Courtesy of Mish.
The Volcker Alliance, founded by former Fed chairman Paul Volcker has sounded an alarm over budget gimmicks. The alliance seeks Truth and Integrity in State Budgeting.
In the report, the Volcker Alliance examines in detail the budgeting practices of California, New Jersey and Virginia, assessing the effectiveness of each state’s practices.
The report highlights the need for effective and transparent budgeting practices by “shining a spotlight on opaque and confusing practices and by identifying more appropriate approaches” when creating state budgets and fiscal policy.
Executive Summary
EVEN AS THE REVENUE OF STATE GOVERNMENTS in the United States recovers from the longest economic downturn since the 1930s, many states continue to balance their budgets using accounting and other practices that obscure rather than clarify spending choices. These practices make budget trade-offs indecipherable, lead to poorly informed policy – making, pass current government costs on to future generations, and limit future spending options. Further, they weaken the fiscal capacity of states to support the cities and counties that depend on their aid.
In 49 states, “balanced budgets” are required by constitution or by statute; Vermont, the sole exception, follows the practice of its peers. In truth, however, there is no common definition of a balanced budget, and many states resort to short-term sleight of hand to make it appear that spending does not exceed revenue. The techniques include shifting the timing of receipts and expenditures across fiscal years; borrowing long term to fund current expenditures; employing nonrecurring revenue sources to cover recurring costs; and delaying funding of public worker pension obligations and other postemployment benefits (OPEB), principally retiree health care.
While these actions temporarily solve budget-balancing challenges, they add to the bills someone eventually has to pay. Yet few states include information about these long-term spending obligations in the budgets that governors propose and state legislatures debate. This precludes accurate, informed consideration of policy trade-offs.
A primary aim of this preliminary study is to lay the groundwork for a common approach toward responsible budget practices in all 50 states. A continuing comparative analysis should provide a framework for a scorecard with respect to budgeting and financing practices. By shining a spotlight on opaque and confusing practices and by identifying more-appropriate approaches, we hope to provide incentives for officials to clarify financial issues and encourage debate on basic policy choices.
We invite and encourage governors, budget officers, and legislators to commit to work with us in developing useful approaches toward effective financial policies. Recent experience demonstrates the need. Mounting fiscal stress in Illinois, the bankruptcy of Detroit, and the impending financial crisis in Puerto Rico all indicate the relevance of the initiative that the Alliance has undertaken.
Preliminary Budget Report Card
Many Pensions, Many Standards…
