For anyone who has actually been following this little series, you will note that I have not yet even talked about government expenditures yet.  That is because I believe that, to solve the budget problems in this state, we need to completely rethink how we do budgets.

(1) First focus on history–see where we have been, what has occurred, how we got here.  Government budget analysts never look back, they never analyze how they ended up where they are.  As a result, they never know where they have been and consequently don’t really know where they are going

(2) Focus on revenue first.  Government revenue, as we all know, is dependent on the private sector.  As p. 69, Figure REV-03 shows, those earning between 0 and $50,000 a year constitute 65% of the taxpayers, yet generate less than 5% of the revenue to the state.  Those who earn more than $50,000 a year are 95% of the state’s revenue.  A solution must focus on attracting more people to the state who earn more than $50,000 a year.  A quick question–will raising taxes on those folks attract more of them, or encourage them to leave?  And if they leave, how will that affect revenues?  Simple stuff.

Next, let’s take a look at the real budget numbers for next year.  The first thing in preparing a budget for next year that budget analysts must do is forget the baseline for next year.  Throw it out the window.  It no longer exists.  If they look at the baseline, no solution will ever present itself.

So, what should they do?  Look at the revenue numbers, find a budget year that is closest to those numbers, and that becomes the new base from which the baseline is drawn.  In this case, those revenues, according to pages 63-65 of the Governor’s summary, are $97.7 billion, general fund.  Now, let’s go to schedule 6.  When was the last time our budget was $97.7 billion?  A quick look there says shows that the 05-06 general fund expenditures were $91.5 billion.  The budget analysts need to start with those numbers.

Why am I doing this you may ask?  Well, I have figured out that government people do not react well to change.  So, by finding a number that we can start with, government analysts have a road map to a solution.  State government budget by a process known as budget change proposals (BCPs).  The 06-07 BCPs took the 05-06 budget and added to it.  If we start with an 05-06 base, add the extra 6 billion that is available, and prepared the BCPs for this budget from that base, a solution starts to form.

This can be done quickly, since that process occurred just 3 budget cycles ago.  I am sure those documents are still in the computer.  Priorities can be drafted, discussions can be had, debates can occur, starting with those numbers.  We now have a magical combination of the old way of looking at things, the BCP process, and the new, a focus on revenues and what we have to do to balance the budget.  These new BCPs will set the numbers, be approved, disapproved, or changed, and the budget will be adopted with those numbers.  Everyone will then adjust their operations to those new numbers however they see fit.

Yes, it will change the debate, but it will focus it in a way it can be done (since budget analysts only know the BCP way), and it will focus the debate in the way it needs to be focused, on a realistic spending plan that is based on real revenue numbers.  It will also may the workload a little easier for the budget analysts, since they will be working from papers they have already prepared.  They will not be starting from scratch.

They will have to get rid of their traditional focus on the baseline, but it will be just a slight change.  They will focus on a different baseline, ie, the base from a different year, and a baseline that works from that year.  It can be done, it can be done quickly, and it can find the solution that the decisions makers need to find in a reasonable and expeditious way.

Will it be done?  I don’t know, but it can be done, and it is a solution that makes sense.  Perhaps in the process of this discussion, real priorities will be discussed, eliminating unnecessary programs and spending will also be discussed.  The process I described, however, gives that discussion a framework, one that is understandable to the analysts and to the decisionmakers.  And when it is complete, the government managers will adjust to the numbers they are given, instead of trying to get the numbers to match their desires.

That is a real solution to the long term budget problems this state faces.

This entry was posted on Sunday, May 24th, 2009 at 12:00 am and is filed under Blog Posts.