State Budgeting 101

Given the yearly budget debacle in Harrisburg, people may think that state budgeting is the hardest job on the planet. However, while balancing a multitude of interests with a limited amount of funds is an important and complicated job, our state legislators make it much more difficult than it needs to be – to the detriment of Pennsylvania families.

Most of us face three types of expenses: daily needs, large purchases, and big investments. The same is true of states. The strategies families use to fund these expenses are actually similar to the strategies smart states use to develop their budgets. After working with states like Colorado – where I helped write the state budget for seven years – I’ve learned a lot about these strategies. Here’s a little budgeting 101, applicable to families and states alike:

  • Daily needs: Live within your means. A state’s “daily needs” are its operating budget. This is what we need to keep the lights on in prisons (and other state buildings), pay state troopers (and other employees), and reimburse Medicaid providers (and pay other bills). Smart states develop their operating budgets based on revenue projections and only commit to spending that can be supported by projected revenues. If they want to spend more, they figure out how to pay for it first. PA does just the opposite which is why they’re still scrambling to figure out how to pay for everything they approved funding for.
  • Large purchases: Save up. States have special funds dedicated for big expenses, such as public transportation, environmental cleanups, and economic development incentives. PA does this (yay!), but these are the very funds that House Republicans want to use to pay for the state’s operating costs (boo!). Raiding these funds for operating costs causes two problems: (1) It only solves the problem this year and next year the state will be short again; and (2) Many of these funds must be repaid, so the state is effectively going into debt to pay for its daily needs.
  • Big investments: Borrow responsibly. For the state, big investments might be highways, bridges, drinking water systems, and schools. These investments can be paid in many ways, including federal funds, dedicated tax revenue (like using gas tax revenue to pay for roads), and debt (typically in the form of bonds). These types of investments are not only important for the direct benefits they bring, but they can also be useful tools to spur economic development. It’s good to be wary of too much debt, or going into debt for the wrong reasons (like keeping the lights on; see point 2 above), but debt in and of itself is not a bad thing.

Balancing the state budget is hard. It involves prioritizing what will and will not be funded. That’s where other important best practices come into play: goal-setting (identifying why we’re spending money), public participation (democracy in action), transparency (seeing how our money is spent), and accountability (holding legislators responsible for how our money is spent).

Each year, Pennsylvania faces a budget “crisis” of its own making. It’s time for the legislature get back to basics, adopt best practices, and start crafting strategic and balanced budgets. Other states do it. We can too.