presentation to the ncsl ynp’s next-gen legislators pre
TRANSCRIPT
Better Budgeting PracticesPresentation to the
NCSL YNP’s Next-Gen Legislators Pre-Conference
December 9, 2015
Luke E. Martel
Director of Strategic Initiatives
Presentation Outline
• State Budgeting 101
• Budgeting Approaches
– Types
– Pros and Cons
– ZBB
• Better Budgeting Principles
– Finding common ground
– Developing a system
– Common mistakes to avoid
2
Budgeting Principles
• Resources are limited, but demands are nearly
infinite.
• Spending must be prioritized.
• The budget must be balanced.
• Effective and efficient use of public funds must be
ensured.
– Transparency
– Accountability
3
Major Components of General Fund
Appropriations, FY 2015
4
32.2%
9.1%
5.2%
20.6%
32.9%
K-12 Education
Higher Education
Corrections
Medicaid
Other
State Budget Roles
• Legislative branch– Establishes balanced budget: deliberates, prioritizes,
authorizes/appropriates funds, enacts budget bill(s)– Reviews results and provides oversight
• Executive branch– Prepares agency budget requests
– Approves or vetoes budget bills
– Implements enacted budget
• Judicial branch– Resolves disputes between the other two branches
5
Fiscal Years
• April 1 – March 31 — New York
• July 1 – June 30 — 46 states
• Sept. 1 – Aug. 31 — Texas
• Oct. 1 – Sept. 30 — Alabama and Michigan
• Oct. 1 – Sept. 30 — Federal Government
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State Budget Calendars
7
Jan. Feb. Mar. Apr. May Jun.Jul. Aug. Sep. Oct. Nov. Dec.
Gov. submits
budget
Legislature
adopts budget
Agencies submit
requests
Agency
hearings
Fiscal year
begins
Agency hearings
continue
State Budget Process
Agencies
submit budget
requestsGovernor prepares
budget bill(s)Governor submits
budget to Legislature
Legislature may begin
hearings with Agency
Staff
Forwarded to
full House for
consideration
and vote
Examined by House
Appropriations Committee
Subcommittee
reviews may occur
Example:
Introduced in
House
Budget maybe introduced
in one house or both;
Legislature may ignore
governor’s budget
Forwarded to
senate
Examined by Senate
Appropriations Committee
Subcommittee
reviews may occur
Submitted to Governor for
approval
Conference Committee on
the Budget
Legislature overrides
Governor’s veto
Legislature cannot override
Governor’s veto
If Governor approves,
budget is enacted into law
Governor may veto all or
portions of the budget
Submitted to
Governor for
approval
Budget returns to
House & Senate for
final vote
If concur with
House
If disagree with
House
Budget Cycle
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• Annual budget: 31 states
• Biennial with two annual budgets: 15 states
• True biennial budget: 4 states
The success of a budget cycle seems to depend on the commitment of state officials to good implementation rather than on the method
itself.
Number of Budget Bills
10
• Single budget bills: 18 states
• Multiple budget bills (3-1,500): 32 states
Revenue Forecasts
11
• Consensus forecast: 22
states
• Executive forecast: 17 states
• Other process: 11 states
• Official forecast binds the
budget: 26 states
When State Budgets are Late
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• Continuing resolutions: 9 states
• Certain payments continue: 12 states
• Government shuts down: 23 states
• No provision/ untested: 12 states
• Other (e.g., session extended): 6 states
Executive Authority to Cut the
Enacted Budget
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• No restrictions: 12 states
• Across-the-board cuts only: 10 states
• Maximum percentage reduction: 7 states
• Must consult legislature: 12 states
• Other: 29 states
Budgeting 101 - Summary
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• A budget is the most important document
the legislature considers because it allocates
resources.
• The budget must be balanced.
• Approaches vary across the states.
• The process is ongoing.
Types of Budget Approaches
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• Traditional/incremental– Line item – detailed, review changes
– Program – broader categories, review activities
• Performance – set goals, review effectiveness, provide flexibility
• Zero base – start each budget item at zero
• Hybrid approaches
Traditional/Incremental Budgeting
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• In typical budget process, budget analysts:
– Review dollar changes in agency/program
– Look at FTE changes
– Calculate percentage changes
– Analyze cost per service recipient
– Review program history
– Other?
Traditional/Incremental Budgeting
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• Focus is on what money buys (an input) rather than on the service that is provided (an outcome).
• Outcomes can be considered, but traditional budgeting does not encourage it.
Performance-Based Budgeting
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• Tie budgets to performance
• Improve performance by counting,
measuring, comparing, benchmarking
• Reward success, penalize failure
• “What gets measured gets done”
- Peter Drucker, Management Consultant
What are the benefits of
performance budgeting?
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• Better understanding of state programs;
• Explanations of previous funding decisions;
• Program effectiveness (outcomes);
• Program efficiency (costs and benefits);
• The justification for new funding decisions;
• The identification of potential savings;
• Quantitative evidence of program success and shortcomings; and
• Communicating what is received in return for the investment of tax dollars.
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What does performance budgeting
do for legislators?• A powerful to tool to improve government
management
• Helps meet legislators’ and voters’ needs for:– Accountability
– Orientation to service
– Quality measurement
• Encourages long-term perspective
Who decides on performance
measures?
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• Must involve Legislature and Executive
Agencies together
• Difficult for agencies to shift from activity
measures to performance measures
– Lack of historic data to provide a basis of
comparison
– Lack of expertise in measurement
Budget Process
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• Focus on programs rather than line item
expenditures
• Focus on performance, not who-does-what
• Focus on outcomes, not what goes into
agency programs
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Zero-Based Budgeting• Pure ZBB does not exist.
• Modified ZBB is also known as alternative budgeting or targeted budgeting.
• Agencies make requests at various percentages of their previous funding i.e., at 90%, 100% and 110% – and analyze what effects those levels would have on their programs.
Why Traditional Budgeting Survives
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• Provides predictability and stability for agency and program planning.
• Time constraints
• Budgeting is complicated. Budgets must respond to many different competing needs and goals, which can be difficult to measure.
25
Better Budgeting Principles:
Managing the State’s Finances• Balance the budget.
• Avoid (long-term) borrowing to finance the operating budget.
• Agree on the basic budget numbers– Establish a binding revenue forecast process
– Establish a process to forecast the figures that drive the budget
– Establish a process to define the budget base and agree on the amount
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Better Budgeting Principles:
Developing a system
• Account for and review tax expenditures:
– Account for all tax expenditures in a
comprehensive tax expenditure budget,
– Establish a process to review tax expenditures on a
regular cycle.
• Develop clear guidelines for capital budgeting.
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Better Budgeting Principles
Common Mistakes to Avoid• Beware of quick fixes that create long-term problems
– Be very cautious when spending reserve funds.
– Don’t intentionally overestimate revenue or underestimate expenses, especially when it comes to the retirement system.
– Don’t expect too much from early retirement incentives.
– Don’t make short-term budget decisions without considering the long-term effects.
– Protect the tax base through good and bad times.
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What are incentives and
disincentives?
Incentives:
• Flexibility in salary and position management
• Retention of unencumbered balances at end of fiscal year
• Additional flexibility in budget management
• Additional funding
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Incentives and disincentives
Disincentives:
• Quarterly reports to governor and legislature
• Quarterly appearances of staff to report
• Restructuring or elimination of a program
• Reductions in staff or budget
• Reduction of managerial salaries
What are the costs of performance
budgeting?
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• Learning to use a completely different
process.
• Less direct legislative control of agencies.
• Shift power to executive branch.
• Heavy demands on legislators’ and staff
time.
Demands on state agencies
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• Mission Statement (What’s the agency for?)
• Goals (General purposes)
• Objectives (Specific action plans)
• Performance measures (How well are they
doing?)
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Performance budgeting can improve
agency management• Systematic review of agency organization and
purpose.
• Helps identify performing and non-performing parts of government.
• Encourages long-term planning.
• Makes everyone consider purposes of government.
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Performance budgeting does not
solve all problems
• It will not tell legislators whether to increase
or cut funding for a poorly-performing (or
an highly satisfactory) agency.
• It will not tell you how to allocate money
between roads and schools.
PBB: Case Study: New Mexico
• Established in 1999 by the Accountability in Government Act.
o Amended in 2004 to streamline the process and focus on key agencies.
• Applies to all state agencies and higher education institutions.
• Statewide measures are also developed for public education.
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PBB: Case Study: New Mexico
• Previously state agency budgets were built by entity and
function.
• Budget now organized by programs, providing more
budget flexibility.
o Agency budgets are still prepared at the line-item level,
but within each program.
• Legislature adopts or amends performance targets and they
are incorporated into the budget
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New Mexico “Report Card”
37
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PBB: Case Study: Texas
• Biennial budgeting; legislature meets every
other year.
• Strong legislature vis-à-vis governor.
• Historic use of performance budgeting and
strategic planning.
Texas-State Agency Strategic Planning• Enacted in 1991 by H.B. 2009.
• Requires all executive branch
agencies to complete strategic
plans every 2 years.
• 5 year planning horizon.
• Plan rules promulgated by
Legislative Budget Board &
Governor's Office of Budget,
Planning & Policy.
http://www.lbb.state.tx.us/Instructions/Instructions%20for%20Preparing%20a
nd%20Submitting%20Agency%20Strategic%20Plans.pdf39
Texas-State Agency Strategic Planning
Plan instructions:
http://www.lbb.state.tx.us/Instructions/Instructions%20for%20Preparing%20an
d%20Submitting%20Agency%20Strategic%20Plans.pdf
TDHCA Plan: http://www.tdhca.state.tx.us/housing-
center/docs/12-stratplanFY13-17.pdf 40
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Texas Sunset Advisory Commission
• 12-member legislative commission tasked with identifying
and eliminating waste, duplication, and inefficiency for
more than 130 Texas state agencies.
– Questions the need for each agency,
– Looks for potential duplication of other public services or programs,
– Considers new and innovative changes to improve each agency's
operations and activities.
• Since inception in 1977, 79 agencies have been abolished,
including 37 agencies that were completely abolished and
42 that were abolished with certain functions transferred to
existing or newly created agencies.
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PBB: Case Study: TexasEDUCATION - PUBLIC SCHOOLS
Priority Goal
To ensure that all students in the public education system acquire the knowledge and skills
to be responsible and independent Texans by:
• Ensuring students graduate from high school and have the skills necessary to pursue any option including attending a university, a two-year institution, other post-secondary training, military or enter the workforce;
• Ensuring students learn English, math, science and social science skills at appropriate grade level through graduation; and
• Demonstrating exemplary performance in foundation subjects.
Benchmarks
• High school graduation rate
• Percent of graduates earning recommended high school diploma
• Percentage of students who demonstrate satisfactory performance on the annual state assessments
• Percentage of Texas high school students who need remediation
• Percent of students from third grade and above who are able to read at or above grade level
• Percent of students from third grade and above who perform at or above grade level in math
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PBB: Case Study: TexasEDUCATION – HIGHER EDUCATION
Priority Goal
• To prepare individuals for a changing economy and workforce by:
• Providing an affordable, accessible, and quality system of higher education; and
• Furthering the development and application of knowledge through teaching, research, and commercialization.
Benchmarks
• Percent of population age 24 years and older with vocational/technical certificate as highest level of educational attainment
• Percent of population age 24 years and older with two-year college degree as highest level of educational attainment
• Percent of population age 24 years and older with four-year college degree as highest level of educational attainment
Tennessee Outcomes Based Funding Formula
• Complete College Tennessee Act (2010) instituted an
outcomes-based funding formula for higher education.
• Designed to encourage college degree completion and
other productivity goals.
• Unlike performance budgeting, the funding is not tied to
targets or measures, so an institution is not punished for
failing to meet a specific goal.
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