The Continuing Costs of Budget Uncertainty

Impasses over spending do more than confirm the public's worst impressions of government. They make effective governing next to impossible.
November 4, 2015
Philip Joyce
By Philip Joyce  |  Contributor
Professor at the University of Maryland School of Public Policy

Back in February 2013 in this space, I wrote about the governmental costs of budget uncertainty. Predictably, however, the phenomenon is still alive and well. At the state level, Illinois has replaced California as the poster child for gridlock. As I write this, the state is in its fourth month without a budget. Because of a series of short-term fixes and judicial decisions, state employees are still being paid, aid to schools is continuing and funding to many other recipients of state funds has not been interrupted. The state comptroller estimates, however, that the state could have $8.5 billion in unpaid bills by the end of the calendar year.

There appears to be little optimism that Republican Gov. Bruce Rauner and the Democratic legislature can put aside their differences over taxes and collective-bargaining rights to pass a budget anytime soon. And a similar budget drama is playing out in Pennsylvania, although that state's impasse pits a Democratic governor against a Republican-controlled legislature.

Meanwhile, in Washington, the ideological conflict within the Republican Party has become so intractable that House Speaker John Boehner was forced to resign in order to prevent a federal-government shutdown. Congress was able to pass a funding extension through Dec. 11, but that deadline, the need to raise the government's debt ceiling in November and the need to find a longer-term fix for the highway trust fund mean that budgetary issues continue to represent a series of ticking time bombs, with no stability in sight. Forcing the resignation of a speaker when a controversial decision needs to be made hardly seems like a sustainable approach to governing a country.

What Illinois and the federal government have in common is that they have averted immediate crisis. For Illinois, this is a relatively recent situation. For the federal government, which has passed appropriations bills on time on only four occasions in the last 40 years, it is business as usual.

When faced with such an impasse, the media tends to focus on personalities. In Illinois, it is Gov. Rauner against House Speaker Michael Madigan and Senate President John Cullerton. In Washington, it is President Obama against Republicans, or Republicans against each other. Rarely is the focus on the harm that such gridlock does to the cost and effectiveness of government. Given that, I think it would be useful to remind all of us, including the media and the participants in these squabbles, what is at risk:

Trust in government: These sorts of childish food fights confirm the public's worst impressions of government and reinforce the notion that government can't get anything done. Government can, and mostly does, behave competently when permitted to do so.

The public sector as an employment destination: For generations, young people with an interest in doing good have been attracted to government service. Why should such altruistic young people want to work for a government that seemingly cannot make available a predictable and stable source of funds?

Taxpayer money: Limping along from one short-term funding fix to another is inefficient because it results in wasted administrative time figuring out how to manage through the dysfunction. For example, the U.S. Department of Veterans Affairs estimated that a one-month continuing resolution resulted in $1 million in lost productivity in VA health facilities. Moreover, there is a documented increase in contracting costs that accompanies budget uncertainty.

Government creditworthiness: When state and local governments issue bonds, Wall Street's ratings of this debt is a reflection of the risk that the market perceives. More uncertainty equals more risk, which equals higher borrowing costs. Sometimes these higher costs trickle down to other governments within a state. Standard & Poor's recently lowered the rating on some Chicago bonds because of the unpredictability of the flow of state funds.

Revenues for recipients of state funds: Many other organizations depend on government funds. For a state government, these include contractors, local governments, and colleges and universities. A budget impasse creates a ripple effect, compromising the effectiveness of these recipient organizations and creating administrative burdens as recipients struggle to manage through uncertainty.

In the end, political leaders have a responsibility to promote the effective management of government. Providing a predictable funding stream is basic to the ability of any organization -- public, private or nonprofit -- to achieve results. The increasing polarization of our politics at all levels of government is increasingly getting in the way of the discharge of that most basic responsibility. It is a particular irony that it is often the same people who decry waste in government who contribute to that very same waste.