SH IDAHO FREEDOM Foicrmeme S FOUNDATION 2016-4 Understanding Idaho's budget process Systemic flaws limit proper understanding, oversight By Fred Birnbaum, Vice President Summary, The primary objective of the Legislature is to pass a balanced budget prior to adjournment each session. The formal process for passing a budget is outlined by law, but there are a number of deficiencies in the process that need to be remedied: ‘© While state agencies are given daily opportunities to give presentations, testify ‘on their budgets and lobby for passage, the public is given 45 minutes a session to propose additions, deletions or objections to budget proposals. * Too little time exists to properly consider agency budget proposals, delve into spending requests or consider reductions in existing spending. ‘© There is a lack of detail on spending increases coupled with alternatives provided to legislators on the Joint Finance-Appropriations Committee (JFAC). © Legislators not on JFAC are provided with little insight to appropriation bill details prior to voting, and the bills themselves provide too few clues. © Germane committees have too little oversight regarding budgets for the ‘agencies they oversee and are given token opportunity to provide meaningful input. Background Every year, the Idaho Legislature must approve a budget, which culminates when a series of agency appropriation bills are approved on the floor of the House and Senate. The process for proposing and adopting a budget are spelled out by law. The Idaho Constitution says the state’s fiscal year is to commence on the second Monday of January in each year, unless otherwise provided by law.? In 1941, the Idaho Legislature opted for a July 1 to June 30 fiscal year.? By statute, agencies are to submit expenditure and related data to the governor's Division of Financial Management (DFM) and the Legislature's separate budget office by Sept. 1 of each year.* DFM then has until November 20 to submit its information to the governor (or the governor-elect, if there is one) for consideration.’ The governor then has up to five days 2 Idaho Constitution, Article Vl, Section 11. 2 Idaho Constitution, Article Vl, Section 1. * Idaho Code 67-2201, “ Idaho Code 67-3502, however it should be noted that the law aso allows agencies more time to submit the required budget data if “special permission’ is granted by OFM and the Legislative Services Office. 5 daho Code 67-3505. t should be noted that this provision is somewhat dated, Today, the budget back-and-forth between the governors office and the Division of Financial Management occurs daly. 1following the convening of the legislative session to submit his budget recommendations to the Legislature.* It is then up to the Legislature to act on the governor's recommendations. Idaho law requires the budget review process to occur in a joint meeting of “the standing committees of the house of representatives and the senate in charge of appropriation measures.”” Modern budget process Idaho's existing budget process dates back to 1971, with the formation of a legislative budget office meant to mirror but operate independently of the governor's budget staff. Starting 1971, the Legislature transitioned to an annual budget from a biennial one.® Since 1971 the state has experimented with elements of zero-based budgeting, but the current process is a base-line incremental approach (for most agencies and spending), “in that it accepts previous funding decisions in establishing a ‘base budget’ on which to build for the coming year; and provides mechanisms to allow inflationary increases and program enhancements to existing programs.”? This means, generally, the spending previously approved is never reconsidered, Rather, spending levels are accepted and the question before legislators, usually, is how much more money to add and for what purposes. ‘The agency budget requests, along with the governor's recommendations, are compiled into a Legislative Budget Book (LBB), which can exceed 800 pages, often containing insights into how state government operates. It's an important document, but it becomes available to lawmakers after governor presents his budget. Furthermore, the budget document seen by most legislators dispenses with useful details. Consider for example how detailed the requests for capital outlay are for state agencies. For FY2017, the Department of Fish and Game requested five full pages of new equipment. The equipment descriptions are detailed on the form submitted to the Division of Financial Management, and they include key details such as the mileage on each vehicle and when each was acquired. ® idaho Code 67-3506. 7 idaho Code 67-3513. It can be argued that the statute is unconstitutional because it allows the executive branch control over the operations ofthe legislative branch. Such process should be spelled out inthe Legislature's rules, notin statute. Up until 1967, the Legislature met every other year. Voters approved a constitutional amendment in 1968 that provided for annual meetings ofthe Legislature. "Legislature, Legislative Service Office, Budget Process ~ State Budget Process, Section I, subsection F. 2. 2ESAS EPR OETA CATA OTT SR ee eee Spent a] SSS SS ES eS tt a a NC po The LBB condenses this information considerably. Regarding the requested vehicles, the budget request is summarized as follows: Also includes $4,025,100 for motorized equipment from the Fleet Management Fund for 26 ATVs; two medium sedans; five motorcycles; 19 out-board motors; 44 1/2 ton 4wd pickups; three 3/4 ton crew cab pickups; 19 1/2 ton 4wd pickups outfitted for enforcement ($33,000 each); nine 1/2 ton 4x4 crew cabs; five 1ton trucks; 21 3/4 ton 4wd pickups; 16 snowmobiles; one suburban; one large single axle truck; and two 4wd sport utility vehicles. The total request is $4,242,900 for the Administration Program. 1° The description does outline what will be purchased but there is no information provided on how many of the existing vehicles have come to the end of their service life. Is this just a request designed to use available funds? The answers are available, but not presented. The level of data is worse when lawmakers are actually asked to vote on a budget. House Bill 641, the FY 2017 appropriation bill for the Department of Fish and Game, takes what started as five pages of single-spaced equipment requests and condenses it down toa single sentence in the bill’s Statement of Purpose: “(The bill) provides $5,184,500 for replacement items including *9 Legislature, FY 17 Legislative Budget Book, Department of Fish and Game, 4-21. 3vehicles, snowmobiles, ATVs, motorcycles, heavy equipment, building improvements, property maintenance, computer equipment, body armor, and radio equipment.”** Similarly, lawmakers voting on House Bill 641 were also asked to approve 13 “line items” proposing new spending, for which little intelligible descriptions are given. At this point, lawmakers who are not on JFAC are forced to depend on the verbal descriptions given during floor debate and little else. 2016 session ‘The JFAC committee hearing schedule in 2016 sheds more light on the difficulty the Legislature has in providing effective oversight of state spending.'? Following the governor's budget message on January 11, JFAC began a month long series of hearings on different agency budgets. Many agencies are given just one hour; for example, the Department of Fish and Game was slotted from 10:00 a.m. to 11:00 a.m. on February 2. Following the agency presentations, the germane committee chairman review budgets through a two-day period. The public hearing for budget related issues was slotted from 9:45 to 10:30 AM on February 18. That's hardly enough time for meaningful input. JFAC’s work sessions, when spending “motion packets” are reviewed are scheduled at 7:00 a.m., prior to the full JFAC meetings, and not publicized. ‘The budgets for FY 2017 are set using JFAC “motion packets,” that are presented for consideration to JFAC by members of the committee who function as a subcommittee for particular agencies. The motion packets detail the agency request, the governor's request and then the motion by the JFAC members. The motion-maker will read the actual summary line items on the motion sheet that will be voted on as incremental appropriations; for example, “Electronic Health Records Incentives,” on the Medicaid 1 motion packet, for $17,102,100."3 The main motion and substitute motions are voted on by JFAC. For example, the main motion for the Department of Health and Welfare, Division of Medicaid, called for a 6.2 percent spending increase (general, dedicated, and federal funds), while the substitute motion eliminated the electronic health records incentive and “personal needs allowance” line items for a 5.4 percent spending increase. The main motion was approved. * House Bill 641, 2016 legislative session. FAC 2016 Budget Hearing Schedule, revised 1/6/2016. JFAC Motion Packet: 2/26/16, Medicaid 1, Analyst: Tatro. 4‘Once approved the spending authorizations are considered by the full House and Senate. The process has the members vote to accept or reject the appropriation bills. Lawmakers rarely reject bills. If they do turn down a bill, the measures are either re-voted or returned to JFAC for revisions before being returned to the floor. ‘According to Idaho Freedom Foundation research, 23 state lawmakers voted 100 percent of the time to approve fiscal year 2016 supplemental appropriations as well as fiscal year 2017 agency budgets. That excludes missed floor votes. Of the 127 supplemental and original appropriations bills passed during the 2016 session, 29 clear both chambers without dissent from lawmakers. Another 55 spending proposals cleared the House and Senate with support from 90 percent of lawmakers or more. While this process might appear efficient it does have its flaws. If the Governor's office and the agencies present similar requests, there is little opportunity for the legislature to differentiate among alternatives and with little time for a deep dive the appropriation bills generally sail through the legislature as the votes come in the final weeks of the session. Idaho is one of 49 states whose constitution requires a balanced budget. When the recession hit Idaho, lawmakers cut general fund spending dramatically, with major reductions in fiscal years 2010 and 2011. So while the balanced budget requirement serves to cut spending in downturns, it does not prevent state agencies from claiming every dollar that rolls in during recoveries. The only cap is the revenue growth and the beginning cash balance. From fiscal years 2011 to 2017, the other 49 states increased their general fund spending by about 27 percent for a compounded annual growth rate (CAGR) of 4.0 percent." Idaho, by contrast increased its general fund spending by 37 percent for a CAGR of 5.4 percent. These differences matter, as Idaho's higher spending growth equated to about $250 million of extra general fund spending over that 6-year period. It is time for Idaho to revamp the budget process to control spending increases in non- recessionary periods. * summary: Spring 2016 Fiscal Survey of States, June 21, 2016, National Association of State Budget Officers.