Budgeting for the Future

Center on Budget And Policy PrioritiesEarlier this year, the Center on Budget and Policy Priorities, named “Think Tank of the Year” in 2011 by Washington Post’s Ezra Klein, produced a review of state budget practices titled “Budgeting for the Future.”  They list 10 tools states can use to stabilize budgets and take a longer term approach to budgeting and planning.  From the executive summary:

The state budget is the single most important document that a state government produces each year, and it receives close public scrutiny.  It serves as both a financial plan and a policy document — that is, a description of the policies the state intends to pursue in the future.  The spending, tax, and other policy decisions that comprise the budget have consequences for a state’s fiscal and economic security that last long beyond the budget year.

Often, however, policymakers focus on the immediate effects of policy decisions and fail to account for their longer-term consequences.  Many states, for instance, fail to produce multi-year spending plans, fail to establish sound “rainy day funds,” and/or fail to follow best practices for forecasting revenues, spending commitments, pension obligations and the like.  These are proven methods to improve long-term planning, yet they are underutilized.

What are these proven methods?  Here is the tools list they provide, and compare each state against in their ranking of effective long term planning:

  • Multi-year forecasts of revenues and spending: projections of revenues and current services spending for at least five years
  • Fiscal notes with multi-year projections
  • Current services baseline: a projection of how much it will cost a state in an upcoming budget period to deliver the same quantity and quality of services to residents that it is delivering in the current budget period.
  • Independent consensus revenue forecast
  • Legislative fiscal office: a non-partisan agency that analyzes the budget.
  • Pension oversight: regular reviews by independent authorities of methods used to determine future pension funding.  These reviews should be published and easily accessible to the public.
  • Well-designed rainy day fund
  • Oversight of tax expenditures
  • Pension funding and debt level reviews
  • Budget status reports

Ranking each state (o – Does not use, 0.5 – Needs improvement, 1 – Well designed) against the use and design of these 10 tools Connecticut sits on top of the list (8.5) and South Dakota comes in dead last (3).  Utah gets an “average,” with a score of 6 of 10 (pdf), ranking 17th in the nation.  Where does Utah score well, and where do we need to improve?

Utah gets a perfect score in consensus review estimates (between the executive and legislative branches), design and structure of the legislative fiscal offices, management of its rainy day fund, and budget status reporting between agencies and branches.  Half credit (or “needs work”) is given for our multi-year fiscal notes and tax expenditure oversight mechanisms.

The big fat zeroes resulting in our “average” ranking against the other states come from a lack of consistent multi-year forecasting, no regular current services baseline reporting, and pension oversight, where we lack “regular accessible reviews of methods used to determine future pension funding by independent authorities,” in CBPP’s analysis.

In the publication, CBPP reminds that for “average” states, this isn’t a reason to disregard the importance of what is being done well to focus on short-comings, but an opportunity to take charge of what’s missing and create a more encompassing system of budgeting that allows for, and encourages, more forward planning rather than “budgeting for the year.”

They stress that creating independent mechanisms for multi-year forecasting, baseline reporting, and thorough pension oversight are especially important for states with part-time legislatures, like our own.

 

 

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