Managing and formulating the budget

As Chairwoman of the Senate Fiscal Affairs Committee, I have found the budget process to be the most demanding and complex responsibility of a legislator.

I gratefully give credit to the National Conference of State Legislators for much of what I have learned about managing and formulating a fiscal budget. I hope this explanation will help those who are interested to understand the budget process and the work involved. It is very important that the government operate under the guidance of a specific budget. Continuing resolutions just do not have the structure and controls necessary to effectively manage resources.

Budgets are documents that give the three branches of government and other government entities and corporations the power to spend. In the FY2009 budget proposal, government corporations, for the first time, are not exempt from the austerity measures that must take place.

Budgets summarize policy makers’ evaluations of past programs and public agencies. They forecast future needs and resources. They set goals, and create the means for controlling and accounting for expenditures. They can create pressures for tax increases, or tax cuts, and they can push reforms or discourage them.

Because a budget has so many functions, the process of formulating one is often conflict-ridden and unsatisfactory to those affected. There are many and sometimes contradictory financial pressures that must be considered and balanced. In spite of the efforts made to finalize and enact a budget it can still be flawed in its outcomes.

The Executive Branch provides the Legislature with details and figures that are often lacking in documentation and clear explanations. It takes time to research, clarify, and ultimately understand the full scope of the governor’s original proposal.

Department and agency heads come to the Legislature, the governor, and sometimes even the news media in search of fiscal support. It’s their job to ask. It’s the Legislature’s job to sort through the proposals and establish priorities. Finding the balance between this and declining revenues can be difficult.

Legislators must keep in mind other issues as well. Is there enough money in the budget to pay for past and current programs that have been created? Who is responsible for not complying with the budget appropriations and who is accountable for debts incurred that were not budgeted? How do we pay for debts that were not anticipated in the budget? How does the proposed budget affect our constituents? Are taxes too high or too low for the services that the government provides? Is the deficit a message that we are not taxing enough to provide basic services? If there is a surplus, is it a signal that taxes can be lowered? How can the Legislature effectively influence budget and finance decisions?

The budget process also tends to increase rather than resolve partisan competition in the Legislature. This can cause budgets to be late or even never passed, unresolved problems, and inadequate spending controls. Usually budgets lack requirements for reviews of departmental outcomes or productivity, a valuable tool for future planning. As a result, the government cannot plan for the future or properly account for expenses, and because of the lack of controls on planned spending, deficits are incurred.

So what are the roles of the legislative and executive branches in developing a budget and how do the branches cooperate to resolve their differences?

The Planning and Budgeting Act provides that the governor submits to the Legislature a summary of the prior budget year’s fiscal status (as of September 30) on Jan. 1 each year. On April 1st he must submit a budget proposal for the fiscal year starting Oct. 1. By July 1, the Legislature should pass a concurrent resolution that lists the total estimated income and establishes the spending limit. Any change to these amounts requires an amendment to the resolution.

The governor then has until Aug. 1 to submit any amendments or changes to the budget. By Sept. 1, the Legislature must transmit a final budget to the governor. This bill, or bills, contain the expenditure authorizations for the year starting Oct. 1 and cannot appropriate funds in excess of the total of the House Concurrent Resolution. It is important to understand that the Executive Branch must introduce the budget documents in advance of any action by the Legislature. The Legislature then has the vested power of appropriating.

The governor can and does interact with the Legislature during their deliberations through consultation. He can also exercise full or line-item veto power after the budget is passed.

During the development of all legislation but particularly during the annual budget process a partnership exists between the Legislative and Executive branches. As with any relationship there is cooperation as well as conflict. Acknowledgement of that partnership is better when it comes sooner rather than later. Cooperation between the two branches is necessary in order for a budget to become law.

Consideration of the FY2009 budget did not precisely follow the described timeline. The governor transmitted his budget proposal to the Legislature shortly after the April 1 due date, and the House transmitted the appropriations bill to the Senate on October 2nd the day after the start of FY2009.

The FY2009 budget process was difficult. This was no surprise in a time of declining revenues. The issues about where to cut and who would make the decisions were caught between the governor and the Legislature. The Legislature was unwilling to accept the governor’s proposal of reinstating austerity holidays and Fridays, but they also understood that basic operational costs would be cut more than $6 million if austerity measures were simply deleted.

Multiple options were explored. Departments and agencies were contacted for additional information. Some responded and some did not. In the time frame that was available, it was not possible to follow up on every unanswered inquiry and in those cases we had to use the information from February to make decisions about the situation in October. We knew that cuts had to be made and that it was going to be painful for all concerned. What we first tried to do was to ease the pain by searching for every instance in which funding was proposed for non-existent costs. We found some, approximately $3.75 million. That is not a lot in the scope of a $156 million budget, but it helped.

Making decisions about appropriations requires a basic understanding of the needs and functioning of each agency. Sometimes, the information documenting budgetary requests that an agency provides to the governor is not shared with the Legislature. This can be part of the conflict between the executive branch’s right to develop a budget and the Legislature’s need to have as much information as possible to make informed decisions.

The executive branch ultimately has only one decision maker. When the governor, through his representative from the Office of Management and Budget, is satisfied with the budget proposal, it is transmitted to the Legislature. In the legislature, there are 29 decision makers. The final decisions are determined by the majority of votes in the two houses.

Legislative members must determine what the majority opinions are, seek the middle ground and build from there to finalize a budget that will pass both houses. Actively seeking participation by as many members as possible empowers a significant portion of legislative members to take a stake in the budget process. Gaining an understanding of how one’s mission is affected by the budget process makes a more effective legislator.

After the first version of the appropriations bill was transmitted from the House to the Senate, there was a whirlwind of activity in which the Senate responded with a substitute bill, and the House rejected it. At that point a Joint Conference Committee was formed comprised of members from both the House and the Senate to hammer out the differences between the two bills and formulate a compromise that would pass both houses. The first compromise bill offered by the Joint Conference Committee was not accepted, and it was returned to the Committee for reconsideration. There were many conversations between members, both in and outside the Joint Conference Committee. The second version was ultimately presented to the House, and in back to back sessions, both houses passed it. These activities normally occur during July and August, and we look forward to negotiating the FY2010 budget during these months in 2009. The bill is now under consideration by the governor.

We are all hoping that if the governor has legitimate legal concerns about certain provisions in the bill, he will consider only using his line-item veto power, leave major provisions intact, and sign the FY2009 budget into law. This FY 2009 budget is the beginning of looking at total expenditures for the budget year and seeing the major expenditure areas. As with any budget, it is not perfect, but at minimum it establishes order and control to the use of public funds during FY2009.

There are three budgets in process all the time. There is the budget for the last fiscal year that is past, next is the budget under which we are currently operating, and finally there is the budget that is being considered and negotiated for the coming fiscal year.

The first supplies audited financial reports that establish base lines of actual revenues and expenditures that must be taken into account. The second makes available partial information for the current year. From the information these two provide, a framework is established that the governor and the Legislature work with to formulate the upcoming budget.

It has been suggested that performance based budgeting would be the best technique for our government. We use the traditional budget process that considers the budget at an individual business unit level. This approach tends to take existing policies and programs for granted, and can also discourage rigorous or fundamental review of priorities, program effectiveness, or service outcomes.

Traditional budgeting makes us look at past expenditures and at department budgets. We assess the programs that exist, by which statutory authority each agency operates, and then determine whether the Legislature wants to continue those programs in the same manner as in prior years. We can use traditional budgeting to greater advantage if we temper it with performance analyses on some agencies each year. In any event, adhering to a particular budget process will not end revenue shortfalls, ensure balanced budgets, or settle differences over policy.

Regardless of which process we use, ultimately each member has to decide how much to tax, how much to spend and where to spend it. We still, in the end, must answer some fundamental questions. What goals are set? What happens if those goals are not met? What sanctions is the Legislature willing to impose? Do we close a department or end a program? What incentives or penalties could be used that match the outcome of performance reviews?

Each year, our resources are finite and the demand for them is nearly infinite. We will never be able to spend enough to satisfy all agency requests. The entire budget process is one of prioritizing, choosing among alternatives, and being able to do so using facts and diplomacy. I want to express my appreciation for the support of the Senate President and my colleagues in the Senate, the Speaker of the House, the House Membership, the Chair and Acting Chair of the House Ways and Means Committee during this year’s budget negotiations. Without their active participation, presenting a budget to the governor would have been even more difficult than it was in these financially challenging times.

The Conference Committee worked well in understanding the overall budget picture. Building interpersonal relationships was the key. We hope to continue to work with our colleagues at the Legislature, the Executive Branch, and staff with respect and patience.

The Legislature has no greater purpose than a considered and balanced budget. To this end, full and accurate reporting of all revenues and expenses is an essential element. The long-term benefit of public trust outweighs any costs of time or resources expended to meet this obligation.