Stop the Smoke and Mirrors

BY: BOB BLYMYER

Much discussion has occurred recently regarding what methods are needed to fix the State of California's severe budget deficit problem. Do we cut spending, raise taxes, or do both. Well, let's look at some of the events that have led up to the current crisis:

In the year 2000, the State received a $12 Billion tax windfall. Then Governor Gray Davis, and the Legislature, spent most of it on recurring programs. Where would California be today if most of that had been saved for the proverbial rainy day?

The State has spent more $ than it has taken in for over 7 years. In fact, California has spent 4% more than it has taken in for the last four years. The problem seems to be that annual spending goes up each year, regardless of whether there is a defined need or not.

The States' General Fund spending increased 34% from 2003 to 2008 ($26 billion); yet the States' population grew only 7% (2.4 million). Does a 7% increase in population require a 34% increase in General Fund spending? No, it doesn't, but it happened anyway.

Education and Corrections programs have both received significant budget increases with some questionable results. Education has Prop 98, which locks in a complex spending formula which provides 40% of General Fund revenues to Education– even if there is a decline in real growth of the student population! On top of that, we were told a few months ago, that high school graduation rates are continuing to go down. Where is the payback here?

Then we have the prison system - another interesting story. In the 1980's, the State spent about 3% of the General Fund Budget on the prison program, for about 20,000 inmates. Currently the State spends over 10% of the budget on 170,000 inmates and associated programs. In addition to that, the prison guards union employees receive salaries about 1/3 higher than the average in other states. Oh, and by the way, the 31,000 member guards union managed to contribute over $500,000 to help support a ballot issue this year.

One possible answer to this crisis would be the very sensible approach used by the state of Washington. They use a 'Priorities of government system, which has the government perform a top-to-bottom evaluation of what services are provided – and how provided. Activities are then ranked from most to least important, and then funded on that basis until the funds run out.

Could the state of California actually set up a rational spending program like this? Time will tell, bur I wouldn't bet on it.

Sources: Elizabeth Karasmeighan (Cato Institute), Daniel Weintraub (Sacramento Bee)

Performance Based Budgeting

BY ASSEMBLY BUDGET COMMITTEE VICE-CHAIR ROGER NIELLO

Budget Update When we last left off…the Democrats in the Legislature had passed a series of bills in the Governor's Special Session that would have increased taxes on Californians by $10.8 billion. The tax proposal was crafted in such a way that the majority party believed they could do so with a simple majority vote, and so it did, with no Republican support. Republicans firmly believed that this was a clear violation of the State Constitutional requirement of a 2/3 vote on new taxes.

Upon passage of this legislation, Governor Schwarzenegger threatened to veto the bills if a ''stimulus'' package of legislation was not also approved and sent to him. While negotiations between the Democrats and the Governor continued during the holiday period, an agreement was not reached and just yesterday, the Democrats sent the bills to the Governor anyway, where they were summarily vetoed.

The Governor was right to veto this budget proposal. As stated, it clearly violates the State Constitution. Further, the plan did not include any reforms to change what got us into this predicament in the first place. California will very soon run into a situation where cash will not be available to pay all of the State's bills. In order to address this immediate cash crisis, Republicans have suggested that we work together to take action on $6 billion in common budget savings that Republicans, Democrats, and the Governor have suggested.

The Governor's veto of this unconstitutional tax scheme presents a fresh opportunity for us to go back to work and make the very difficult decisions that will need to be made to address the state's immediate cash crisis while eliminating our long-term budget problems once and for all.

You all know that this year's state budget has reached a severe crisis. You've read my ideas about how we got here and what it's going to take to get out of this crisis in this space many times before. I've heard from many of you wondering about how we ever got to this point. And, while I recognize it won't solve our short term problems, I wanted to discuss with you today a major change to the way we do our budgeting that I believe the State of California needs to consider.

You wouldn't hand over your hard earned money to a mutual fund company without getting some kind of a prospectus in return---what funds are we investing in, what is the performance of said funds over time, etc.

So why do we allow our tax dollars to be ''invested'' without some indication of whether the programs being invested in are performing?

Unfortunately, California's budget is typically evaluated on whether the budget is delivered balanced, and on time. The State's total budget now stands at more than $140 billion a year, but our budget is largely based on giving programs what they got the year before, plus a growth measurement. This doesn't give us any idea of whether the program is performing, and it forces us to make changes only on the margins. In addition, this process has a way of locking spending within programs and artificially limiting the power and discretion that lawmakers have to move money within policy areas to the most successful strategies, agencies, or programs.

In an environment of severely limited resources, we should be asking performance questions based on outcome data and arguments for a program beyond just the need. The bottom line should be a budget that sets goals and both demands and communicates outcomes.

These are the ideas behind ''performance based budgeting'' in which budget measures are keyed according to their objectives, and evaluated over time based on whether these objectives are being met. Several states use such measures in their state's budgeting process. For example, Virginia, widely acknowledged as a state with a deeply ingrained culture of fiscal responsibility, has been using this system for years. Here's how it works: Take the health area of the budget, for example. Consider one program currently funded in Virginia's state budget, Childhood Immunizations.

Objective: We will increase immunization rates of children at two years of age. Governor's Key Summary: We will increase the percentage of two-year old children in Virginia who are appropriately immunized to 90 percent by June 30, 2009.

Then, on an annual basis, Virginia is able to chart the performance of the program. Policymakers can look at this budget item and the charted data and evaluate whether to allocate more money to the program.

Louisiana is another example of a state that uses performance based budgeting. In fact, Louisiana statutorily requires strategic planning, operational planning, performance accountability, and performance reporting for all Executive Branch agencies.

The beauty of performance based budgeting is not only that it allows policymakers to better establish priorities and track progress, but that it allows you, the public, to hold lawmakers accountable and keep tabs on whether programs are achieving their purported objectives. Another example from the State of Virginia is the state's ''online dashboard'' published on the Department of Transportation's website. This website allows Virginians to keep tabs of a variety of performance measures, including vehicle accident fatalities, congestions, and even the nuts and bolts of the agency's fiscal management. If you'd like to take see the Virginia Department of Transportation's online dashboard; please visit the following link -Virginia's online dashboard.

There are many models for performance based budgeting, and these are only a few examples. But the general idea is one that deserves our consideration. Performance measures put policymakers from both parties on the same side of the table, armed with the same data as they work together to craft responsible budgets. It is futile to talk about expenditures and revenues in the absence of performance data that tells us if we're effectively using the money we already have. In the end, the saying goes that the definition of insanity is doing the same thing time and time again but expecting different results. If this year's challenged state budget has taught us anything, it's that it is time to change the way we do things and move toward a culture of more responsible budgeting.