No easy budget fixes; Rascovar’s proposals to change the fiscal year are way off base

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Photo above by DafneCholet with Flickr Creative Commons License

By Roy T. Meyers

For MarylandReporter.com

In Monday’s column, Barry Rascovar claimed that an “easy budget fix” for Maryland would be to stop projecting revenues in favor of using a previous year’s levels, and shifting the fiscal year from July-June to January-December.

His arguments are greatly flawed. Here are a few of his assertions (paraphrased in italics), and the sensible counters to them:

  1. Marylands revenue estimates are wild guesses.

In fact, the state’s forecasters are professionals who work on a consensus basis, and their work for the Board of Revenue Estimates is generally excellent, with relatively small error rates.

  1. Prior year revenue levels could be used for the budget with 100% accuracy.

That’s not the case for the governor and his staff, who finish budget preparation during the fall. They would still have to estimate the final revenues for what is called the “current year” by budget experts. The final figures for that year wouldn’t be available on December 31.

The “closeout” of that budget–when final figures are certified–takes at least several months. This would mean the budget year’s “estimated” revenue figures wouldn’t be settled until half way through the legislative session, at best.

Imagine that this system was in place now. By sometime in the spring of 2015, revenue figures from the calendar year of 2014 would be available. They would be the basis of the budget prepared for the budget year 2016, which would begin in January of that calendar year. In other words, Rascovar’s proposal would actually lengthen the period between settling on a revenue figure and the budget year to which it would apply.

The odds are close to 100% that this system would be more inaccurate than the current system. Rather than making a best estimate of revenues for 2016, the state would be forced to use revenue figures for two years prior–intentionally ignoring any new information learned since then.

  1. Starting the fiscal year in January rather than the previous June would give greater certainty about spending levels financed by the federal government.

Here I have to quote in wonderment: “We’d also know with precision the scope of federal appropriations to the state and localities for most of 2015. That’s because Washington operates on an October to September fiscal calendar. We’d have an accurate picture of federal largesse for three-quarters of the next year.”

It’s heart-warming that there’s at least one person in the U.S. who has faith in the Congress’s ability to pass appropriations bills on time. But the fact is that in some recent years, the Congress hasn’t passed appropriations until after what would be the start of the state’s fiscal year.

The state’s experts already do a reasonably good job of estimating how the federal government’s spending might affect the state (much of which is not financed in annual appropriation bills).

  1. Revenue misestimates are the main cause of unanticipated state budget deficits.

Rascovar does mention some “spending gaps” such as for “catastrophic occurrences,” but he hasn’t thought through how changing the timing of the fiscal year would also affect the accuracy of spending estimates. Each year’s budget deficit is due in part to the need to make deficiency appropriations for underestimated spending.

These mistakes can result from the difficulty of projecting demand and price levels for mandatory spending programs, and also of guessing about likely administrative actions. Changing the timing of the fiscal year would increase this problem by lengthening the projection period. The budget enacted by the General Assembly, now in April, wouldn’t begin until the following January, rather than the nearer July.

  1. Sweeping under-projected revenues into the states surplus would be the most rational way to save for a rainy day.

Here I’ll agree with those who have observed that in some years, notably those before elections, the state has failed to hold sufficiently large budget surpluses. But Rascovar would have the legislature meet in a summer special session if the governor proposed a supplemental budget to spend under-projected revenues.

Maryland’s budget is already balkanized enough with a surfeit of special funds and dedications; a special session would further reduce the likelihood that the legislature would take a comprehensive view of the state’s finances.

A better way of promoting prudence is setting more ambitious targets for adequate cyclical savings, while at the same time taking measured actions to prevent the buildup of long-lived liabilities, as was done in recent years for pension and health benefits for state employees.

  1. To quote again:Compared with tax reform and downsizing government programs, changes to Marylands budget procedures would be fairly easy and straight-forward.

It’s important to remember that just as with budgets, for the budget process there is no such thing as an “easy fix.”

Roy Meyers is professor of Political Science and Public Policy at the University of Maryland Baltimore County (UMBC). He can be reached at meyers@umbc.edu