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Reform the Budgeting Process

January 29, 2018 - 3:50pm CST

By Byron Schlomach

Oklahoma needs greater transparency, an all-funds budget, and a streamlined revenue-estimation process.

The budget process for a state is more than simply putting numbers on a ledger, and far more than making comparisons to what was spent last year in order to adjust for inflation and provide for the same amount of services the next year. Truly conscientious government budgeting involves constant oversight, constant re-evaluation, and constant rethinking and redesign.

Government budgeting is about setting hardnosed priorities in light of the fact that taxpayers, whose earnings are being forcibly taken from them to fund the budget, have their own priorities, ambitions, and needs independent of anything government does. Budgeting is about making tough choices, sometimes canceling old programs, sometimes funding new ones, but always making sure money is spent to gain maximum efficiencies and effectiveness for purposes only government can truly fulfill.

Budgeting in a government context is critically different from a business context. Businesses are disciplined by the need to meet the desires and needs of consumers who voluntarily, not forcibly, give up their funds for something businesses produce. Consumers vote with dollars, literally all hours of every day. Markets are far more democratic than our “democratic” form of government. Businesses must be lean (efficient) and competitive (effective) in order to please consumers.

No such discipline controls government. We have elections periodically where often a minority of voters choose representatives, not specific services, that they favor. Most agencies of government are highly insulated from the taxpayers who foot the bill. Most “customers” of our schools, universities, and health agencies, which consume the lion’s share of the state’s budget, do not come close to paying enough in taxes to cover the cost of the services they receive.

All of this is to say that the budget process in government matters. But budget process is a very broad term. It includes who actually participates in budgeting, who possesses full information about agencies’ processes and performance, and who is privileged to provide information directly to those writing a budget. Budget process includes whether or not all funds are considered in budgeting or whether only a fraction of funding is budgeted while the rest is on some sort of autopilot. It also includes whatever constraints budgeters face that are imposed constitutionally and by tradition.

Having witnessed budgeting in three states, Texas, Arizona, and Oklahoma, I find three issues that stand out as areas for potential improvement in Oklahoma’s budget process. These include greater transparency, an all-funds budget, and a streamlined revenue estimation process.

The state has a transparency website (openbooks.ok.gov) that has the potential to offer some much-needed information. However, while it has some good narrative information regarding specific processes and particular funds, when it comes to specific financial information about agencies, the website simply does not work (at least in this author’s experience). What’s more, it is agency-oriented, not program-oriented.

Arizona has a 1,000-page “Master List of Programs” published biennially by the Governor’s Office of Strategic Planning and Budgeting. This document comprehensively lists every program administered by the state, by agency, with financial information. Texas's current and historical appropriations bills, which include high-level program information, are easily found online without having to do a clunky bill search that requires knowing just the right terms to use. Oklahoma’s transparency consists of disconnected sources organized in ways that make little sense, which do not allow one to get a sound overview at the state or agency levels, and which provide for so many avenues of inquiry that information can hide in plain sight.

Real transparency (both for interested taxpayers and researchers with online resources) and complete information provided to legislators would not result in an agency in arrears by $30 million after spending money in an unauthorized manner for years. Oklahoma’s financial information is far too compartmentalized and too limited to the few rather than the many.

Limited information availability is a major reason that a state’s appropriations act should reflect expenditures from all funds, not just general revenues. As of 2015, the state’s appropriations act reflects expenditures from both dedicated funds (whether dedicated by statute or by the constitution) and federal funds as well as general funds. Sound decisions on how to allocate general funds cannot be made without being fully informed about how other funds are spent. However, the legislature has the duty to exercise oversight in how dedicated and federal funds are spent, a mindset that does not appear to have fully developed so far.

There are even more benefits from comprehensive budgeting. One is that agencies are far more responsive to the legislators when the legislature says, “Sure, you can receive that money, but you can only spend it with our express yearly permission.” However, the legislature has to mean this. So far, it seems to have only made a change in the budget’s appearance. What’s more, some federal funds have some limited flexibility in how they can be spent, and the legislature can have a say. In this way, federal funds can help to solve budget crises.

Finally, Oklahoma’s revenues are estimated by a committee called the Board of Equalization. This really means that revenues are estimated by individuals within the government’s bureaucracy whose estimates are then given legitimacy by the Board of Equalization. This system results in no one person or organization being held responsible when actual revenues turn out less rosy than predicted.

Instead of an unaccountable revenue-estimating system, the state’s constitution should be amended to give the responsibility of creating a legally binding revenue estimate to a single elected office that is not directly involved in the appropriations process. In this state, the most appropriate office is the state treasurer. In so doing, when it comes to revenue estimates, everyone would know exactly whom to hold accountable. Accordingly, revenue estimates will be uniformly conservative and the state would be less likely to find itself in unexpected financial difficulty.

Byron Schlomach (Ph.D. in economics, Texas A&M University) is director of the 1889 Institute, an independent research organization. He is a scholar in residence at the Institute for the Study of Free Enterprise at Oklahoma State University. He previously served as director of the Center for Economic Prosperity at the Goldwater Institute, and prior to that was chief economist for the Texas Public Policy Foundation.