Bye, Bye Early Bird

A late budget is a clear sign that unproductive politics are overwhelming a government's sensible management.

In our office, we customarily double check the phone for a dial tone after hanging up--before talking to each other about the just- completed conversation. You can never tell when a phone doesn't disconnect properly.

OK, maybe that sounds a little paranoid. But members of California's Democratic Study Group would have benefited from a similar distrust of electronics when they gave hundreds of people in Sacramento an unanticipated insight into one of the reasons for the state's fiscal crisis. Eleven members of the state assembly were discussing the possibility of purposely delaying the budget for the next fiscal year "to further their political goals," according to the Los Angeles Times. Unfortunately, they didn't know that there was a live microphone in the room, transmitting their conversation to about 500 loudspeakers around the state capitol. Oops!

We have always considered late budgets a clear sign that unproductive politics had overwhelmed sensible management in a government. But, being from New York--a state in which nearly two decades of late budgets have numbed all sense of fiscal timeliness--we know that a state can have late budgets year after year without bridges collapsing or riots in the streets. In fact, in a number of states, provisions are in place for some kind of automatic funding mechanism to take over if a budget isn't passed. As Claire Cohen, the chairman of Fitch Ratings told us, "They have it down to a science."

This topic has particular importance now, as more than half a dozen states started the current fiscal year with no budget in place, including California, Connecticut, Nevada, New York, Oregon and Rhode Island. Others, such as North Carolina, played political brinksmanship but successfully came up with their budgets with just hours to spare.

Scott Pattison, executive director of the National Association of State Budget Officers, agrees with our views. In his prior life as a budget director in Virginia, he says, the idea of a late budget wouldn't have been in the remote realm of possibility. "But, he says, "my sense is that the average person and the average citizen doesn't care. I don't think they think it affects them. They're not surprised when the state doesn't get it done, because, of course, the federal government doesn't. In fact, many citizens might be surprised to find that their state usually does have a budget in on time."

But late budgets have serious real-world ramifications. California borrowed heavily in order to keep the state running without a budget. Several hundred thousand families who depend on the state to help pay for child care were made deeply anxious by the real possibility that, without a budget, those benefits would expire and they'd have to consider quitting their jobs. Earlier in the year, New York delayed payments to local governments and forced state universities and school districts to guess at how much money they would have available.

In Connecticut, Governor John Rowland issued a couple of executive orders to temporarily fund government operations while he and legislators bickered over the budget bill. But that still left many in the state at risk of seeing the cash cut off, including state-funded nonprofit agencies for mental health and substance abuse services. Even the state's own Medicaid department had to perform a "high wire act," according to David Parrella, director of medical care administration there, as the already understaffed agency diverted resources to figuring out who it could pay and when. Meanwhile, "it affected our managed-care program, because we had to sign extensions of existing contracts to the middle of August, since we couldn't complete new agreements."

Richard Pomp, a law professor at the University of Connecticut, told us that "this isn't just a game of blustering and bluffing and posturing. Late budgets cause severe problems because ongoing projects have to be held up and delayed. You can have construction going on, and the project has to be put on hold, because you can't promise payment to the contractor. And that sets off a whole bunch of secondary and tertiary effects, which can add considerably to ultimate costs."

Some of the costs of late budgets don't show up on financial statements, but they're very real nonetheless. School districts, counties and cities need to know how much money they're getting from the state in order to do their own planning and budgeting. So, as weeks pass without that information, local efforts to run efficient organizations are stymied.

Why are some states more willing to go past deadline than others? NASBO's Pattison speculates that "once you do it a few times and the world doesn't come crashing down, it gets easier to do it. You can't be a virgin again."

Obviously, the late budgets this year have come about largely as a result of tight economic times. But when states grow accustomed to late budgets, it doesn't require a recession to gum up the works.

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