fines and fees – especially in law enforcement pension plans. In general, fines and fees are unreliable due to the instability of the generated revenue flow. One year, collections could be drastically up, the next year they could be drastically down, one of several problems associated with this method of pension funding.
Reliance on fines and fees is a lose-lose for everyone involved. Unfortunately, many states utilize fines and fees to help directly fund their court systems and pension plans for law enforcement. While a seemingly harmless and even appealing policy at first glance, it does not take much digging to realize the two main flaws this mechanism holds: they don’t yield the desired revenue, and they create perverse incentives at the expense of individuals.
Fines and fees are often imposed without regarding person’s actual ability to pay. Serving purely as penal measures, this bogs down individuals with debts they are often willing, but unable to pay due to their socio-economic status and life circumstance. These court fines, fees, and their associated late fees, court costs and taxes, all compound and leave individuals, often times indigent, in vast amounts of court debt. Collateral consequences of this unpaid debt include denials of otherwise just record expungements and driver’s license suspensions—consequences which directly affect employment opportunities and significantly lessen the already slim chance the court debt is ever paid.
Clearly, this is a bad for those subject to the fines. However, it’s also bad for the programs which seek to benefit from the revenue because the money just isn’t coming in. Once a court system or a pension fund is dependent on court fines and fees, it can become virtually impossible to reform it, particularly when implemented as a constitutional amendment. Because the authority to assess fines and fees can be misused to unjustly generate revenue, those benefiting from it are often incentivized to maintain the status quo, further contributing to the compounding fines and fees spiral, with losers on both ends. This unnecessarily punishes, rather than brings justice to, those subject to excessive fines and fees and inadequately funds essential government functions, all while undermining public confidence in the integrity of the justice system.
Policymakers should stop forcing courts and law enforcement to fund significant percentages of their budgets, including pension plans, through fines and fees. Instead they should fund them through a consistent and transparent budgetary process. Fortunately, there’s a myriad of ways to so. The most effective way of ensuring funding is to switch from the outdated defined-benefit model to the 401(k)-style defined-contribution model. This model can help keep unfunded liabilities low while giving employees a greater degree of freedom in their plan management. Furthermore, direct appropriations should be made to pay down unfunded liabilities. This way lawmakers can determine the amount of money appropriated as opposed to having a specific revenue flow dictate how much can be appropriated.