Making PA Budgets Honest

This commentary ran in the Philadelphia Inquirer on September 29.

American governments are built around the power of legislatures to challenge administrations through public debate. From this debate come better policy decisions.

However, if one side has a monopoly on fiscal information, it can hamper reasonable debate about government budgets.

This is the situation in Pennsylvania, where the state administration controls the financial information and the budget process is therefore broken. Fortunately, some legislators in Harrisburg are proposing a solution in the form of an independent fiscal office.

Thirty-six other states and the federal government employ legislative fiscal offices in some capacity. By creating an independent fiscal office, Pennsylvania could bring about more factual and responsible budget debates.

To get an accurate, fair, and reasonable picture of Pennsylvania’s fiscal health, competing sources of information are crucial. Additional informed opinions about the accuracy and reliability of the revenue estimates used in the last budget session, for example, would have greatly improved the last round of budget negotiations by injecting much-needed facts into the political dance.

In Pennsylvania, the governor’s office has the sole authority to set the assumptions and projections in a proposed budget. The legislature is unable to challenge them and therefore forced to rely on the administration’s fiscal forecasts. In many ways, this denies the legislature its constitutional power to create the budget. Without accurate fiscal information, no legislature can do its constitutional duty.

Clear, accurate fiscal forecasts and reliable financial information give policymakers factual grounds for their spending decisions. So legislatures deserve an independent, objective source of that information. If we don’t give them the tools to do the job, we can’t expect a good result.

The current economic downturn has forced many states to cope with lower revenues, but a lack of independent financial information can lead to unrealistic revenue estimates. In 2008, in the midst of a serious recession, Virginia projected that revenues would grow by roughly 9 percent – a blatantly irrational prediction that resulted in a 2009-10 budget gap approaching $4 billion. This required much painful cutting in an already terrible economic climate.

The federal government struggled with similar problems before it created the Congressional Budget Office in 1974. Since then, the CBO has become a respected counterweight to the president’s Office of Management and Budget. When the OMB and the CBO score legislation differently, politicians, journalists, and voters want to know why, and so they should. Scrutiny such as this is a key component of an honest, transparent budget.

Over the past two fiscal years, Pennsylvania’s revenue collections have ended up a total of $4.5 billion short of the administration’s official projections. The most recent state budget was predicated on the commonwealth’s receiving $850 million in additional federal aid; Congress eventually passed legislation giving Pennsylvania about $600 million. The Rendell administration also counted on funds from tolling Interstate 80 – a plan repeatedly rejected by the federal government – and using surpluses from a state health-care fund, which a court eventually disallowed.

Besides heading off such maneuvers, an independent fiscal office could offer much-needed budget analysis that isn’t being provided by the administration or the legislature. For instance, it could score the economic impact of proposed tax changes. And it could conduct nonpartisan evaluations of taxpayer-funded programs, determining how effectively they are meeting their goals.

Some critics of this idea argue that an independent fiscal office would be another costly and wasteful bureaucracy. But in light of a $28 billion state budget, the cost of an independent fiscal office would be minuscule. Moreover, the cost of not having such an office is great: Even the best-intentioned politicians can’t balance budgets if they have to grope blindly for the facts.

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Maurice McTigue is the vice president of the Mercatus Center at George Mason University and a former New Zealand member of parliament, cabinet minister, and ambassador.