Reinventing Budgeting In
New York State
The New York State Legislative
Sheldon Silver, Speaker
Marty Luster, Chair
Charles S. Dawson, Jr., Ph.D.
Agency 4, 13th Floor
Empire State Plaza
Albany, New York 12248
Letter From the Chair . . .
On behalf of the Legislative Commission on Government Administration, I am pleased to present our report on "Reinventing Budgeting in New York State."
No action of our state government is more important or visible to the citizenry than the budget process. Unfortunately, no product of state government is more difficult to understand. As a consequence, it is virtually impossible for the state's voters to hold the governor accountable for the budget's implementation. This report, I believe, is a step towards untangling the current process and setting a clear direction for its improvement by looking at the best practices and benchmark standards from across the country.
This report brings together research that contributed to development of the Assembly's "Truth in Budgeting Act of 1995" (A.8275) passed during the 1995 legislative session. It is part of an ongoing Assembly-led effort to improve and reinvent New York state's budget process. A fuller description of the Assembly's 1995 budget reform proposals and its record of budget reform over the past two decades can be found respectively in the Committee on Ways and Means' publication, "Truth in Budgeting: Creating a Responsible and Open Budget Process," (Perspectives, June 1995), and the Commission's publication, "Fiscal Reform and the New York Assembly" (June 1995). Both of these recent publications, as well as copies of this report and the Assembly's omnibus budget reform bill (A.8275), can be obtained from the Commission.
This report is the product of considerable effort among the entire staff of the Commission and many at the Ways and Means Committee. This is not the last word on budget reform, but where we stand now, budget reform will be an important goal for the upcoming session, and I welcome and encourage your written comments on how we can strengthen and improve both this report and the state's budget process.
Assemblyman Marty Luster
|Executive Summary: The Challenge to New York State|
The Challenge to New York State
An effective fiscal planning and budgeting system is essential for government to formulate and execute sound public policy. Only a fiscal planning and budgeting system can provide comprehensive information on what government does, how well government does it and how much it costs to do it. No other tool at government's disposal can do this.
The existing fiscal and budgetary system in New York is predicated on seemingly idiosyncratic traditions, byzantine budget adoption and execution procedures as well as a myriad of budgeting case law. The challenge facing New York policymakers committed to strengthening and modernizing the state's budget process and related systems is formidable but achievable.
The last major budgetary reform in New York state was the adoption of the "executive budget" process first implemented by Governor Franklin D. Roosevelt in 1929. The state's governmental operations have expanded tremendously in both scope and complexity since that time, yet the state's fiscal practices have not been correspondingly systematically modernized.
As a result, New York's fiscal and budgetary practices are not consistent with either accepted benchmark standards or the best practices found in other states. New York is not keeping pace with other states in developing its fiscal planning and budgeting capacity. A number of fiscal and budgetary management and analysis tools have been developed and successfully implemented in states and municipalities across the nation, but New York has yet to fully embrace any of these tools.
Further, New York state is not keeping pace with technological and administrative advances to improve its fiscal and budgeting information infrastructure. It is critical that the state ready itself to manage the increasingly complex array of budgetary and financial system demands that the twenty-first century will surely bring. These new demands, both technological and operational, have the potential to tax the current system to its breaking point. In fact, important elements of the state's fiscal information system are rapidly approaching this precarious juncture.
New York state needs a long-range strategic plan to adequately respond to this challenge of fiscal reform. The challenge to New York is unmistakable. To realize the objectives of more effective, efficient, responsible and accountable government, the state's current fiscal planning and budgeting practices must be overhauled.
Reinventing Budgeting in New York State is an effort to assist policymakers in this task. It does so by examining other states for "best practices" or "benchmarks" and comparing them to New York practices. But, no state is perfect and seldom is there "one best way" to achieve reform. New York must ultimately adapt lessons from other states to its own unique legal and governmental environment.
Summary of Budgeting
To Improve And Strengthen Responsibility And Accountability
Establish a Direct Relationship Between the State Financial Plan, the Executive Budget Document and State Budget Appropriation Bills so that Anticipated, Current and Prior Levels of State Spending are Well Defined and Clear to the Public and Legislature
Adopt a Uniform Classification System of Agencies, Programs, Appropriations, Funds and Accounts to coordinate the systematic organization and reporting on the delivery of state services
Reorganize the Executive Budget Document and Appropriation Bills into a Common Format that Facilitates Ease-of-Use, Ready Analysis and Integration with the State's Central Accounting System and Agency Accounting Systems to increase public understanding
Enhance the Use of Strategic Planning Tools Including Multi-Year Budget and Financial Projections, Current Year Financial Plans, and Improved Capital and Debt Reporting
Provide Greater Oversight and Planning of State Debt and Capital Projects by Developing a Unified and Coordinated Debt Issuance and Capital Planning Process
Why Reinvent Budgeting in New York?
"It is no exaggeration to state that the capacity
depends on the capacity to budget."1--Allen Schick
New York state's credit rating is one of the lowest grades of state governments in the nation. (Moody's rates the state's general obligation debt an "A," whereas Standard and Poor rates it an "A-.") This has needlessly cost the state, its public authorities, and local governments millions of dollars each year in added interest.2 This discouraging credit rating is symptomatic of the state's antiquated system of fiscal planning and budgeting, which has not been comprehensively examined since the 1920s administration of Governor Alfred E. Smith.
The following fiscal and budgeting problems of the state also point to the need for reform:
The state budget has been late in 13 of the past 16 years, undermining public confidence and credibility in the state's budget process.3
The state has relied on unorthodox financial practices to balance the state budget. These practices have contributed to the state's reputation as the "national capital for budget tricks."4
Billions of dollars of spending for state purposes is done by the state's quasi-independent public authorities. In most cases, neither the public or the legislature ever sees a budget for these authorities. These authorities received approximately $2.5 billion in appropriations in state fiscal year 1994-95 and were responsible for over $63 billion of state-related debt outstanding.5
Certain functions of the state's accounting and financial reporting system are so antiquated that for the first time in its history, according to Andersen Consulting, the state comptroller's office may be unable to meet a state payroll because of system breakdown.6
Simple analyses, such as determining the number of actual state employees on the state payroll, become extraordinarily difficult, if not impossible.7
While these issues are not the result of injudicious policy making or neglect, as some have suggested,8 they are manifestations of an antiquated fiscal system and one which no longer reflects the size and scope of government today. Peter Drucker recently addressed this type of "ossification" of government systems as follows:
|Any organization, whether biological or social, needs to change its basic structure if it significantly changes its size. Any organization that doubles or triples in size needs to be restructured. Similarly, any organization, whether a business, or a government agency, needs to rethink itself once it is more than forty or fifty years old. It has outgrown its policies and its rules of behavior. If it continues in its old ways, it becomes ungovernable, unmanageable, uncontrollable.9|
The following examples show some of the limitations of New York's antiquated systems:
The public cannot determine the amount of money that was spent or is anticipated to be spent for any state program or discrete purpose for any given fiscal year since the actual budget document does not supply anticipated cash disbursements or past cash disbursements by program or purpose even though the state's budget is adopted and considered on a programmatic basis. Nor do the state's budget appropriation bills contain anticipated cash disbursements--even though these bills constitute the legal authority for the state to spend money.
The operational costs of the state's programs are virtually impossible to systematically determine. This results from an ill-defined program structure, lack of consistent accounting standards and lack of a statewide cost accounting capability. These factors all but prohibit performance measurement and program evaluation.
The budgeting process primarily focuses on how much money is spent rather than why or how well state tax revenues are spent.
The state does not have an integrated accounting system and financial reporting structure. The state continues to operate with costly manual and antiquated accounting systems which were developed over twenty years ago. This has made effective management reporting and workforce planning impossible.10
The budgeting process is principally focused on the short-term (one year). Little emphasis is placed on future year planning, the resources necessary to provide for future year services, or the future impact of current spending decisions. Consequently, little or no effort is directed at state strategic planning.
The public is afforded minimal opportunity to comment on or analyze the budget. The legislature provides the only opportunity, when it conducts its joint public hearings soon after the governor submits the budget to it.
What is the best means to begin solving these problems? David Osborne and Ted Gaebler's Reinventing Government,11 outlines a basic approach in the identification of "benchmark" standards and the examination of best practices in other states. By reviewing national standards and best practices for budgeting, insights can be gained for addressing specific problems as well as broader improvements in the state's budget process.
To realize the objectives of more effective, efficient, responsible and accountable government, the state's current fiscal planning and budgeting practices must be reinvented. (For a description of recent fiscal reforms, please see Fiscal Reform and the New York State Assembly.)
An effective fiscal planning and budgeting system establishes the crucial nexus between policy objectives and policy outcomes. A well managed financial management and budgeting system provides the means to realize discrete policy objectives. It relates resources consumed (policy inputs) to services provided (policy outcomes). No other tools at government's disposal can do this. Without these systems the only information available to policymakers is what government wants to do--not what government actually did, how well it was done and what it cost.
The balance of this study is devoted to determining how New York can reinvent its budget process and examining the benefits that would reasonably accrue to the state as a result of these efforts.
Chapter II provides a general overview of New York's current budget process.
Chapter III develops a framework for the objectives of fiscal reform in New York state. National standards for fiscal planning and budgeting and the federal government's recent efforts towards these ends are also outlined.
Chapter IV examines the practices of three states: Hawaii, California and Maryland to determine what can be learned from these states' fiscal planning and budgeting processes and experiences.
Chapter V presents options for improving New York's fiscal planning and budgeting system.
This chapter provides a general overview to New York's current budget process. This is not intended as a definitive description of the state's executive budget process, but rather as a general introduction and backdrop for looking at the national standards and other state practices presented in the succeeding chapters.
New York's budget process consists of three stages: budget preparation; budget submission and legislative consideration; and budget implementation. New York has an executive budget process requiring the governor to prepare and submit a balanced budget plan and implementing legislation to the legislature for the coming fiscal year. The governor must then negotiate the budget proposals with the legislature which in turn reviews, revises, and enacts a state budget. Once a state budget is adopted, the governor is charged with implementing it while the legislature oversees the process. During budget implementation, if not sooner, preparation for the next budget begins anew.
The state constitution makes the governor responsible for annually formulating an executive budget and submitting it, together with implementing legislation, to the state legislature. The executive budget must balance proposed spending against income expected to pay for it. The Division of the Budget assists the governor in not only formulating the constitutionally required balanced budget plan but also in the critical task of implementing the budget after its approval by the legislature.
Budgeting is a continuous process in New York. State agencies begin formulating their respective budget requests for the ensuing fiscal year as soon as, if not before, the current year's budget is enacted by the legislature. However, the "official" start of the budget preparation period is not initiated until the budget director issues the call letter to all state agencies and departments in August or September calling for them to submit their budget requests for the ensuing fiscal year within certain financial and policy guidelines. These spending guidelines are usually based upon forecasts by the Budget Division, predicated on the state and national economy, and by policy direction from the governor.
The process used for agency budget request formulation differs from agency to agency, but ultimately top management staff decide the contents of an agency's submission. Although agency officials are responsible for fulfilling their statutory missions and serving their constituencies, they must also work within the policy parameters set forth by the governor who appointed them.
The Budget Division's examination units analyze each agency's budget request. Formal budget hearings are conducted on the requests of larger agencies and departments. Representatives of the legislative fiscal committees have the constitutional right to attend and ask questions at these hearings.
It is the Budget Division examiners' job to be familiar with the personnel, operations and programs of the agencies they review and to adhere to the governor's general fiscal and policy guidelines while making a determination on agencies' budget requests. Thus, the Budget Division balances the programmatic needs of the agencies against the overall fiscal and policy parameters set forth by the governor for the entire executive budget.
Once all of the examiners' spending recommendations have been aggregated and the receipt and disbursement forecasts have been calculated, the executive's budget proposal to the state legislature begins to take shape. A proposed state financial plan, balancing revenues and expenditures, is prepared together with appropriation bills to authorize spending and other legislation deemed necessary to implement the proposed budget. Simply put, the executive budget consists of the proposed state financial plan and implementing legislation.
Historically, the governor has submitted the executive budget close to the constitutional deadline of "on or before the second Tuesday following the first day of the annual meeting of the legislature," or by February 1 following a gubernatorial election year (Article VII, Section 2). The constitution also requires the governor
|[a]t the time of submitting the budget to the legislature... [to] submit a bill or bills containing all the proposed appropriations and reappro- priations included in the budget and the proposed legislation, if any recommended therein. (Article VII, Section 3)|
The governor traditionally submits five major executive budget appropriation bills to the state legislature. Each bill contains many appropriations for the respective agencies and programs supported by the state in the following areas:
State Operations (appropriations for the operation of executive branch departments and agencies);
Aid to Localities (appropriations for the support of localities such as school aid);
Capital Projects (appropriations for the capital construction needs of the state government such as roads and bridges);
Debt Service (appropriations for state debt service payments); and
Legislature and Judiciary (appropriations for the operations of the state legislature and state courts).
Each of these five major executive budget appropriation bills are acted upon and voted on seperately by both houses of the legislature.
With respect to the Legislature and Judiciary Budget Bill a special set of circumstances apply because of the constitutional principle of separation of powers. The legislature and the judiciary submit their respective budgets to the governor by December 1. The governor, in turn, is required to submit these funding requests with the executive budget exactly as received.
The governor also submits other implementing budget bills that do not contain appropriations. These are often referred to as Article VII bills and are of three types:
tax and revenue proposals;
government reorganization proposals; and
other measures necessary to implement the provisions of the five major executive budget appropriation bills.
At any time within thirty days of submitting the executive budget and budget bills to the legislature, the governor may amend or supplement the financial plan or any of the bills. These changes to the executive's budget proposal are known as 30-day Amendments. After the 30 day period, the governor must obtain approval from the legislature to make further amendments.
The format and content of the executive's budget appropriation bills bear little resemblance to the executive budget document presented to the public. Crosswalking the bills to the executive budget is a difficult exercise, because while the executive budget document is organized by agency and program with all proposed appropriations for state operations, capital projects and local assistance enumerated under the agency and program, the budget bills are organized by category, e.g. State Operations, Aid to Localities, Capital Projects, Debt Service, and Legislature and Judiciary. Hence, it is very difficult and time consuming to reconcile the budget presentation document with the five budget bills that contain the information detailing what has actually been proposed and ultimately enacted.
Because of the difficulty encountered, the state legislature's fiscal committees prepare more concise summaries of the governor's presentation. The "Statistical and Narrative Summary of the Executive Budget," or Yellow Book, because of the color of its cover, is produced by the Assembly Ways and Means Committee staff and distributed shortly after the submission of the executive budget to present the public and members of the legislature with a summary description of the executive's budget proposal.
Budget Submission and Legislative Consideration
If the governor submits the executive budget and bills at the time of the constitutionally prescribed deadline, the legislature is allotted up to 10 weeks maximum to review and act upon a budget of approximately $63 billion before the April 1 start of the state fiscal year. This is the shortest time period of any major state in the country. For instance, the California legislature has approximately twenty weeks to review the executive budget proposal.
After the governor submits the budget, the legislature conducts joint legislative fiscal committee budget hearings in order to hear testimony and to make inquiries about the governor's recommended budget bills. These hearings represent the first formal opportunity for the public to make comments on the governor's proposed budget.
In acting upon the governor's executive budget appropriation bills, the legislature may reduce proposed appropriations or add appropriations. These are known as legislative cuts or adds, respectively. These cuts and adds are governed by Article VII, Section 4, of the state constitution:
|The legislature may not alter an appropriation bill submitted by the governor except to strike out or reduce items therein, but it may add thereto items of appropriation provided that such additions are stated separately and distinctly from the original items of the bill and refer each to a single object or purpose.|
When the legislature completes its action on the legislation required to implement the budget, the legislative fiscal committees prepare a comprehensive statement of the legislature's actions on the governor's proposals. Called the "Report of the Fiscal Committees on the Executive Budget," or the Green Book because of the color of its cover, the report details the legislature's findings and states the intent behind its actions on the governor's proposal.
Upon receiving the budget legislation passed by the legislature, the governor is authorized to line-item veto legislative additions to the executive budget appropriation bills. This ability thus prevents an entire appropriation bill from being disapproved because the executive objects to some of the items. But the governor cannot veto any portions of his/her own bills approved by the legislature or veto legislative cuts. These portions automatically become law when passed by the legislature. In the special case of the Legislature and Judiciary Budget Bill, the legislature must also approve the bill, and then it must be signed into law by the governor. The legislature may override an appropriation line veto if two-thirds of the members of each house approves. If the legislature does not override, then the governor's item veto is sustained.
The legislature is far less restrained by the state constitution in its ability to amend the executive's Article VII implementing legislation, such as tax and fee proposals and programmatic changes, because they do not contain multiple appropriations. These bills can be treated like any other bills and are either vetoed or approved by the governor in their entirety.
The adopted state budget is thus comprised of the state budget legislation enacted into law and a revised state financial plan. If the budget is not passed by April 1st, the beginning of the new state fiscal year, temporary appropriation bills can be enacted to keep the state government functioning.
The passage of the state's budget bills provides the legal foundation for the disbursement of funds through the state fiscal year. At this stage, the state budget process enters the budget implementation phase.
During implementation, the governor manages the budget through the Division of the Budget. As part of managing agency cash disbursements, for example, the director of the budget places a ceiling or limitation on the maximum amount of spending that an agency may make against its appropriations at a specified point during the fiscal year. This ceiling is used in conjunction with an expenditure plan, which is the Division of the Budget's statement of the spending details associated with an appropriation. Before an agency can actually spend against its appropriations, it must receive various approvals from the Division of the Budget. This approval documentation, referred to as "certs," must be shared with the legislative fiscal committees.
The state budget is constantly evolving during the fiscal year as the result of supplemental appropriations, special appropriations, other laws, economic and financial shifts, and other executive or legislative actions increasing or decreasing state receipts and disbursements. Changing circumstances may also affect agency spending needs, and the State Finance Law allows for limited movement, regulated by the Division of the Budget, of appropriation authority between programs to accommodate such circumstances. Thus, the state financial plan, which serves as the basis for managing the state's finances, continues to evolve over the course of the fiscal year.
The executive monitors the implementation of the state financial plan and issues quarterly updates. These updates reflect the fact that the plan is predicated upon a number of economic, financial and demographic assumptions. Actual tax receipts may be higher or lower than anticipated for a certain quarter; payments for local assistance programs such as Medicaid may be higher or lower than previously assumed.
If the state financial plan becomes seriously out of balance, the governor may propose measures to increase revenues or reduce spending. If budget cuts or revenue enhancements are not sufficient to produce a year-end cash balanced budget, deficit notes are issued. Because the state has an annual budget process and the governor's next executive budget must be balanced any shortfalls from the previous year must be immediately addressed.
If revenues are greater than expected, this must also be addressed. Depending upon the source of revenue, deposits are made in reserve funds. In the case of the General Fund, the major operating fund of the state, surpluses (within certain limits) must be deposited in the tax stabilization reserve fund. In any case, the goal is a balanced budget with revenues neither exceeding nor falling short of spending plans.
The legislature's role does not end with its action on the governor's proposed budget. It oversees the governor's implementation of the adopted state budget to ensure that the budget laws are faithfully executed as required of the governor by the constitution. The legislature, primarily through its fiscal committee staffs, also monitors executive compliance with the legislature's intent expressed in the Green Book. Issues which are not resolved can be addressed in the courts, the court of public opinion, or in the next budget, because the budget cycle is continuous and soon begins anew.
National Benchmarks for New York
As governments in the 1990's strive to operate more effectively and efficiently to respond to what appears to be an ever tightening set of budget constraints, there has been a corresponding resurgence of interest in fiscal planning and budgeting standards or benchmarks. However, while economic constraints may come and go and interest in budgeting theory may fluctuate, the elements that comprise effective fiscal planning and budgeting standards remain relatively constant. An integrated planning, management, and control system should consist of a formal process of deciding what to do (planning and policy-making), translating these plans into operational reality (management) and assuring that the desired policy objectives are achieved (control).12
Broadly stated, the fundamental objectives of a complete and comprehensive system should consist of:
the development of well-defined programs with clearly delineated financial and operational objectives;the development of a comprehensive program structure of state services which facilitates management and operational control;
a reorganization of the executive budget and appropriation bills into a common format that facilitates analysis and integration with the operating and accounting system; and
the development of a uniform classification system of agencies, programs, appropriations, accounts and funds to coordinate the systematic ordering and delivery of state services.
Fulfilling these objectives requires a systematic perspective on the fiscal information infrastructure.
This type of systematic perspective requires that each fundamental element of the fiscal system is viewed as integral to the functioning of every other element and the fiscal management system as a whole. The critical interdependencies among the various elements must be identified and addressed. The fundamental elements of a well-managed fiscal information system are an effective strategic planning system, management control system, programming system, budgeting system, operating and accounting system, and reporting and analysis system. The principal characteristics of each system are detailed below:
Strategic Planning System: An effective strategic planning system allows formulation of the long-term policy objectives, changes in these policy objectives, the resources used to attain these objectives, and the policy that is used to govern the acquisition, use and disposition of these resources.
Management Control System: This is the process by which managers assure that resources are obtained and used effectively and efficiently in accomplishing the state's predetermined objectives. This process encompasses all operations. The following sub-systems fall under the management control umbrella.
Programming Sub-System: This is the process of deciding on the nature and size of the programs that are undertaken in order to achieve a policy objective. In the programming system, strategic plans are refined and readied for long-term implementation by program managers. The programming process usually encompasses a number of years in the future and establishes a framework for the current budgeting cycle.
Budgeting Sub-System: The budgeting system is the process of deciding on the actual operating plan and policy priorities for an ensuing fiscal year. The ensuing fiscal year's programs must be converted into terms corresponding with the spheres of program responsibility of those charged with executing the budget. The budgeting process requires careful estimates of costs and revenues and the budget must be constructed within a ceiling representing available resources. Since the budget will be used during the year as a plan against which actual performance should be checked, it is vital that the budget is related to individual program responsibility to thus provide a basis of control for effectively managing these programs.
Operating and Accounting Sub-System: This is the managerial accounting and financial accounting process occurring during actual operations of the state in which records are kept of resources actually consumed and objectives actually accomplished on a programmatic basis. These accounting records should be adequate for the preparation of both internal management reports and reliable and accurate external financial reports. The goals of this system are: legal compliance, financial viability, tracking the cost of services and management performance.13
Reporting and Analysis Sub-System: This is the process after the budget period in which reports comparing budgeted resources and budgeted objectives with actual resources consumed and actual objectives realized are analyzed.
Operational Control System: An effective operational control system assures that specific tasks are carried out efficiently and effectively.
However, as California's recent experience confirms, adopting a more analytical, information intensive or open budget process is no guarantee of fiscal equilibrium. Cyclical imbalance and demographic changes cannot be remedied with good budget information alone. The process can only clearly present information necessary for policymakers and the public to make more informed policy decisions.14
National Standards for Budgeting
Several national organizations have developed standards for budgeting based on the professional consensus of their members. These include the Advisory Commission on Intergovernmental Relations (ACIR), whose responsibilities include providing technical assistance to state and local governments; the professional associations for state budget officers (National Association of State Budget Officers--NASBO), state legislatures (National Conference of State Legislatures--NCSL) and finance officers (Government Finance Officers Association--GFOA).
No large-scale or radical revisions to national standards for state budgeting have been forthcoming. The major reason for this lack of development and emphasis on budgeting standards since NASBO revised their standards in 1975 and the ACIR developed standards in 1981 is not a lack of interest, but rather a lack of more effective methodologies than those already established. Recently, the National Performance Review has issued its recommendations for improving federal budgeting, but the themes have remained the same.
The importance of effective fiscal systems is being re-emphasized without the readily identifiable fanfare or "buzz" words or phrases like "ZBB" (zero-based budgeting)15 or "PPBS" (program planning budgeting system), that have characterized past efforts and resulting standards.16 Yet all these systems, including the fiscal planning and budgeting paradigm delineated above, remain focused on the cornerstones of effective planning, management and control, as the following analysis of standards from ACIR, NASBO, and the National Performance Review shows.
The purpose of the ACIR state model law is to establish a comprehensive system for budgeting and financial management which furthers the capacity of the executive and the legislature to plan and finance state services. The system includes procedures for:
Goal setting: the orderly establishment, continuing review, and periodic revision of the programs and financial goals and policies of the state;
Planning: the development, coordination, and review of long-range program and financial plans that will implement established state goals and policies;
Budgeting: the preparation, coordination, analysis and enactment of a budget organized to focus on state services and their costs, that authorizes the implementation of policies and plans in the succeeding budget period;
Evaluation: the evaluation of alternatives to existing policies, plans, and procedures that offer potential for more efficient or effective state services; and
Performance measurement: the regular appraisal and reporting of program performance.17
|STRATEGIC PLANNING||A budgeting process related to long-term comprehensive state planning.||The orderly establishment and continuing review and periodic revision of the program and financial goals of the state.|
|LONG-RANGE PROGRAMMATIC PLANNING||The development of long-term budget and program needs and development of long-range goals and objectives.||The development, coordination and review of long-range program and financial plans that will implement established state goals and policies.|
|ESTABLISH MANAGEMENT CONTROL PROCESS||Development of effective management of state activities.||Development of an operations plan consistent with the policy decisions of the governor and appropriations by the legislature that reflects proper planning and efficient management methods.|
|PRESENTATION OF BUDGET ON CONSISTENT PROGRAMMATIC BASIS WITH CLEARLY ARTICULATED GOALS AND OBJECTIVES||A budget document depicting all state activities regardless of funding sources, classified by major programs. For each activity or program the document should contain a description and statistical data or goals and relate inputs to outputs.||The submission of a coordinated plan of program goals and objectives to guide the decision on budget appropriations.|
|EMPHASIS ON RELATIONSHIP BETWEEN BUDGETING INPUTS TO BUDGETING OUTPUTS||Systematically relating expenditures to the accomplishment of planned program objectives.||The preparation, coordination, analysis and enactment of a budget organized to focus on state services and their costs.|
|VARIANCE REPORTING||The maintaining of the budget adopted by law, including analysis of planned compared to actual expenditures and program accomplishments.||The evaluation of alternatives to existing policies, plans and procedures that offer potential for more effective or efficient state services.|
|The development of measures of program effectiveness and their use for program evaluation.||The regular appraisal and reporting of program performance.|
The National Association of State Budget Officers promulgated standards entitled Principles for State Executive Budget Offices in 1975, which may be summarized as follows:
|The basic function of the [state]
budget agency is to assist the budget making authority [governor] in the
process of preparing a state budget systematically relating expenditures
to the accomplishment of planned program objectives; presentation of the
budget to the legislature; implementation of the budget and management
The budget operation should be broadly conceived. The budget agency should be knowledgeable in all program areas of state government and to the extent its time and resources permit it should provide management assistance to agencies in all staff support areas not served by other central units. The budget operation involves:
Program planning and evaluation: assistance to agencies in the development of long-term budget and program needs; guidance in developing long-range goals and objectives and analyzing alternative ways to achieve these; assistance in determining programs financial requirements; evaluating alternative programs within a monetary ceiling; developing measures of program effectiveness and their use for program evaluation.18 [Emphasis added.]
Although stated differently, the above general standards embrace all of the objectives of effective management outlined in the previous section. Especially important is the emphasis on the definition of a program. ACIR and NASBO standards include: strategic planning, programming, budgeting, reporting and analysis, and operational control.
At the national level the federal government, facing similar challenges, has publicly acknowledged the need to re-establish the linkage between outlays and outcomes. And not surprisingly, the objectives that the NPR has enumerated for the federal government also build on the fundamental tenets of planning, management and control. This outline can be seen as a guide for such an undertaking in New York. The basic recommendations of the National Performance Review (NPR) for fiscal and budgeting reform are set out in the following table.
|I. Strengthen accountability
for results, with political leadership defining political priorities
first, then reaching agreements with managers on what they are expected
to accomplish and how their accomplishments will be measured.
the President should establish performance agreements with his cabinet officers and agency heads to determine what is expected, how it is to be measured and how they will be accountable for their performance;
each agency should develop a clear strategic plan and agency heads should use performance agreements to forge an effective team committed to the accomplishment of organizational goals and objectives;
each agency should strive for benchmark standards in quality, service and cost;
policy officials, managers, agency budget offices, and OMB should incorporate performance objectives and results as key elements in management and budget development, review and deliberations; and
agencies should identify teams, led by line managers, to develop and coordinate the development and use of measures to improve performance and ensure the quality and validity of performance information.
II. Once decisions have been reached, empower managers to achieve expected results by providing the necessary resources, unburdened by excessively detailed restrictions.
enable managers to effectively and efficiently achieve expected results by limiting the number of centrally imposed detailed and itemized restrictions and regulations; further, appropriation accounts should be more aligned with programs designed to carry out policy decisions and charged with the costs that their programs generate;
operational plans and performance goals should be updated after enactment of appropriations; agency heads should adjust their operating plans to clarify performance goals and results sought; and
managers should budget for, and manage within, funds provided for the cost of direct operations.
III. Streamline and improve the budget development process to give managers more time to manage their programs, provide them with more timely information on policy priorities and funding levels in order to more effectively use resources and to provide links between budgetary resources, missions, goals and results.
the administration should develop an internal mechanism for communicating total fiscal limits, allocating resources within those limits, and enunciating multi-year spending targets; and
the former secretive, hierarchical development of the budget should be replaced with a coordinated team approach focused on achieving results.19 [Emphasis added.]
However, New York state does not meet these very generalized standards. State programs have no consistently articulated goals, just ambiguous descriptions of activities in the state budget. Nor are they established in an orderly manner. Without any formal program structure, it is difficult to systematically and periodically review or revise these programs other than by ad hoc or anecdotal analyses. The financial goals of the state are not directly linked to effective service provision but instead focus on narrowly defined measures of expenditure or disbursement control.
The policy objectives of the state are not consistently articulated in precise term--in the budget or elsewhere--which then can be translated into a concerted, managerial execution of state policy.
Long-range program and financial planning is very problematic in New York state. Program planning can only be accomplished with the introduction of measurement standards upon which plans can be predicated. These standards must be developed first. Viable financial planning can only take place after developing and implementing these standards.
New York's executive budget focuses on information outlining in very general terms how programs will be funded in the state's next fiscal year. There is little information on the services to be provided during the fiscal year and, as such, it is difficult for information on anticipated service levels or anticipated costs to be analyzed or reported on any systematic basis.
Evaluating or appraising the performance of the state's programs is extraordinarily difficult because the critical linkage between expenditures, programs and program output has not been effectively established.
A Comparison To New York
New York does not currently meet the standards promulgated by ACIR, NASBO, or the National Performance Review. This chapter shows how three states, California, Hawaii and Maryland, have integrated these standards into their fiscal systems.
California, Hawaii and Maryland were selected to compare with New York because each demonstrates a special capacity for a particular phase of the budget process; Hawaii for its planning, California for its management, and Maryland for its financial control.
California has a record of demonstrated management analysis along with strong legislative participation in the state's fiscal and budgetary process. California's budget may receive the most management analysis in the country by virtue of two in-depth publications--the state Department of Finance's budget document and the Legislative Analyst's Office annual Analysis of the Budget Bill. California is also considered because of demographic, financial and economic similarities to New York state.20
The state of Maryland was selected because of its long tradition of financial and budgetary control as well as sound fiscal policies. The state closely monitors its state operations and capital spending through the state's Spending Affordability and Debt Affordability committees. Maryland was also the first state to file a full financial disclosure statement and the first state to have its GAAP financial statements independently audited. Maryland also has constitutional budgetary provisions and political traditions very similar to those of New York state.
The state of Hawaii comes closest to embracing a comprehensive fiscal planning and budgeting system. Hawaii's budget law has even been criticized for being too rigorous. The planning requirements, extensively detailed in the budget document and the state budget law, include a biennial budget integrated with a four year operating and capital plan.
California's Budget Process - Balanced Management Analysis
Three aspects of the California budgeting system are of particular significance in any comparison with New York. First, the executive budget contains a wealth of management information structured by both format and content, greatly facilitating high-level analysis and management efficiency by the executive branch. Second, California's legislature checks and balances the executive branch by formal public analysis of the budget, expressing and enforcing its intent in California's fiscal planning and management process. Third, the linkage of the budget bill format with that of the related budget document clarifies expression of both legislative and executive intent in the resulting act, along with facilitating greater management control over appropriations.
Both New York and California are large states; both are considered to deliver a high level of government services. There are also many demographic similarities (e.g., ethnic composition, per capita income, number of federal grants, large urban areas surrounded by rural and agricultural areas).21 Both states have recently experienced a severe economic contraction that has disrupted the normal functioning of state government. The past recession in California has been so severe that the state has suffered its worst job losses in half a century.22 Recently California experienced major policy conflicts which led to a protracted budgetary impasse. This demonstrates that even with excellent information and analysis of the budget, there is no guarantee of either fiscal equilibrium or policy consensus.
However, the focus of this section is not economic or financial performance but rather budget and fiscal processes. In other words, does the process do a good job in delivering information to policymakers?
The California State Budget is organized by program structure (although not on the detail of Hawaii). Similar to Hawaii, California attempts to break down state service delivery into the narrowest program classification feasible.
For example the Department of General Services falls under the general program classification heading of State and Consumer Services. California, like Hawaii, has a uniform classification system for their programs (e.g., each program and its mission is unique and is classified by a unique program number). The utility of this system is illustrated below.
Under the Department of General Services are four programs, some having smaller level programs called program elements, others not. The first program is Property Management Services (1760.10) which is broken up into six program elements. Each of these program elements contain an explicit program element statement outlining the objectives of the program. This is accompanied by a program input statement which details how each program is to be funded.
The program element inputs are then aggregated at the Property Management Services (1760.10) level into Program Requirements and a Program Objective Statement. The programs are then aggregated at the department level--first stating the objective of the department and summarizing its program requirements. Then finally, agency totals are summarized by object, which lists expenditures by detailed categories of personal services and operating expenditures.
The total cost of the departments and programs is broken down by actual (and anticipated) expenditures for three fiscal years--the past, present and future fiscal years. New York's budget in contrast, is prepared on an appropriation level basis and prior year program costs are only related in terms of prior year appropriations, not disbursements or expenditures.
The California budget provides information in a format that encourages effective management and legislative oversight. The emphasis in California is clearly on the management of service delivery and the specific detail surrounding it. The emphasis in New York is squarely on an ambiguous measure of program funding (appropriations) during the upcoming fiscal year rather than on program objectives, program outcomes and program costs.
California's budget document flows logically from detail to aggregate. For instance, it can be determined that the Buildings and Grounds program element of the Department of General Services is partially funded by the Service Revolving Fund in the amount of $18.8 million. To find out more about the fund, there is a section of the budget that shows reconciliation with appropriations (a breakdown of State Operations, Local Assistance and Capital Outlay expenditures by source of funds) and fund conditions (showing reserves, revenues, transfers, and expenditures). Furthermore, the fund balances can be traced to how they are held (e.g., cash, securities) by looking up the fund number in the summary section of the budget. In New York, funds are listed as either General, Capital Projects, Special Revenue-Other, or Special Revenue-Federal. It is extremely difficult to determine the names or classifications of the funds which are being used to fund agencies and programs, along with the balances, appropriations, reappropriations and transfers among the funds.
New York's practices in this respect leave much to be desired. For example, a very large special revenue fund classified as State Special Revenue Fund-339 or the Earmarked Revenue Account (SRO-339 for short) provides funding for numerous state activities through its approximately 310 accounts or subfunds.23 Originally, special revenue funds were established to provide discrete funding sources to specified programs based on revenue sources either generated by that program's activities or any other revenue source specified by law. For this reason, many view special revenue funded programs as "self-financing" and as such, not requiring rigorous spending scrutiny. New York's multiple fund structures which are not coordinated contribute to confusion and hinder accountability.
The appropriation bill process in California is simplified by virtue of a uniform classification system of agencies, activities (e.g., Capital Outlay, State Operations, Local Assistance, transfers, reappropriations, etc.) and funding. The CFIS appropriation code is a ten digit identification number for all appropriations. The appropriation, the Department of General Services (equivalent to New York's Office of General Services) is readily accessed in the California's budget bills.24 The California Fiscal Information System (CFIS) code of 1760 is referenced and all appropriations, funds and transfers are detailed along with explicit statements of legislative intent.
If the budget bill for New York's equivalent Office of General Services is examined, two voluminous documents must be reviewed and manually tabulated to ascertain appropriations for the agency. Fortunately for any prospective analyst, the New York Office of General Services has no local assistance programs. If it did, a third lengthy document would have to be examined and tabulated. This is a very challenging task for even the experienced analyst.
Reconciling appropriations with disbursements in California is accomplished through the California Fiscal Information System (CFIS) which, again, identifies each appropriation by agency, purpose and fund. This is facilitated by the state's adoption of the CALSTARS accounting system, a uniform set of software for each agency tied into the central budget office--the Department of Finance. CALSTARS allows daily reconciliations of appropriations with cash, reconciliations of cash with the financial plan, along with a compilation of various fund expenditures and balances by every level of the state's programmatic structure. California has not fully implemented GAAP yet, but is moving in that direction.25 This development of the state's information infrastructure was precipitated by a comprehensive fiscal reform act in 1978.26
California's fiscal process, is not perfect nor is it easy to understand. However, it provides the necessary system to adequately manage the fiscal affairs of the state--especially when augmented with technical analysis of the legislature. This takes on special importance when a state is experiencing financial difficulties and tough spending and taxation decisions have to be made.
Maryland's Budget Process — Fiscal Checks and Balances
Maryland has a long tradition of sound financial and budgetary management. It was the first state to file a full financial disclosure statement in 1976, and the first state to have its GAAP financial statements independently audited in 1977.27 At the height of the past recession the state maintained its AAA rating by Standard & Poor's Corp., while the state's accumulated GAAP deficit totalled only $16.7 million despite a shortfall of seven percent of anticipated receipts for fiscal year 1991.28
The principal focus of the following analysis of Maryland is on the institutional provisions that effectuate fiscal balance in the state between the executive and the legislature in the budget process.
There are many similarities between the states of Maryland and New York:
the budget processes are executive dominated;
there are similar state constitutional provisions relating to executive and legislative roles in the state budget process; and
both states have a budgetary tradition of centralized expenditure control.
In Maryland, the governor sets the budget process in motion by sending a balanced budget bill to the general assembly. The budget bill has three major parts. The first part, comprised of two distinct sections, contains the specific appropriations proposed for each unit of state government; and deficiency appropriations for units of state government that have unexpected and essential money needs.29
The second part of the budget bill contains implementing legislation. The third part of the bill is the budget summary, which estimates the state's financial condition at the beginning and end of the preceding fiscal year as well as at the end of the fiscal year being governed by the budget bill.30 The budget bill is predicated upon revenue estimates by the independently elected state comptroller. Both the governor and general assembly uniformly abide by these estimates.31
Proposed spending in Maryland is governed by the recommendations of the Spending Affordability Committee, a legislative committee comprised of appointed public members and the legislative leadership. The committee is charged with reviewing in detail the status and projections of revenues and expenditures and the state's economy. Each year the committee must submit to the Legislative Policy Committee and the governor a report with recommendations on fiscal goals for the state budget including, but not limited to:
a recommended level of state spending;
a recommended level of new debt authorization;
a recommended level of state personnel;
a recommended use of any anticipated surpluses; and
other findings or recommendations the committee finds appropriate.32
The spending recommendations of this committee are generally followed by the governor and general assembly.33 In fact, if the governor wants to spend beyond the proposed limits, he or she must in the executive budget:
indicate the degree to which the proposed budget and recommendations differ; and
set forth the governor's reasons for exceeding the recommendations.34
The budget bill is simultaneously introduced in both houses of the legislature. However, only one bill is printed and moved through the general assembly. The houses usually alternate in moving the bill: the senate taking initial action one year and the house of delegates in the next.
All appropriations for state operations, local assistance, and debt service are set forth in the initial bill. Capital projects are appropriated for and acted upon separately. If situations arise where the governor may want to amend or increase the budget bill, this can be accomplished through a supplemental budget bill.35 However, Maryland's constitution explicitly requires that any supplemental appropriation bill which increases spending be accompanied by a measure that increases revenue proportionally.36
Once introduced, the budget bill is processed in the same manner as any other bill introduced in the general assembly.37 The budget committees hold public hearings on the budget bill following a schedule for various agencies prepared by the legislative Division of Budget Review and approved by the chairs of both fiscal committees.38 After the budget hearings are completed, the monetary decisions concerning the appropriations, expressions of legislative intent, and fiscal policy for each agency are determined. The decisions concerning the changes to the governor's appropriations may be applied as specific item reductions or programmatic reductions.39 Legislative intent on program direction is expressed by adding language to the bill. The Maryland courts, in contrast to New York's, have determined that this practice is permissible as long as it does not increase spending.40
In New York, as a result of People v. Tremaine [252 N.Y. 27 (1929)] and most recently in Bankers' Association v. Wetzler [81 N.Y. 2d 98 (1993)], this practice has been interpreted to be unconstitutional (although there are remarkable similarities in both state's constitutions regarding this practice). The Maryland legislature may cut or submit modifying language to the executive budget but it may not add to the executive's bill. The only way to increase the amount of the executive's budget bill is by way of the supplemental appropriation bill which is subject to the governor's veto and the requisite revenue measures outlined above.41
After the budget has passed, state agencies and departments can begin to expend funds on July 1. Expenditures are governed by whatever restrictions are spelled out in the budget and in the legislative Joint Chairmen's Report. Disbursements are made through the Department of Budget and Fiscal Planning, the state comptroller and the state treasurer; all are independent elected offices.
The capital budget and debt are treated separately in Maryland. A separate capital budget bill is submitted to the legislature, and a separate capital appropriation bill is acted upon and passed. Maryland's capital budgeting process is highly regarded by credit rating agencies and municipal finance professionals.42
The size of the capital budget request and appropriation is determined largely by the advice of the Capital Debt Affordability Committee. This gubernatorial committee was created by the general assembly in 1978 and consists of the state comptroller, the state treasurer, the secretary of budget and fiscal planning, the secretary of transportation, and a gubernatorial appointee. The panel is required to review the size of state debt on a continuing basis, and to submit to the governor and general assembly by September 10 of each year the total amount of state debt that may be prudently authorized for the next fiscal year.43
The anticipated capital needs are compiled each year into the five-year capital improvement program. The five-year program prepared by the executive is based upon capital requests by state agencies and other entities requiring capital dollars.
By comparison, New York state's capital planning and debt issuance process is highly decentralized and fragmented. These practices have been criticized as being highly inefficient and costly.44 Further, the state's borrowing practices are being subjected to increased scrutiny as to their constitutionality.45
In New York, there are a number of different public authorities apart from the state that both issue debt for capital projects and engage in capital construction. There is no centralized oversight mechanism in the state to manage and coordinate the bonding and construction programs of these quasi-governmental agencies, although they play a very large role in developing and financing state capital projects. Consequently, comprehensive capital planning for the state's future capital needs, for capital asset maintenance and the financing that attends these activities appears inadequate at best.46
In Maryland, institutional arrangements provide for a comprehensive review of state spending proposals. The success of these institutions depends on information that can be comprehensively integrated, assessed and shared between the executive and legislature.
Hawaii's Budget Process - The Value of a Program Structure
The budgeting and fiscal planning process in Hawaii is governed by a comprehensive budgeting law adopted in 197047 which integrates every aspect of the state's fiscal planning and budgeting activities into a cohesive system.48 The law includes provisions for statewide fiscal planning, management and operational control.49
Hawaii's biennial budgeting process is principally based upon its program structure. This program structure was developed to assure and facilitate strategic planning, management and operational control. It is a six-year rolling budget plan which completely integrates anticipated receipts and anticipated disbursements (both capital and operating) allocated by program cost center.50
The basic objective of Hawaii's program structure is to break down all programs to their least common denominator of service delivery. These specific programs are then assigned a unique program number to facilitate cross-reference with other programs, funds, capital projects and appropriations.51 An example demonstrates the efficacy of this approach.
In the New York State Office of Mental Health there is an Adult Services Program which consists of a State Outpatient Program, a Community Services Program, an Inpatient Services Program, a Non-residential Services Program and a Residential Services Program.
Mental Hygiene Program
Office of Mental Health
Adult Services Program
State Outpatient Program
In the New York state budget, only appropriations for the Adult Services Program are detailed. Although the five programs listed below Adult Services are actually delivering the services, information on their recommended appropriations is not available, nor is information available on proposed disbursements. Service delivery is effectively separated from its funding and operational control. This program structure dilutes accountability and responsibility.
In the Hawaiian budgeting system, each of the five sub-programs would be treated as a separate cost center or program element (the two terms are interchangeable). These five program elements would comprise the Adult Services Program. The Adult Services Program would, in turn partially comprise the Office of Mental Health Program which would then be programmatically structured at the top level in the Mental Hygiene Program. Of course, Mental Hygiene would have other sub-programs in addition to the Office of Mental Health (e.g., the Office of Mental Retardation and Developmental Disabilities).52
Each area of government services is structured in a way that enables efficient, effective management and delivery of services by breaking each area down to the level that actually provides, and is responsible for providing the services. Funding, programmatic objectives, performance measurement and variance reporting are based on this programmatic level. The overall effect makes it possible to link funding to the level of services provided enhancing accountability.
This budget structure is extremely conducive to automation and analysis. Fiscal planning in Hawaii by both the governor and the legislature is facilitated by an annual update to a two-year plan integrated with a four-year, long-term plan required by the state budget law. Since future year program costs must be planned and quantified in the six-year plan, program managers must effectively plan future service levels. To do this, accurate accounting records must be kept and costs must be accurately recorded along with services. In Hawaii this is done by program level and appropriation level (they are almost equivalent) with a yearly accrual adjustment to a GAAP basis. Reporting and analysis measures are compiled in a statewide variance report published separately from the budget. Operational control is maintained with a variety of performance measurement standards.
All of this information (with the exception of the variance report) is concisely formatted in the budget presentation document. Each program element presentation contains this planning, management and control information. In New York, the executive budget presentation does not contain such information. Although New York statutes do not require these submissions, the executive could provide more detail to the legislature and the public.
The variance report details at the program element or cost center level the variances between estimated and actual program costs, personnel levels, program size indicators (target groups and activities), and effectiveness measures. This is accompanied by a narrative outlining the reasons for these differences. A higher-level variance report covering the state's eleven major programmatic areas compares aggregate budgeted with actual program costs for the prior and current fiscal years. Aggregate measures of effectiveness are also compared. An explanatory narrative accompanies this report as well.
Information on capital projects is provided through the capital appropriation plan. Each project is detailed in this report by project number, corresponding program cost center number, project title, component cost (e.g., plans, design, construction, etc.), and by type of funding. This information is displayed across project total, appropriation in prior years, and upcoming six fiscal years. This data is then aggregated for the program element, and crosswalked to the main body of the budget document for integration with programmatic operating data.
Finally, the appropriation bill process in Hawaii is straightforward. The bill is in the same format as the budget presentation itself. The bill is comprehensive (capital and operating) and allocates appropriations to all program elements of all the major program areas. By contrast, New York's appropriation bills are traditionally set forth in five volumes with multiple sections (including reappropriations separated from new appropriations). These bills are accompanied by companion "language" bills. There are also other implementing bills (Article VII bills), all of which make it virtually impossible for the public to track a program's total appropriation or operating cost for any given year. In fact, programmatic operating costs in New York are not made public.
Statement of program objective
of activities performed
In New York state's budget process there is no long-term plan of expenditures by program or department. (Although gross receipts and disbursements are projected for three years in the executive's three-year plan along with proposed capital requirements, these projections are not integrated into the current year budget or any analysis of the current year budget.) Planning on the program level and effective programmatic management is diminished because programs are designed around expenditure control (i.e., who gets how much) instead of mission, current objectives or service output levels. To restate the central reinventing government issue more succinctly: Where is the money going--and for what purpose?
Meaningful program reporting and analysis in New York is hampered currently because there is no measurement data on actual spending relative to program objectives. Actual outputs or services cannot be related to budgeted outputs or services because measures for outputs and services do not exist. Operational control of New York's programs is weakened because measures of effectiveness or efficiency do not exist. In New York, the accounting system is not directly linked to the executive budget proposal or the enacted bills of the program level. Therefore, the capacity of the Hawaiian budgetary system to relate expenditures to program accomplishments is very instructive.
The Hawaiian budget system has been criticized for relying on a statute that some consider unreasonably detailed and inflexible.53 However, when viewed as a clear statement of executive and legislative spending decisions and priorities, the Hawaiian budget must be considered one of the best in the nation.
The experiences of Hawaii, California and Maryland convey five pertinent lessons for New York. First, improved fiscal planning, and arguably most systematic fiscal and budgetary reform, is predicated on an effective program structure. Second, improved analysis of, and improved public access to the state's budget and finances is possible--even for states as large and diverse as New York. Third, simple but effective financial control and oversight systems can be readily implemented--given a policy determination to more closely monitor and manage the state's financial resources. Fourth, improved information may be necessary for sound financial management practices, but it is not always sufficient for timely budgets. And fifth, a prominent legislative role appears to contribute positively to the establishment of sound financial practices and the achievement of timely budgets.
Assessing Policy Options
For Reinventing The New York
This chapter examines options for reinventing New York's budgeting and fiscal systems in light of the benchmark standards outlined in chapter three and other state practices as discussed in chapter four. The purpose of this comparison is not to criticize New York's practices for not measuring up to some abstract or unattainable standards but to form a basis for developing specific options for reform. Ultimately, the best use of these accepted standards and practices is to view them as a framework for improving New York's fiscal practices.
New York's system of budgeting weakens executive and legislative policy making due to the lack of management information on levels of services provided and service costs. In addition, while the state financial plan is constructed from projections of cash receipts and disbursements, the funds for most programs are made available on an appropriation basis. Furthermore, the governor, through the Division of the Budget, exercises unilateral discretion in setting actual program spending levels. For the legislature, this lack of information on the relationship between its lawful appropriations and the Budget Division's actual spending plans is further compounded by the shortest budget consideration period of any other major state legislature with an annual budget.
The legislature in New York is constrained in fulfilling its constitutional duty of fiscal policy partner with the governor by inadequate information, lack of sufficient time to review the budget, inability to monitor budget execution, lack of apparatus in place for the expression of legislative intent and limited analytic quality contained in the executive budget vis-a-vis other states. Public understanding and participation in the process is also diminished by these same factors.
The current New York state budget process is complex and confusing. It is often unclear what funds are being spent on what programs for what purpose. It is difficult to follow proposals from the governor's executive budget through the enacted multiple appropriation bills to the comptroller's reports, and even harder to relate these to the actual delivery of services.
To make the budget more understandable, four basic requirements must be met:
the proposed budget should provide recommendations for funding in sufficient program detail so that the link to the actual delivery of services is clear;
the maximum authorization levels and projected disbursements must be proposed and presented at the program level to show the expected level of spending; variances should be documented and explained; there should be some year-to-year basis of comparison;
budget decisions should be made at the program level with clear expression of programmatic intent;
all financial controls and reporting should also be at the same programmatic level of detail.
New York state's fiscal and budgetary practices generally do not conform with either benchmark standards or any best state practice. New York is not keeping pace with other states in developing its fiscal planning and budgeting capacity. The following options for improving New York's fiscal and budgeting practices are an effort to address this need. Yet, the following proposals are neither radical or novel. The policy options outlined below are drawn from earlier state reform efforts as well as successful state or federal practices.
Budget Reform Options
Establish a Cash Budget so That There is a Direct Relationship Between the State Financial Plan, the Executive Budget Document and State Budget Appropriation Bills and so that Anticipated, Current and Prior Levels of State Spending are Well Defined and Clear to the Public and Legislature.
In New York, appropriations enacted by the legislature represent authority to spend up to the amount appropriated. In practice, these appropriations in most cases do not constitute either a mandate to spend or a specific projection of the cash to be spent for a program or purpose. Most states appropriate to cash or use the appropriation level as a cash need projection. However, in New York appropriations are traditionally and routinely enacted in excess of the amount of cash projected to be spent in the state's financial plan--a plan which is never enacted into law by the legislature.
Not only is appropriating to cash important from an open government standpoint, but it is also important from a planning and budgeting perspective. The cash budget, unlike the appropriation budget, anticipates the specific timing of receipts and disbursements. This clearly delineates the resources necessary for a department or program to accomplish predetermined goals or objectives. Thus, by budgeting to cash, a specific link can be established between resources and goals. Once this link is established, a system for measuring the effectiveness and efficiency of a program can begin to be developed. This link between cash and program output is an integral part of an effective performance measurement system.
While change is rarely unaccompanied by glitches of one sort or another, New York has only to look at the long experience of other states to know that implementation of a cash budgeting system is entirely feasible. Accordingly, to improve its financial responsibility, New York should seriously consider adopting a cash budgeting systems as most states already employ.
Adopt a Uniform Classification System of Agencies, Programs, Appropriations, Funds and Accounts to Coordinate the Systematic Organization and Reporting on the Delivery of State Services
New York should institute a uniform classification structure of agencies, programs, appropriations, funds and accounts to bring the state into the mainstream of current budgetary practices.
These were the initial ideas behind the program concept adopted by the state in the mid-1960s. It was thought then that effective and efficient service delivery is facilitated by this type of approach. However, through the years the program concept has become muddled and abstracted from the delivery of services, cost of the services and funding for the services. This was principally because the state's programs were never organizationally or programmatically codified--they were, as they are now, unorganized and disaggregated.
There is no definition in the state finance law regarding the constitution of a program even though most state appropriations are part of these programs. Legislation defining the state's programs would help. Such definitions should directly link funding and service delivery. Further, legislation should also be proposed that would assign each program of every state agency, department, board, and commission a distinct and unique classification number to serve as a constant reference point to that particular program and to disallow any alteration to the codified system.
This type of classification system lays the foundation for effective organizational and program planning, management and control. It also introduces a rational structure to the budget document and provides a simplified alternative to the current appropriation bill process. It also lends itself to greater automation of the budget process, and allows for systematic tracking of spending and fuller accountability to the public.
This uniform classification system of agencies, programs, appropriations, funds and accounts is by no means a recent budgeting development. It is used in a number of states, and has been used for a number of years. New York state should not continue to lag behind other states in this regard.
Reorganize the Executive Budget Document and Appropriation Bills into a Common Format that Facilitates Ease-of-Use, Ready Analysis and Integration with the State's Central Accounting System and Agency Accounting Systems to Increase Public Understanding
The executive budget document is descriptive but poorly constructed for fiscal and program analysis. It provides neither an overall view of state spending nor a detailed programmatic view. There is very little linkage between the "big picture" and the component spending decisions that comprise total spending. The document should establish a linkage between specific programmatic spending and aggregate state spending.
The executive budget document needs to be constructed in a format that is concise, consistent and informative. It should be electronically linked and crosswalked with the state's accounting system and appropriation bills.
In New York state the executive budget document and appropriation bills are inadequately linked. The appropriation bills and budget document should be organized in a similar manner. In addition, the elimination of detailed schedules in the budget appropriation bills which have no legal force would facilitate public understanding of the budget process.
Enhance the Use of Strategic Planning Tools Including Multi-Year Budget and Financial Projections, Current Year Financial Plans, and Improved Capital and Debt Reporting
Provide for Greater Oversight and Planning of State Debt and Capital Projects by Developing a Unified and Coordinated Debt Issuance and Capital Planning Process
New York's capital planning and associated capital financing processes are decentralized and fragmented. These practices have been criticized as being unwieldy, inefficient and costly.54 Further, planning for the financing of these capital projects has become increasingly difficult as the state's borrowing practices to support its capital spending are being subjected to increased scrutiny.
In New York, there are a number of quasi-independent public authorities that issue debt for capital projects and engage in capital construction. There is no centralized oversight mechanism in the state to manage and coordinate the bonding and construction programs of these quasi-governmental agencies although they play a very large role in developing and financing state capital projects. There are approximately ten major public authorities in the state whose borrowing for capital programs comprise 80% of total outstanding state-related debt.55 Notwithstanding the financial prominence of these authorities, they are not integrated into the state's planning process.
Originally, these public authorities were established to be self-supporting public entities, but the distinction between them and state agencies has become less clear. Many authorities now perform similar functions as state agencies. And much of the state's debt is now owed by public authorities rather than directly by the state. The state's outstanding general obligation (voter approved) debt is now approximately $5.4 billion. Total public authority debt (state-supported and non state-supported) is approximately $63 billion.56 This proliferation of public authority debt and the activities it sponsors has raised a number of planning issues:
Because this debt is spread over many authorities, it is difficult to determine how much debt has been incurred and what debt service will be necessary in the future to support this debt. There is no centralized reporting of public authority debt and consequently very little centralized debt planning.
Well over two billion dollars each year is appropriated by the state to support the operating, capital and debt service programs of the state's authorities.57 Yet none of the budgets of the recipient public authorities are exposed to budgetary analysis or any formal planning requirements even though some authorities receive supporting appropriations in a manner identical to a state agency.
Financial analysis of the state's authorities is difficult because they maintain disparate accounting standards, fiscal years, and auditing procedures.
For the state to adequately make long-range plans, its capital planning process must be improved. And for its capital programming capacity to improve, its public authorities must be more closely regulated and integrated into both the state's strategic planning and programming systems.
There should be an enhanced and more open process for legislative and public review of state capital spending and a formal link created between the capital budget and its attendant financing. The state should also develop enhanced planning tools to provide more information to the legislature and public concerning the state's capital budget and to allow better monitoring and tracking of progress in implementing the state's capital plan.
Adopting these recommendations will not guarantee fiscal equilibrium. These policy recommendations are advanced with the objective of improving the fiscal planning and budgeting process as it currently exists in New York state in order that more informative and accountable fiscal and budgeting policies may be formulated.
New York state cannot continue to lag behind the federal government and other major states with respect to improving the analysis, information, and focus of its fiscal planning and budgeting process. New York must begin to take steps to improve its fiscal planning and budgeting system in conformance with modern management principles and with the successful practices of other governmental entities.
1. Allen Schick, The Capacity to Budget, (The Urban Press, Washington, D.C., 1990), p. 1.
2. Standard & Poor's CreditWire: S&P Downgrades New York State Ratings; Outlook Negative, January 13, 1992, p.1.
3. The issue of timely budgets is not a recent development in New York state. In 1982, the Speaker of the Assembly published the report: Budget Consideration Process in the Fifty States and Suggestions for Reform of the New York State System (Albany, NY, January, 1982, p.3-4). See also Fiscal Change Financial Sense: Budgetary and Financial Reform In New York State, Assembly Ways and Means Committee, New York State Legislature. February 1989.
4. Kathleen Barrett & Richard Greene, The Roll Call, Financial World, April 17, 1990, p.35.
5. Official Statement, 1994 New York State General Obligation Bonds, June 15, 1994, p.II-26. State of New York, Executive Budget, 1994-95, p.582.
6. Andersen Consulting; Arthur Andersen & Co.,S.C., Letter to New York State Division of the Budget, July 27, 1994, p.2.
7. Paul Foy, Pataki Vows to Cut Patronage Jobs, The Daily Gazette, September 15, 1994.
8. Alex Storozynski, The Politics of Debt, Empire State Report, January, 1993, p.1.
9. Peter F. Drucker, Really Reinventing Government, The Atlantic Monthly, February 1995, p.52.
10. Andersen Consulting; Arthur Andersen & Co.,S.C., Letter to New York State Division of the Budget, July 27, 1994, p.2.
11. David Osborne and Ted Gaebler, Reinventing Government: how the entrepreneurial spirit is transforming the public sector (Addison-Wesley: Reading MA, 1992).
12. These principles are drawn from Robert N. Anthony & David W. Young, Management Control in Nonprofit Organizations, (Richard D. Irwin Inc., Homewood Il, 1988). This is the accepted standard of governmental management control and its relation to strategic planning. This text was drawn upon heavily by the U.S. Comptroller General in the 1985 publication Managing the Cost of Government - Building an Effective Financial Management Structure (GAO/AFMD-85-35-A, February 1985).
13. These types of information were identified by Professor Robert N. Anthony of the Harvard University Graduate School of Business Administration in a report for the Financial Accounting Standard Board (FASB) and have been accepted by others studying the field.
14. Subtract the Politics from State's Revenue Forecasts, Newsday, Editorial, June 25, 1988.
15. ZBB or Zero-based Budgeting was first developed as a technique by Texas Instruments Inc. and first publicized by Peter A. Phyrr in the article Zero-Base Budgeting (Harvard Business Review, November-December, 1970). This technique is rooted in the industrial engineering practice dealing originally with the measurement, costing and budgeting of fixed and semi-variable manufacturing overhead from which came the variable or "flexible" alternative budgeting concept refined in Zero-base Budgeting to cover all types of organizations including government.
16. See, for example: Foundation for State Legislatures and National Conference of State Legislatures, Fundamentals of Sound State Budgeting Practices, (Denver, Colorado, The National Conference of State Legislatures, 1995).
17. Advisory Commission on Intergovernmental Relations; Fiscal Balance in the American Federal System, Vol.1, Report A-31 (Washington, DC, U.S. Government Printing Office, October 1967); and Advisory Commission on Intergovernmental Relations; Citizen Participation in the American Federal System, Report A-43, (Washington, DC, U.S. Government Printing Office, 1980).
18. The National Association of State Budget Officers, Principles for State Executive Budget Offices, (Council of State Governments, Lexington, KY, 1975).
19. Derived from a report of the National Performance Review, Sept. 1993.
20. It is contended that New York's unique demographic, financial and economic composition justify the state's departure from mainstream budget practices.
21. United States Bureau of the Census, Statistical Abstract of the United States, (Washington, D.C., 1990).
22. Jonathan Peterson, Jobless Data Criticized as Undercount, Los Angeles Times, Feb. 3, 1992.
23. Office of the State Comptroller, Fund Classification Manual, New York State Department of Audit and Control, Appendix p.29.
24. California Budget Act of 1991-1992, Item 1760.
25. Mike Shamrock, Principal Analyst, California Department of Finance, telephone interview with Commission staff, Jan. 29, 1992.
26. California State Statutes of 1978, Chapter 1284.
27. Basil Wisner, Chief Deputy Comptroller, Maryland State Comptroller's Office, telephone interview with Commission staff, February 7, 1992.
28. The GAAP deficit refers to the Maryland General Governmental Fund type reported in the State of Maryland Comprehensive Annual Financial Report for the year ended June 30, 1991. The economic information and credit rating were derived from Standard & Poor's Creditweek, October 7, 1991, 106.
29. Maryland Department of Budget and Fiscal Planning, Maryland '91 - State Budget Formulation Process, (Annapolis, MD, July 1990), 9.
31. Warren Deschenaux, Department of Fiscal Services, Maryland House of Delegates, telephone interview with Commission staff, February 7, 1992.
32. Maryland State Government Law, Section 2-1005.
According to the Committee's 1991 Report of the Spending Affordability Committee to the 1991 General Assembly, (Annapolis, MD, November, 1990, p.1):
The committee's primary responsibility is to recommend to the Governor and the General Assembly a level of funding for the state's operating budget that is reflective of the growth in the state's economy. In general the committee has attempted to maintain a growth in operating (sic) budget consistent with or less than the growth in the economy. In making its recommendations the committee has attempted to provide a "smoothing effect" on fluctuations in state spending as related to the state's economy.
34. Maryland State Finance and Procurement Law, Section 7-117.
35. Maryland '91, 9.
36. Maryland State Constitution, Art. III, Section 52 (5) (a).
37. Ibid. Section 52 (2).
39. Ibid. Section 52 (6).
40. Warren Deschenaux, Department of Fiscal Services, Maryland State Legislature, telephone interview with Commission staff, February 7, 1992 citing the interpretation of Bayne v. Secretary of State, 392 A2d, 67, 74 (Md, 1978).
41. Maryland State Constitution, Section 52 (8).
42. See Moody's Municipal Credit Report, October 3, 1991 and Standard & Poor's Creditweek, October 7, 1991.
43. This committee was created according to its Report of the Capital Debt Affordability Committee on Recommended Debt Authorizations, (Annapolis, MD, August 30, 1991, p.1) by virtue of an "outgrowth of two events: the dramatic increase in outstanding debt during the 1970s and the release of the Department of Fiscal Services' two year study on the State's debt picture" that identified a disturbing "rising level of state debt."
44. Citizen's Budget Commission, Guidelines for Debt Reform in New York State, January 1994, p.3.
45. The reader is directed to any of the state's Official Statements issued for its borrowing. A compilation of cases is provided under the Litigation heading. A review of the recent Schulz cases characterizes the outstanding constitutional issues associated with these types of practices.
46. These are the practices former New York State Comptroller Edward V. Regan was referring to when he alleged that the state was involved in a money laundering scheme (Empire State Report, January 1993, p.37).
47. Hawaii Revised Statutes Chapter 37 (1985).
48. In contrast with New York's constitutional provisions on the state budget and appropriations, Hawaii's are a model of simplicity. Hawaii's 1968 constitution requires a biennial budget and leaves the specification of budget and appropriation information and format to the executive and legislative branches. It also stipulates that all expenditure control provisions shall be made by law. (The importance of this provision, and New York's need for similar guidelines, is demonstrated below.)
49. A history of the development of Hawaii's 1970 budgeting law is contained in the 1970 Report of the Joint Interim Committee on Budget Format and Review of the Hawaiian Legislature. It was essentially the inability of the executive branch (the state's eduction department in particular) to convince the legislature that it was effectively and efficiently managing state finances that led to the drastic reconfiguration of fiscal planning and budgeting imposed by the Executive Budget Act of 1970. One of the key policy questions faced by the legislature in drafting this budget law was whether "the formal PPB structure or system...should precede or follow the actual doing of the analysis." Learning from the PPB mistakes of other jurisdictions (including New York) it put primary emphasis on "system" on the grounds that: 1) analysis cannot occur in a vacuum; 2) the formal structure institutionalizes analysis; 3) a formal structure provides a framework for analysis; and 4) a formal structure identifies the different governmental agencies whose programs were redesigned to attain a common objective. In 1974, after the system had been set up on a working basis the legislature, in conformance with its long-range PPB implementation plan, established the Hawaii Institute for Management and Analysis in Government to facilitate understanding and implementation of the Budget Act. A 1974 report of the Hawaiian Legislature introducing a bill relating to this in-service training of public officers and employees states: "If the intent of Act 185/70, the Executive Budget Act, is to be fully met it will require the State to offer on a continuous basis a vigorous and innovative program of managerial and analytic training. Such training is absolutely crucial to realizing the payoffs inherent in the statewide PPB system."
50. Hawaii used an earlier version of the ACIR model (see Chapter two) as a foundation of its law with one exception. Contrary to the intent the ACIR, the State of Hawaii made the central Department of Budget and Finance, not the individual agencies primarily responsible for system implementation (again, profiting from previous mistakes with the PPBS), prescribed a complete integration of the fiscal plan and budget, and required an output objective oriented state program structure rather than the agency oriented one common to earlier PPBS systems.
51. Hawaii Department of Budget and Finance, An Introduction to the State of Hawaii's Executive Budget System, (Honolulu, HI, March 1976).
52. For a more detailed discussion of this topic see John M. Flynn, A Draft Program Structure for New York State Government,(Legislative Commission on Public Management Systems, August 1985).
53. Michael J. Curro, Assistant Director for Budget Issues, Accounting and Financial Management Division, General Accounting Office, Washington D.C., telephone interview with Commission staff, June 9, 1993.
54. Citizens Budget Commission, Guidelines for Debt Reform in New York State, January 1994, p.3.
55. Official Statement, 1994 New York State General Obligation Bonds, June 15, 1994, p. II-33.
56. Official Statement, 1994 New York State General Obligation Bonds, June 15, 1994, p.II-26.
57. State of New York, Executive Budget, 1994-95, p.582.
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