Budgeting for the Future: An Interview With the Author

We have released a major new report that ranks states on their use of ten proven, common-sense budget tools, such as regularly estimating revenues and spending for the next five years (not just the budget year) and tracking the cost of individual tax breaks.  We found that although all states budget for the future to some extent, no state does it nearly as well as it could.

Here, we talk with Vincent Palacios, one of the paper’s authors, about the report — and how these tools are working in states across the country.

Question:  Why does it matter whether states budget for the future?

Vincent Palacios:  A state’s budget decisions today have long-lasting consequences.  But all too often there is considerable pressure to focus just on the budget for the next year.  Better planning — in which policymakers take the long view — can help states build a stronger economy and weather tough economic times.  For instance, long-term planning can reduce uncertainty for businesses about the taxes they’ll owe and services they’ll receive, and can help states avoid short-sighted budget decisions that end up being costly in the future.  So long-term planning really helps states operate more effectively and efficiently, and invest in services like education and infrastructure that are essential to our economy.

Question:  What surprised you about the findings?

Vincent Palacios:  We were genuinely surprised that after all the data were collected, no regional or political patterns emerged in how states do their long-term planning and budgeting.  State rankings really cut across preconceived notions of red states and blue states.  For example, Connecticut and Tennessee lead the pack, while Illinois and Alabama are among the states with the most room for improvement.  Then again, we think that goes to the point that budgeting for the future is not a partisan issue.  These are practices we can all agree on.

Question:  These ideas do seem like common sense.  So why haven’t more states implemented them?

Vincent Palacios:  Well, on a practical level some states might not be implementing these tools because their agencies are short staffed or because of competing priorities.  In other states, agencies or the legislature might not want to share budget information for political reasons.  Finally, some of the changes require an authorizing statute, such as establishing or strengthening a rainy day fund, and legislators’ agendas are already crowded.  Yet many states could easily improve their practices just by publishing the information they’re already producing — the low-hanging fruit, so to speak.

Question:  States are still under tremendous budgetary pressure as a result of the recession and slow recovery.  Is this the right time to make these changes?

Vincent Palacios:  Absolutely.  During bad times, it’s especially important to consider the future impact of tax and spending decisions.  For one thing, long-term forecasts can give early warning that short-term fixes could cause lasting harm, like taking on too much debt or neglecting maintenance of roads and bridges.  And some of the changes that we are recommending could have softened the blow of the recession.  For example, some states make it difficult to use the funds they have saved for a rainy day.  Allowing use of these funds without a super-majority vote or removing onerous replenishment rules would have made it easier to tap these reserves when states needed them most.  The bottom line — for states still struggling with this sluggish economic recovery — is that most of the changes we’re suggesting are not costly; some can even save money.  For example, putting sunset provisions — think expiration dates — in place for tax expenditures would force the legislature to review their cost and effectiveness regularly and could save a state money when it eliminates those that don’t make the grade.

Click here to read the full report and here for the state fact sheets.