An Annual or Biennial Budget?

 

 A guest post by Matthew J. Brouillette, President and CEO of the Commonwealth Foundation

 

House Appropriations Chairman Dwight Evans (D-Philadelphia) argues that “a two-year budget is impractical in our modern world” and that the current annual budget cycle serves “to better allow government to react to an unpredictable economy.” How’s that working for us?

Of course, a two-year budget is no panacea for state government’s taxing, borrowing and spending too much. In fact, even budgeting monthly will not work when the state’s outgo is higher than its income—as it has been for the last two years. Yet the claim that annual budgeting permits government to respond to changes in the economy is invalid.

 

For example, in his 2008-09 mid-fiscal year briefing, Gov. Rendell estimated a $1.6 billion shortfall (the final shortfall wound up double that amount). But at that time, Gov. Rendell proclaimed the need to reduce state spending, suggesting $500 million in cuts. He later identified the need for additional cuts. However, the cuts were never fully implemented, and the final spending for FY 2008-09 was $70 million higher than what was enacted!

 

This fiscal year is no different, as the Commonwealth is headed toward another massive deficit while the General Assembly and Governor do nothing to substantively address it. In fact, a budget is currently being shepherded through the House that not only fails to adjust the state’s current fiscal year spending to its income but also spends even more money next year that we don’t have.

 

What is needed to enact timely and fiscally responsible budgets are reforms that will both protect taxpayers and fund core government functions.

 

The greatest budget challenges have always come when state revenues fall short of projections. This fiscal problem is further compounded when the Governor and General Assembly fail to adjust spending downward accordingly. There is a relatively simple remedy—one that every family and business uses when their revenues drop: reduce your spending to match your income.

 

Instead of waiting until the end of the fiscal year to both enact a new budget and figure out how to pay for the previous year's over-spending, lawmakers should be required to maintain a constitutionally balanced budget throughout the fiscal year. Article VIII, Section 13 of the Pennsylvania Constitution already requires that “Operating budget appropriations made by the General Assembly shall not exceed the actual and estimated revenues and surplus in the same fiscal year.”

 

But mid-year corrections are rarely and often inadequately made. Indeed, despite this “balanced budget” requirement, the General Assembly and Governor failed last year, and are failing again this year, to stop their overspending.

 

Therefore, the Governor and General Assembly should be required to make quarterly adjustments to appropriations if tax collections fall below projections. In the final quarter of the fiscal year (April through June) appropriations should be adjusted monthly if revenues fall short, ensuring spending never exceeds available funds.

 

In addition, if the Governor and General Assembly fail to enact a budget for the next fiscal year, appropriations should continue at the same level as the previous fiscal year. This would end the politicians’ ability to use state workers and taxpayer-funded programs and services, as leverage in negotiations.

 

At the end of the day, an annual or biennial budget will not prevent the Governor and General Assembly from holding people and programs hostage. Only substantive reforms will protect taxpayers and fund the core government functions.

Comments

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[cerebritis]

This fiscal problem is further compounded when the Governor and General Assembly fail to adjust spending downward accordingly.