Establishment Of A New State

• Jason J Sparks

Being tasked with the establishment and organization of a new state budget process is a large order. There are many things that are currently used in states that have proven to work and will continue to use. As stated in our required reading, the article Recommended Budget Practices defines the budget process as “A good budget process is far more than the preparation of a legal document that appropriates funds for a series of line items. Good budgeting is a broadly defined process that has political, managerial, planning, communication, and financial dimensions (1998, pg. 3).”

Budget Process

At the state level the budget starts with the governor and is either accepted or denied by legislature, usually forming their own budget and the governor line item vetoing or accepting it as a whole. The governor does hold the majority of power when passing state level budgets. Local governments are in most ways not independent of states but more of a subordinate. In key ways they don’t determine the complete budget but flex based on state decisions. Local governments are usually restricted through municipal budget laws set by the state. Some states and local governments can be pressured by the federal government to change budgets as a result of the nature of politics (Rubin, 2010, pg. 89).

Taxes and expenditures are limited in about two-thirds of the states (NASBO, 2008, pg. 46). Most of the limits are in the constitution or statutory and many are linked to the growth of personal incomes and general population. Additional limits are present on tax and expenditures, there are eleven states that have law in place that it takes a super majority to pass revenue increases (NASBO, 2008, pg. 29).

Revenue

State governments have similar taxes when it comes to Individual, Corporate, Inheritance and estate taxes. In addition to the basic taxes the state uses sales taxes, fuel taxes, special taxes on products or services like tobacco and alcohol, licenses, lottery, and borrowing in the form of state bonds. Local governments have the smallest pull of taxes in the scheme of government limited to property taxes, sales tax special Assessments for special districts or areas that require certain things, they assess user fees and charges for some things like pools, museums, parks, etc., and of course borrowing in the form of local bonds. At almost any level there are also the uses of intergovernmental transfers as a source of revenue (Rubin, 2010, pg. 70).

Expenditures

Expenditures are another part of the budgeting system. Both state and federal governments have to deal will expenditures. Expenditures can be defined as a policy of choice. Money may be tight, causing the government to pick and choose what needs the money and what society can live without. There are two major types of expenditures found in the government. The first is discretionary programs, which are programs that funding can be changed in order to meet budgetary restraints. This could be a state needing to reduce the cost of education by increasing classroom sizes and laying off teachers (Rubin, 2010, pg. 183).

Constraints

State budgeting constraints are much more constraining than that of the federal side of budgeting due to the constraints that are put on the state by the feds. A state receives a certain amount of funding for all of its projects and persons. The state must take all of the necessary. Precautions to prevent the loss of the funding and large businesses that will bring extra revenue into the state and keep the state on a sustainable path (Rubin, 2010, pg. 188).

States use a combination of different budgeting methods, incremental, program based budgeting, zero based or a modified method of zero based, and performance budgeting. Nasbo, says that, “the most frequently used budget approach is program budgeting with 43 states indicating that this is an approach they use. After program budgeting, incremental budgeting is the most frequent approach (2008, pg. 49).” Most of them are done in a mix and match format, using any combination of them but most commonly performance and another method are chosen. Other listings are listed in table 14 (2008, pg. 51). Performance measures are reported the whole duration of the budget process with 39 states using it during the budget request process (Nasbo, 2008, pg. 49)

Balanced Budget and New State Specifics

As Nasbo states, “Virtually all states have some form of balanced budget requirement. These requirements are often statutory or constitutional in nature and range from requirements that the governor submit a balanced budget to requirements that a governor must sign a balanced budget.” And continues on later to list, “44 states must submit a balanced budget, and in 41 states legislatures must pass balanced budgets (2008, pg. 29).”

Within the realms of a new state there will policies, there is typically those who want to limit the size of the government and accomplish this by caps in spending along with balanced budgets. This organization will do just that. With the constitution and laws there will be caps and required balanced budgets. This will slow if not limit the amount of taxation the state will take up on the public.

As learned over the course of this class, the budget is the spending plan for a state. Like most things in state government, it requires the governor and the legislature to work together. Governors in most states are in charge of preparing the budget and submitting it to the legislature. This “executive budget” gives governors the chance to identify where they would like to see increases or decreases in spending. It also centralizes all agency requests for funds under the governor’s control, which helps the governor because without the executive budget, agencies might go straight to the legislature to ask for funds and thereby circumvent the governor’s input as to state priorities. It is certainly possible that such end runs will occur even with the executive budget, but this would most certainly result in the absence of an executive budget.

Having an executive budget definitely gives the governor a significant opportunity to influence state spending. Which is a good policy and will be adopted in this newly formed state budget process, with the option of line item veto being part of it. The Nesbo article shows that in “44 states, the governor has line item veto authority and in 41 states, the governor has authority to veto an item within the appropriations bill. Fewer states give governors authority to change selected words or the meaning of words. Governors in 15 states can veto selected words and 4 states allow a governor’s veto to change the meaning of words (2008 pg. 29).”

Nevertheless, it is important to point out that legislatures typically have unlimited power to change the budget the governor proposes. So while this power is very important for governors, it does not at all guarantee that their policy goals will be achieved or pursued at the level they desired. Research indicates that the budget remains an area in which both the governors and the legislatures exert a great deal of influence when they choose to do so. This process is sound and works, Nasbo explains the general process as this, “The budget requests, in the context of the governor’s budget proposal, are normally reviewed by the legislature in committee hearings throughout the winter and spring. Typically, each chamber of the legislature approves its own version of the budget with a conference committee appointed to resolve the differences between the two versions (2008, pg. 2).”

Once the budget is adopted, governors can wield unique influence. They have considerable authority for administering the budget. They are in charge of spending the money that puts the legislative programs into force, and this gives them additional influence even when the budgetary process did not go their way, thus creating a protection so the tax paying public see their needs met.

Federal Government Learn From States

Making cuts when needed it the key to a successful budget, which is something that is frowned upon for whatever reason. In 2007 Arizona faced one of the largest budget gaps in the nation at 7 percent and in 2008 it had expanded to 14 percent and by 2011 it was at more than 27 percent. In 2009, Gordon says “Arizona’s Governor Jan Brewer called several special legislative sessions to address the state budget gap. As in many states, the governor and legislature clashed over proposed solutions, in particular a temporary sales tax hike which the Republican governor advocated but legislators opposed (2012 pg. 15).“ After multiple credit downgraded, lawsuits, and a veto, the lawmakers and governor were able to reach an agreement that was the start to Arizona’s recovery along with major spending cuts. This perfect example of politics and power that a governor holds to do what they see to be right by the State (Gordon, 2012, pg.15).

As the Responsible leader in the building process the will also be some similar performance tracking plans put into place like Arizona. The System PAR (Program Authorization Reviews) requires the agency to submit an overview of its performance measures for the upcoming year (Freidman, 1997, p. 17). Any program made and voted into action should have some means of measuring performance, just as we do with our elected officials and others in critical roles amongst the government. To remain effective we must be able to assessing how efficiently and effectively functions, programs, and activities are provided and for determining whether program goals are being met (GFOA, 1998, pg. 33).

References:

Freidman, M. (1997). A guide to developing and using performance measures in results-based budgeting. Baltimore, MD: Fiscal Studies Institute.

Recommended Budget Practices. (1998, June 1). Retrieved February 13, 2015, from http://www.gfoa.org/sites/default/files/RecommendedBudgetPractices.pdf

Budget Processes in the States. (2008, January 1). Retrieved February 14, 2015, from http://www.nasbo.org/sites/default/files/BP_2008.pdf

Rubin, I. (2010). The politics of public budgeting: Getting and spending, borrowing and balancing (6th ed.). Washington, D.C.: CQ Press.

Gordon, T. (2012, March 1). What States Can, and Can’t, Teach the Federal Government about Budgets. Retrieved February 14, 2015, from http://www.brookings.edu/~/media/research/files/papers/2012/3/states budgets gordon/03_states_budgets_gordon.pdf