Paying the Bill

States need a more careful process of estimating the future financial impact of legislation before legislators pass it.

Years ago, we had an editor who used to talk about the "Aunt Tilly Test:" Any fact that would make his Aunt Tilly dubious should be triple-checked.

It was good advice. So, when we first heard that Arizona had somehow mis-estimated the cost of an alternative fuel tax rebate by at least 4,000 percent, we heard the doubtless-apocryphal Aunt Tilly's voice in the back of our minds--it's rather shrill, by the way. How could a state estimate a cost at between $3 million and $10 million and have it turn out to be between $400 million and $600 million? There must have been a typo someplace, right?

Sadly, no. The state had simply blown it. Subsequent to discovering its error, the legislature altered the rebate to cut the impact to $200 million. A reduction, but still a lot more than anticipated. The state budget director's explanation for the mistake was that the bill was one of 140 that were reviewed in the rush during the last month of the fiscal year.

While Arizona is an extreme example, it makes a powerful case for a more careful process of estimating the long-term costs of legislation before it's passed. New programs, capital projects, tax changes and an array of policy decisions, both large and small, have enormous impact on how money is spent in the future.

Wishful thinking, short-term political considerations, the time- crunch inherent in limited legislative sessions, the mountain of legislation that gets introduced each year, term limits and staff shortages: All these things can cause legislation to be considered without adequate attention. Sentencing guidelines that dictated longer prison terms, for example, caused correction budgets to soar though the late 1990s. Yet only a minority of states calculated that cost when they made the decision to get tough on crime.

The concept of creating fiscal notes--that's budget jargon for information accompanying bills that details their potential financial impact--makes such good sense that more and more states are putting increased effort into them. In Maryland, for example, the fiscal-notes process is formal, complete and thoroughly integrated into the budget planning effort. Fiscal notes are revised as a bill is amended and after the session. They are the responsibility of a central non- partisan professional legislative staff. Another good example is Missouri, where statutes require agencies to estimate the effect of legislation on state and local governments and small businesses. Revised fiscal notes are required if legislation changes, and the revisions must be available to legislators before they vote. In Virginia, the Department of Planning and Budget hires additional support staff during the legislative session, specifically to support the fiscal-impact process.

In years past, Nevada hasn't focused a great deal of careful attention on fiscal notes, but it's in the process of developing a better method. Perry Comeaux, director of the state Department of Administration, believes such a process is good because it draws attention to costs. "This will at least put the information about that fiscal impact right in front of you and make you think about it," he says. But Comeaux is practical about the benefits: "It still won't prevent bad decisions or keep legislators from adopting a program that we can't pay for."

That's certainly true. And like virtually every management tool, the utility of fiscal notes varies depending on how they're developed, how they're used, the resources that go into developing them, and the degree of sincere effort made in getting them right. The potential holes in this process are many. In some states, notes are written only when requested; in others, attention is focused only on general fund revenues and expenditures while other impacts are ignored. Even many states with rigorous and detailed mechanisms for detailing future expenditures put little effort into going back and checking their accuracy.

Then there's the question of who develops the fiscal notes. In some states, that task falls to the legislator who is introducing the legislation in the first place. In Idaho, where that's the case, "initiators of legislation aren't always forthcoming in terms of how they describe the fiscal impact," concedes one official.

Perhaps the biggest impediment to good fiscal notes is the simple lack of time for the process. "There's never enough time to do the kinds of analysis that you'd like to do," says Mark Brown, deputy director of the budget agency in Indiana. "By and large, things work pretty well, with the caveat that timing gets in the way of good analysis."

Randy Bauer, Iowa's budget director, told us much the same thing. He found that the analysis "often requires a quick turnaround at the busiest time of the year and that always limits their value."

There aren't any easy ways for states to address all the potential shortcomings of their fiscal-notes process. But there's an old saying that really seems to apply here: "The perfect is the enemy of the good." Aunt Tilly would have liked that one.

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