(This article is excerpted from a policy treatment about questions states must ask themselves as they adjust to increased responsibilities and reduced revenue. The author Bob Williams is President of State Budget Solutions and previously, he was founder of the Freedom Foundation.)
By Bob Williams
Budgets drive all policy, which is why debating, writing and approving a state budget is the primary task legislators must accomplish. Governors and state agencies cannot spend even one dollar without legislative approval.
Many state legislators start the budget process by focusing almost entirely on “inputs” (i.e., how much needs to be put in to sustain current programs and expenses). They take existing programs, adjust costs for inflation, add caseload increases, splice in a few new initiatives, and call this their baseline budget. This could also be called a “cost-plus” or “iceberg” model, where decades worth of spending and programs remain unseen and unexamined under the surface while the debate rages year after year over the small part that sticks up above the surface. In this model, the cost, effectiveness and demand for existing programs is rarely considered.
The problems get worse when typical budget debates focus on program intentions, not results, and when most of the attention is focused on who spends the money, not who benefits.
Legislators who use this conventional budget approach become “enablers” for agencies and programs that likely have outdated or fundamentally flawed designs, and that may even be providing services or spending resources in direct conflict with lawmakers’ policy views.
When legislators discover their conventional baseline budget is higher than estimated revenue forecasts, they often focus exclusively on how to fill the budget gaps. Discussion turns toward program cuts, tax increases and accounting gimmicks, until spending lines up with expected revenue.
Addressing long-term disparities in spending and revenue with accounting gimmicks and one-time money sources is a recipe for disaster. Quick fixes may postpone pain for a time, but they don’t resolve the deeper, structural problems. And, eventually, there are no more left to try. Which leaves two options: tax more or spend less.
Today, most state economies are too weak to sustain tax increases. Raising taxes now may very well result in even less revenue due to the negative impact on the economy.
This leaves reductions in spending, but typical across-the-board program cuts ignore important considerations like efficiency and effectiveness and can ham-handedly hurt the most vulnerable citizens.
Conventional budgeting never truly considers how to maximize every tax dollar spent. It doesn’t analyze the efficiency, effectiveness and necessity of existing state programs and spending. It rarely asks how a service can be improved or purchased differently. It virtually guarantees overspending.
Legislators may be able to get away with this in good economic times, but it is unsustainable in the long-term. Which is where they find themselves today. Legislators who procrastinate on hard decisions now are only inviting harder decisions in the future. Tough measures now will become tougher measures later.
Legislators can choose: They can continue to use broken conventional budgeting systems as long as possible, which will result in increasing budget gaps and increasingly desperate scrambling for short-term “solutions.” Or they can stop deceiving themselves and taxpayers, get a grip on the depth of the problem they face, and do today what will someday be an urgent and unavoidable necessity: restructure their state spending.
It’s not really much of a choice. Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results.”
(Click here to read the complete policy treatment on the State Budget Solutions website.)