The Missing Pieces of State Budgets

Budgets aren't as transparent as they could be. There are ways (some simpler than others) to fix that.
December 17, 2015
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Barrett and Greene
By Katherine Barrett & Richard Greene  |  Columnists
Government management experts. Their website is greenebarrett.com.

State budget documents repeatedly disappoint us. Our issue isn't necessarily with what's in them -- but what's not.

With that in mind, we wanted to share some of the findings -- specifically, elements that budgets should, but frequently don’t, contain -- from a new report we researched for the Volcker Alliance, a nonprofit dedicated to effective government. The report is on best practices in budget transparency, which were compiled by talking to about 25 leading practitioners and academics.

William Glasgall, director of state and local programs for the alliance, hopes "that greater sunlight will expose bad practices and reveal good practices that aren’t in common use."

One of the report's biggest recommended best practices is for states to disclose more about one-time revenue sources. As it stands, state budgeters often put one-time revenues toward ongoing expenses, which inevitably leads to shortfalls in future years. "Shifting payments back or revenues forward is an absolute sign of fiscal distress," says Eric Berman, former deputy comptroller of Massachusetts. "It's a shell game and shouldn't be done."

A few examples of this include transfers to the general fund from special fund accounts, adding to payroll withholding, accelerating the due date for personal income tax and selling assets.

Although budgeters are fully aware of when they're using one-timers to balance a budget, we couldn't find a single state that disclosed all these "kick-the-can-forward" measures in a single place in the budget. We didn't do a thorough review of all 50 state budgets, but we'd be surprised if we missed one that did this in a consistent and reliable way.

Another missing link to budget clarity is multiyear projections that show the growth of recurring revenues versus recurring expenditures.This information reveals future expenditures -- like a phased-in tax cut -- that can be hidden in single-year budget statements.

According to Phil Joyce, a public policy professor at University of Maryland, “a really good practice [is] to have a three-year baseline or current services projection that shows what you are anticipating.” But these projections, Joyce says, must have solid thinking behind them. “If all they’ve done is apply an inflation rate, then who gives a damn?"

 

The report also makes eight other recommendations of information that should be in state budgets but usually isn't:

  • Spending that’s been delayed and the impact of that action
  • Deferred maintenance of infrastructure
  • Revenues forgone through tax abatements and exclusions
  • Current, historical and trend information for debt
  • Impacts of state fiscal decisions on local governments
  • Analysis of whether spending is allotted according to state goals
  • Discussion of tax volatility
  • Targets for achieving financial goals

Unfortunately, the decision to include all of these elements in budgets or supplementary documents isn't simple. Many of them require additional time and effort, which is in short supply. That's largely because many states have found it easier to cut back on budget office administrative staff, rather than direct services, in times when money is tight.

Even if a state's budget office is well-staffed, other issues could hinder some of these transparency efforts. A budget office can’t know, for example, the cost of bringing the state’s roads, bridges or buildings into good repair if the department of transportation or another agency neglects to assess the shape they’re in. That’s an expensive process that states often lack the resources to embark upon.

Some of these recommendations are easier to deliver than others. States, for example, already have information about their debt and pension liabilities and how they’re changing over time. They can also calculate the volatility of their various streams of tax revenue. In instances like those, it’s simply a matter of putting the information together in a way to enlighten governors, legislators, political candidates, fiscal advocacy organizations and ordinary taxpayers.