Go to Admin » Appearance » Widgets » and move Gabfire Widget: Social into that MastheadOverlay zone
This article is part of a Special
Section on “AFTER THE RECOVERY ACT: TRANSFORMATION OR BUSINESS AS USUAL?” that ran
in the November/December 2010 print issue of PA TIMES. Contact Editor
Christine Jewett McCrehin ([email protected]) for more information on
the print issue. See the Related Articles box for links to read more from the Special Section.
Adam Wiliams, Daniel Bauer and Alexandru Roman
State and local governments have begun to encounter unprecedented spending and budget problems. The trend line points in a downward direction with revenues and expenditures. While the federal budget is permitted to move into a deficit, state and local budgets do not possess this luxury.
Given their inability to work with an unbalanced budget and the present circumstances surrounding state governments and their budgets, it becomes vital to raise awareness of this current fiscal crisis within U.S. states and their budgets in order to set the tone for future research to be undertaken which will answer questions pertaining to the how and why. Specifically, this article seeks to present one overarching theme behind this crisis: the question surrounding accountability and transparency throughout the budget process.
A basic understanding of terms is always a crucial part of any research. Beginning with accountability, it can be said that the interaction between state agencies and the elected officials with governing power possess often divergent budgetary opinions. With reference to McCubbins and Schwartz article “Congressional Oversight Overlooked: Police Patrols Versus Fire Alarms” in the American Journal of Political Science, as well as McCubbins and Lupia’s “Learning from Oversight: Police Patrols and Fire Alarms Reconsidered” from Economics and Organization, it is often expected that the elected officials will implement oversight procedures on the executed budget. Those agency officials will claim that elected officials have no competency and desires the spending abilities be given to the agency because of their knowledge. These conflicting opinions create blame shifting and present the nature of accountability.
When a researcher presents issues pertaining to transparency, context usually contains the answer to what is really being discussed. Here, transparency is the clarity of information. Based on George Hale’s article “State Budget Execution: The Legislature’s Role” from the National Civic Review, transparency involves the information being distributed to the general public and the information shifting between agencies and the governing bodies. In budgeting, this exists in the designing, formalization, execution and reexamination of budgets. Clarity of the information regarding these processes will make for transparency. Further discussion on current circumstances in budgeting will better illuminate why these terms are vital.
Over half of the 50 American states are already in critical budget crisis mode, forecasting budget shortfalls in fiscal 2011 as a percentage of this year’s budget to be 10 percent or lower. Some of the most populated states including California, New York, Texas, Illinois, Pennsylvania, Ohio, and New Jersey possess budget deficits and/or filled budget gaps with U.S. federal government subsidized stimulus funding. According to Von Drehle’s article, “The Other Financial Crisis,” Time Magazine, the State of Florida’s approach to budget shortfalls is not atypical, closing a $3.2 billion budget gap by slashing university funding, while pursuing gambling expansion, and other methods of budget appropriations. However, in a joint spring 2010 study conducted by the National Association of State Budget Officers and National Governor’s Association, budget shortfalls are projected for the intermediate and long-term while temporary stopgap measures offer short-term solutions.
Not unlike European Union (“EU”) member nation states’ fiscal woes, American counterparts such as the 50 states face a financial crisis of epic proportions, with no politically palpable solution in the foreseeable future. In 2008, at the advent of the financial crisis and, particularly, since the collapse of the investment banking firm, Lehman Brothers, a large market participant, municipal debt markets effectively closed as public finance vehicles. As Ang and Yuhang’s article appearing in the Journal of Fixed Income on “Build America Bonds” indicates, the U.S. federal government stepped in as the lender of last resort and provided subsidized financing for state and municipalities.
The level of subsidy provided by the full, faith, and credit of the U.S. federal government approximates 34 percent. Absent federal government involvement, an argument can be made that no mechanism would exist for state and local government access to money and capital markets for capital expansion project financing. In fact, an argument can be made the federal government provides a liquidity premium, for which it is not adequately compensated.
Beyond debt subsidies born out of public finance, more than 28 percent of state funding emanates from inter-governmental transfer payments. The 28 percent figure, representing a form of ‘subsidy’, is the highest reliance by states upon the federal government ever recorded. This level of state fiscal irresponsibility suggests an ultimate lack of either accountability and/or transparency or both.
In January 2009, President Barack Obama’s first executive action led to the Open Government Directive. The directive stipulated three commitments: government should be transparent; participatory and collaborative. Furthermore, the directive stipulated, information maintained by the federal government is treated as a national asset. In the 2009 correspondence, several new data sets would be made available to the public-at-large and the private sector for potential commercial use as stipulated by Peter Orszag, director, Office of Management and Budget. The open government mandate affects the budgetary process as well and has been urged for adoption by state governments. For example, the State of Florida has adopted open government and has made the budgetary process available to the public. The Florida State budget has one line item listed on its budget for recovery act stimulus funding. In fact, the American Recovery and Reinvestment Act (“ARRA”) of 2009 mandates transparency in spending $787 billion.
At this point accepting the status quo or maintaining a lingering hope that things might work themselves out might prove to be a dangerous approach to deconstructing the fiscal crisis. Not helping the situation is the relatively recent trend of surrounding the budgeting and public policy process in a veneer of ambiguity; extending from defining terms to leeway in guiding implementation. It should be noted that the ambiguity extends beyond the complexity and flexibility inherently characteristic to the budgeting process. John Kingdon, in his book Agendas, Alternatives and Public Policies and Nikolaos Zahariadis, in his book Ambiguity & Choice in Public Policy, argue that ambiguity is a well defined political tool. It is a mechanism that is used thought the entire budgeting and public policy process.
Initially ambiguity was used to allow flexibility in implementation of technical projects and policies. However, currently in many instances technicality does not offer any longer a convenient explanation refuge. This is not to say that technicality has no place in shaping the understanding of the accountability and transparency in state budgets; it can be argued that in places this technicality might have been overemphasized.
Resulting from the Recovery Act, is it time for a transformation or business as usual? The authors posit that transparency and accountability are the true engines driving behavior. It is neither intellectual nor innovative. In a 2006 non-partisan study jointly conducted by the Brookings Institution, Heritage Foundation and Concord Coalition titled “Facing Up to the Nation’s Finances: Understanding Public Attitudes,” public support comes with one key condition: trust must increase surrounding the responsibility of the leadership spending public monies. We believe transparency is a competitive advantage. The onus now shifts to the state budgetary processes.