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1 BUDGETING PRACTICES IN LOUISIANA Prepared for Association of Government Accountants Baton Rouge Chapter 2012 Fall Conference December 5, 2012, Baton Rouge, LA By Boris Morozov Public Administration Institute, E.J. Ourso College of Business Louisiana State University 3200 Patrick F. Taylor Hall Baton Rouge, Louisiana Phone: (225) Fax: (225) The word Budget implies that we are dealing with something that is finite in nature Interestingly, gy, If you search Google for budget your or budgeting your you get hits in three primary areas: MONEY, TIME, and LIFE. Most of us would consider all three to be finite resources PRIMARY ELEMENTS OF A BUDGET SYSTEM BUDGETING ESSENCE: Functions, Purposes, and Tools. Planning Control Accountability BUDGETING SYSTEM Control Planning Control Accountability BUDGETING SYSTEM Control C? What do WE need from the budget system? How much will it cost (dollars & political capital)? Can WE afford it?? What do WE need? How much will it cost (dollars & political capital)? Can WE afford it? Mr. Haney from Green Acres Explanation of Hooterville s Budgeting System What Do WE Need? When we collect county revenue we put it in the cee gar box. The cee gar box might work for Mr. Haney in the sleepy hamlet of Hooterville Then, when we have to pay bills, we take money out of the cee gar box. But it won t work for Louisiana with 479 cities, Towns, and villages with a culturally and economically diverse population of 4.5 million citizens And, when the cee gar box is empty, well, that s the end of the fis kill year. Even smaller political subdivisions like parishes, school boards, and cities need more sophisticated budget systems to deal with the complexities of modern society 1

2 Louisiana s Experiments With Budget Systems 1) LINE ITEM BUDGET through FY ) Modified Line Item/Program Budgeting through FY 76 3) Zero Based Budget through early ZBB was abandoned in the early 80 s 4) Returned to Modified Program/Line Item budgeting through FY 96 5) Adopted Performance Based Budgeting in FY 97 6) Outcome Based Budgeting was in discussions FY Change of Commissioners ended the conversation Budget System Vs. Budget Process? Budget System = a body of laws, rules, regulations, and practices designed to provide an entity s desired levels of planning, control, and accountability Budget Process = the sequence of events and activities that take place during the budget development, enactment, and execution stages of a budget cycle PLANNING Revenue Estimating Conference sets the limit on how much revenue there is to spend Let s take a look at Louisiana s BUDGET SYSTEM Elaborate budget development process to determine spending priorities Sophisticated process for combining revenue and expenditure projections to develop a 5 year budget perspective 2

3 CONTROL LOUISIANA CONSTITUTION: Article 3 Section 16 deals with appropriations Article 7 Section 10 establishes the Revenue Estimating Conference, an expenditure limit, and provides for maintaining a balanced budget at all times LOUISIANA REVISED STATUTES AND ACTS: Title 39 of the Revised Statutes requires monthly allotments, monthly financial reporting, quarterly performance progress reports, interim adjustments to the budget, and provides interim budget to the governor. Title 24 of the Revised Statutes creates and empowers the Joint Legislative Committee on the Budget to exercise interim budget oversight for the legislature Appropriations Bill establishes additional interim powers of the governor and the Joint Legislative Committee on the Budget ACCOUNTABILITY LOUISIANA CONSTITUTION: Article 3 Section 15 requires each bill to be heard on 3 separate days in each chamber and that there be a public hearing on each bill before it is passed Article 3 Section 11 establishes the office of the Legislative Auditor LOUISIANA REVISED STATUTES AND ACTS: Title 39 of the Revised Statutes requires, monthly financial i reporting, quarterly performance progress reports, and annual reports. Title 24 of the Revised Statutes outlines the powers and duties of the legislative auditor regarding financial and performance audits. Legislative Rules provide for the broadcasting and archiving of all committee hearings and meeting legislative proceedings over the Internet CONTROL & ACCOUNTABILITY: Where Do We Stand? LA: Internal Auditing: Letter Grade A (94%) Legislative Auditor (Title 24 of the Revised Statutes; 100%); Effectiveness of the Legislative Auditor; (Title 24 of the Revised Statutes; 100%) Now, let s take a look at Louisiana s BUDGET PROCESS Dissemination of Public Reports and Notes; (Title 24 of the Revised Statutes; 81%) Source: Caitlin Ginley (2012), Grading the Nation: How Accountable Is Your State?, The Center for Public Integrity, Public Radio International and Global Integrity Report; Retrieved from nation how accountable your state Budget Process (Cycle) Audit and Evaluation Implementation Executive Preparation Executive Proposal QUALITY OF BUDGET PROCESS: Where Do We Stand? LA: State Budget Process: Letter Grade B (84%) Legislative Input in the State Budget (100%); Citizens Access to State Budgetary Process (81%); Effectiveness of the Legislative Committee (83%); Dissemination of Public Reports and Notes (55%); Presence of a well resourced fiscal budget office for nonpartisan analysis of budget proposals (100%). See Appendix 1 Legislative Consideration Source: Caitlin Ginley (2012), Grading the Nation: How Accountable Is Your State?, The Center for Public Integrity, Public Radio International and Global Integrity Report; Retrieved from nation how accountable your state 3

4 $ t housands 14,000.0 Total State Tax Receipts (REC-based) Post -St orm and Great Recession Recovery Forecast Trend Louisiana General Fund Revenues: Historical Evolution State Tax Revenue Shares Over Time 12, ,000.0 FY13...Forecast s >>> 100.0% 3.5% Miscellaneous 4.1% 7.1% Vehicles 4.9% Personal Excise 2.0% 90.0% 1.3% Premiums 4.2% Motor Fuels 9.5% 5.8% 80.0% Gaming 6.4% 14.3% 8.3% 8, % 56.9% 60.0% 42.0% 7.8% Corporate Mineral Revenue 5.1% 14.6% 6,000.0 Pre-st orm t rend FY10, Post -St orm and Great FY06, Storm Year Recession Trough FY08, Post-Storm Peak 50.0% 25.0% 4,000.0 We are not returning to a pre storm path (the simple trend line). We are returning below that path. The tax base has been reduced from its pre storm level, through substantial enacted reductions in the personal income tax and general sales tax bases {Stelly income tax portion reversal and sales tax on business utilities}. 40.0% 30.0% 31.3% Personal Income Tax 28.0% 26.0% 2,000.0 We may reach pre storm path in future if growth that is more rapid than the trend path occurs in future. This is problematic in light of current U.S. growth prospects. 20.0% 3.0% 12.3% 10.0% Sales Tax - FY9 0 FY9 1 FY9 2 FY9 3 FY9 4 FY9 5 FY9 6 FY9 7 FY9 8 FY9 9 FY0 0 FY0 1 FY0 2 FY0 3 FY0 4 FY0 5 FY0 6 FY0 7 FY0 8 FY0 9 FY1 0 FY1 3 FY1 4 FY1 5 FY % FY64 FY65 FY66 FY67 FY68 FY69 FY70 FY71 FY72 FY73 FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Small % errors can mean fairly big $ errors. $ t housands 14,000.0 Total State Tax Receipts (REC-based) Post -St orm and Great Recession Recovery Forecast Trend 12, ,000.0 FY13...Forecast s >>> 8, ,000.0 Pre-st orm t rend FY10, Post -St orm and Great FY06, Storm Year Recession Trough FY08, Post-Storm Peak 4,000.0 We are not returning to a pre storm path (the simple trend line). We are returning below that path. The tax base has been reduced from its pre storm level, through substantial enacted reductions in the personal income tax and general sales tax bases {Stelly income tax portion reversal and sales tax on business utilities}. Not too bad w/ or w/o storm years, but needs to be better. Shoot for 2% avg error, esp After Session error. 2, FY9 0 FY9 1 FY9 2 FY9 3 FY9 4 FY9 5 FY9 6 FY9 7 FY9 8 FY9 9 FY0 0 We may reach pre storm path in future if growth that is more rapid than the trend path occurs in future. This is problematic in light of current U.S. growth prospects. FY0 1 FY0 2 FY0 3 FY0 4 FY0 5 FY0 6 FY0 7 FY0 8 FY0 9 FY1 0 FY1 3 FY1 4 FY1 5 FY1 6 FY 2012 TOTAL REVENUES $25.4 Billion FY 2012 General Fund Revenue $8.3 Billion 4

5 FY 2012 GF Structure of Expenditures: Mandatory Vs. Discretionary FY 2012 Total Expenditures $25.4 Billion Discretionary General Fund Expenditure 28% Mandatory Non Discretionary General Fund Expenditures 72% FY 2012 GF Expenditures $8.3 Billion Mandatory GF Expenditures FY 2012 (By Function) Mandatory GF Expenditures FY 2012 (By Category) Non Discretionary GF Expenditures FY12 5

6 FY 13 Expected Budget Shortfall $900 million 6