Prudent Budget Management

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Utah’s Historical Budget Culture
by Phil Dean, Budget Director and Chief Economist

Our Sister States

This spring as I participated in conference calls with bond rating agencies, I was surprised at how impressed the rating agencies were that Utah not only differentiates between ongoing and one-time revenue, but that we actually budget to these revenues and track our structural balance. Similarly, as I attended meetings with budget colleagues from across the country, I was also surprised to learn of the questionable budgeting practices utilized in many other states. Such practices include not funding actuarially required contributions for state employee pensions; revenue estimating processes where the goal is to show the highest amount of revenue possible rather than the actual amount; and the intentional underestimating of expenditures so budgets appear to balance upon passage, even if not at all realistic.

For some states, difficult decisions are continually delayed rather than being dealt with. Even among some states that do exercise solid budget practices, economies are still lethargic and continue to create difficult budget situations. Although Utah is certainly not without issues to grapple with in terms of our budget and the economy, we are fortunate to live in a state with one of the top performing economies in the nation and one with a proven culture of prudent budget management.

Autopilot Budgeting and Budget Culture

One of the most notable things that stands out to me about states with continuous budget difficulties is that most have various forms of what I would term “autopilot budgeting.” Rather than allowing policymakers to annually or biennially make budget decisions, previous legislative bodies or citizen initiatives have established autopilot budgeting, including automatic spending increases or decreases—thus restricting critical budget decisions. States often turn to autopilot budgeting when the political will to appropriately manage the budget doesn’t exist. Without the flexibility to respond to current issues, prudent budget management is much more difficult and often results in spending a great deal of effort trying to identify ways to get around rigid budget mechanisms in order to do what needs to be done. One of the strengths of Utah’s historic budget process is its inherent flexibility—giving policymakers the ability (and responsibility) to respond to current need within the accepted institutional structure in order to accomplish public policy objectives.

It’s easy to forget how important a state’s budget culture really is. For example, are policymakers empowered to actually make budget decisions or has autopilot budgeting largely tied their hands? Does the political will exist to make the hard decisions when necessary or is the can continually kicked down the road? Are the long-term implications of budget decisions considered or only the short-term consequences? Fortunately, Utah’s executive and legislative branches have long been committed to prudent budget management. That doesn’t mean the process is perfect. Undoubtedly, there are fiscal decisions policymakers may have handled differently in hindsight. Even so, Utah does have a culture of actively managing the state budget in a prudent manner.

The Long View

Prudent budget management includes considering the long-term implications of current budget decisions. This long view includes not only ensuring the financial basics such as balancing revenues and expenditures, but also providing the necessary structural stepping stones for Utah’s future prosperity. Such budget decisions involve considering what government should do and what government should refrain from doing.

Utah must continually strive to find the right balance between taxing and spending, look for ways to improve operations to create more value for every tax dollar, and focus on investments that pay off in the long-term (even when doing so may sometimes mean higher upfront costs to save significant dollars long term). As a result, prudent budget management and a long-term perspective will impact current and future generations. For example, appropriately maintaining Utah’s roads may increase costs in the near term. However, for the long-term, investing in road maintenance is much less costly and more fiscally prudent than the need for a total road replacement caused by improper maintenance. Similarly, ensuring that Utah has an educated workforce ready to compete in today’s global economy may cost more in the near term. In the long-term, however, such an investment more than pays for itself based on the future economic and societal impacts. In other words, an important part of prudent fiscal management is not just balancing the books and saving for a rainy day, but also taking proper care to plant the seeds that will enhance Utah’s future economic prosperity. The legislature’s actions during the 2015 session demonstrate recognition of this aspect of long-term budget management.

GOMB’s Approach

GOMB has historically been, and will continue to be, strongly dedicated to prudent budget management which includes more than performing just the basic budget functions. Our approach involves maximizing the return on every taxpayer dollar invested, working in partnership with state agencies to improve operational processes, scrutinizing requests for increased resources to ensure that existing capacity is being used to maximum effectiveness before adding investments, and asking the hard questions when seeking true and accurate results.

Utah certainly has its challenges as we grapple with the very legitimate needs of a rapidly growing population. Recent steps toward a more autopilot budgeting approach are concerning—hopefully, the legislature will reverse this recent trend and adhere to Utah’s long-standing budget flexibility. In the grand scheme of things, Utah’s institutional culture to prudently manage the state’s resources while always looking for ways to improve will serve the state well and will continue to propel us to the top.