Sound Budgeting Principles - Iowa Taxpayers Association

Sound Budgeting Principles

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Avoid the use of one-time or time-limited sources for ongoing expenses.

When a non-recurring source of revenue is used to fund an ongoing expense, an "automatic increase" is built into the budget for the following year. This is because with the original source gone, another way must be found to fill the gap, plus provide for any growth that may occur. If a budget is already stressed in being able to fund annual growth with the annual increase in revenue, this can cause considerable additional pressure.

Avoid implementing new programs for a partial fiscal year.

In tight budget years, it is difficult to find funding for new programs. Sometimes, if the full amount of funding cannot be found, a program will be initiated in the middle of the upcoming year and funded at half the annual amount in the budget. This makes it appear that the program costs less than it really does, and yet when it comes back for funding the following year its need will at least double. Once the program has started, it has a constituency; plus it is much harder to take something away than to say "no" up front. So, the result is another "built-in increase" in the budget in order to annualize its cost.

Avoid multi-year accelerating commitments.

Iowa 's budget is stretched to accommodate basic inflationary growth in any given year. There is no flexibility to do much beyond paying for current service levels; cuts in other areas must be made to finance new initiatives. In making multi-year accelerating commitments, decisions are being made without knowing what the trade-offs will be. Plus, financial conditions can change dramatically over time. Multi-year accelerating commitments create more "built-in increases."

Avoid new automatic, or "standing," appropriations.

Standing appropriations reside in the Iowa Code and authorize spending to occur each year without any annual legislative action. Once such an appropriation is created, the legislature never needs to revisit it again - the spending will occur automatically. Initially, standing appropriations were intended to give the executive branch flexibility to finance certain unavoidable expenses that are difficult to estimate. For example, there is a standing appropriation for expenses relating to natural disasters. Over time, standing appropriations have been created for certain high-priority items that officials wished to protect from the competition that occurs in the annual budgeting process. In other words, these items are effectively "off the table" and spending the entire amount requested is automatically authorized. The problem with standing appropriations is that they are extremely difficult to cut or eliminate. Unlike a regular appropriation where a gubernatorial veto can eliminate the spending, a veto of standing appropriation language in a bill means the law reverts to the pre-existing Code language. Restricting legislative authority to reduce spending through the use of standing appropriations is a practice that should be avoided.

Accurately determine revenue and expenses.

Iowa 's Revenue Estimating Conference and associated laws are a model in the nation for solid estimating performance. Iowa's method effectively neutralizes any pressure to inflate revenue estimates to cope with budgeting pressures. There is no such neutralizing force on the spending side, however. Expenses can be deliberately underestimated as a means to cope with budget pressure. Of course, the result is a need for supplemental (mid-year) appropriations. Therefore, the measure of accuracy in estimating expenses is the presence or absence of supplemental appropriations, though sometimes it is obvious even before the fiscal year begins.

Align expenses and revenue in the same fiscal year.

Spending that occurs in a given fiscal year should be financed with revenue generated in that fiscal year, and not in a prior fiscal year. Using a supplemental appropriation (from unspent funds in the current year) to finance a program that will not begin until a subsequent fiscal year creates another "built in increase" in the future. It is not unlike the idea of using one-time funding for ongoing expenses.

Avoid shifting program funding to property taxes or fees.

Typically, budget pressure exists in the State General Fund. One way to find money for spending is to shift the source of funding from the General Fund to property taxes or fees. Sometimes these shifts are referred to as "hidden property tax increases." They are tax increases, nonetheless, unless the money saved in the General Fund is rebated back to taxpayers (which has never happened).

Avoid diversion of funds statutorily authorized for a specific objective to other purposes.

By legislative action, express permission to levy a tax or collect fees for a specific, stated purpose has been granted to the Executive Department from time to time over the years. On occasion a state legislature will use statutorily authorized funds to fill gaps in their general fund budget. The authority to levy such a tax or collect such fees is premised on the use of the proceeds for the purposes stated in the legislative act and any funds collected pursuant to that authority should be used for the stated reasons only.

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