Better Budgeting Practices

Transcription

1 Better Budgeting Practices Presentation to the NCSL YNP s Next-Gen Legislators Pre-Conference December 9, 2015 Luke E. Martel Director of Strategic Initiatives

2 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

3 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

4 Major Components of General Fund Appropriations, FY 2015 K-12 Education 32.9% 32.2% Higher Education Corrections Medicaid Other 20.6% 5.2% 9.1% 4

5 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

6 Fiscal Years April 1 March 31 New York July 1 June states Sept. 1 Aug. 31 Texas Oct. 1 Sept. 30 Alabama and Michigan Oct. 1 Sept. 30 Federal Government 6

7 State Budget Calendars Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Fiscal year begins Agencies submit requests Agency hearings Gov. submits budget Agency hearings continue Legislature adopts budget 7

8 State Budget Process Agencies submit budget requests Governor 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 If concur with House Submitted to Governor for approval Subcommittee reviews may occur If disagree with House 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

9 Budget Cycle 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. 9

10 Number of Budget Bills Single budget bills: 18 states Multiple budget bills (3-1,500): 32 states 10

11 Revenue Forecasts Consensus forecast: 22 states Executive forecast: 17 states Other process: 11 states Official forecast binds the budget: 26 states 11

12 When State Budgets are Late 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 12

13 Executive Authority to Cut the Enacted Budget No restrictions: 12 states Across-the-board cuts only: 10 states Maximum percentage reduction: 7 states Must consult legislature: 12 states Other: 29 states 13

14 Budgeting Summary 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. 14

15 Types of Budget Approaches 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 15

16 Traditional/Incremental Budgeting 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? 16

17 Traditional/Incremental Budgeting 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. 17

18 Performance-Based Budgeting Tie budgets to performance Improve performance by counting, measuring, comparing, benchmarking Reward success, penalize failure What gets measured gets done - Peter Drucker, Management Consultant 18

19 What are the benefits of performance budgeting? 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. 19

20 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 20

21 Who decides on performance measures? 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 21

22 Budget Process Focus on programs rather than line item expenditures Focus on performance, not who-does-what Focus on outcomes, not what goes into agency programs 22

23 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. 23

24 Why Traditional Budgeting Survives 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. 24

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 25

26 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. 26

27 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. 27

28 Resources and Contact Luke Martel,

29 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 29

30 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 30

31 What are the costs of performance budgeting? 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. 31

32 Demands on state agencies Mission Statement (What s the agency for?) Goals (General purposes) Objectives (Specific action plans) Performance measures (How well are they doing?) 32

33 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. 33

34 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. 34

35 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. 35

36 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 36

37 New Mexico Report Card 37

38 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. 38

39 Texas-State Agency Strategic Planning Enacted in 1991 by H.B 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. nd%20submitting%20agency%20strategic%20plans.pdf 39

40 Texas-State Agency Strategic Planning Plan instructions: d%20submitting%20agency%20strategic%20plans.pdf TDHCA Plan: 40

41 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. 41

42 PBB: Case Study: Texas EDUCATION - 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 42

43 PBB: Case Study: Texas EDUCATION 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 43

44 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. 44