State Budgets’ Forecast: Cloudy With a Chance of Transparency

In an era of tight budgets and slow revenue growth, there’s pressure on legislators to be open and honest about what states can and can’t afford.
by | August 2016
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State budgeting has never been the most transparent of processes. Line items get added and subtracted without the general public having a clue as to what’s going on. Now that many states are trapped in a seemingly unending era of post-recession austerity, there are increasing demands that lawmakers provide more information about the difficult decisions they’re making.

The general outlines of today’s budget climate are clear enough: Old assumptions of 6 percent annual state revenue growth are a memory. At the same time, the costs of health care, pensions and other retirement benefits are continuing to grow. That puts a squeeze on all programs, especially since many legislators and governors remain allergic to tax increases, save in dire circumstances. So it’s only reasonable to ask that legislators hold open and honest debates about what they can and cannot afford to fund.

Of course, it doesn’t always happen. “There is very little discussion in state circles on responding to the swath of services that were slashed during the Great Recession or about what states need to do to prepare for the many challenges that were put on the back burner,” says Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments. “There’s very little emphasis on tackling the factors that continue to erode state revenue systems,” including untaxed online sales, the failure to tax services, and the expansion of tax credits and exemptions.

Right now, all of this seems to be coming to a head in South Carolina. After adjusting for inflation and population growth, the state is spending about $300 less per resident than it was prior to the recession. That has led to complaints from progressives that the state is underfunding agencies, creating job vacancies and making it hard for much of the government to function. For instance, the state ranks near the bottom in terms of funding for dam inspections. Last year 31 dams failed due to historic flooding. “The Grand Old Party has been running a hard campaign against government for 30-plus years now,” says Brett Bursey, director of the SC Progressive Network. “Well, they won.”

It’s not just liberals who are unhappy. There’s been serious intraparty tension between GOP Gov. Nikki Haley and Republican legislative leaders, most notably over the question of funding roads. Some legislators are ready to raise gas taxes, but Haley insists that these be offset by cuts to other tax rates. This year, the two sides agreed on a patchwork deal that did nothing to solve the problem of long-term funding for infrastructure, relying instead on extensive borrowing.

Then there’s the requirement that 4 percent of state spending go into a fund for local government. Without saying much about it, lawmakers have been letting themselves off the hook on that particular requirement since 2008. This year, they were $90 million short of the mandated contribution.

Meanwhile, an increasing share of state spending, whether you’re talking about education or economic development, is being paid for not out of general fund dollars but rather obscure “special accounts.” Such fuzzy accounting makes it harder to know exactly what the state is doing and how it’s paying for it, says Ashley Landess, president of the South Carolina Policy Council, a free-market think tank. “The budget is simply not what it’s portrayed as,” she says. “Legislators ignore the state law that mandates an open budget process, period.”

At a time when every budget “yes” may mean saying “no” to something else, it can be painful for politicians to be forthright about the decisions they are making. But holding public debates about priorities is an essential part of leadership. “When there are budget cuts, that is an opportunity to be strategic and really prioritize and think long term,” says Gibbs Knotts, a political scientist at the College of Charleston. But, he adds, “I don’t know that it’s been particularly strategic.”