Tag Archives: budget process

Reason to celebrate, for budget nerds

Cover of NASBO 2015 Budget Process in the StatesBreak out the champagne, or at least the green eyeshades – the National Association of State Budget Officers (NASBO) has published a new edition of “Budget processes in the states” in Spring 2015 (last issued in 2008).  If this doesn’t catch your interest, you may not be a public finance nerd — a new edition of this occasional survey of the diversity of budgetary institutions across states is always reason to celebrate for students and faculty in public administration.  The survey, first published in 1975, reviews the current status of features such as balanced-budget requirements, timing, performance measurement and more. Enjoy…and thanks to NASBO for the important work that they do, not limited to this series; a variety of other annual or occasional publications provide data and insights for practitioners and scholars alike.  Check out 2014’s “Capital budgeting in the states” as well.

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Are we arriving at the main event?

As part of a survey response used in this online article this summer, I wrote “…Disturbingly, we are beginning to look like a society that cannot predictably execute the routines of governing – and that does not engender faith in our economy. As long as ours seems to be in marginally better shape than others, we get by. Should we reach a point where that is no longer the case, the absence of commitment to do the work of government will be less of an embarrassing sideshow and more of an alarming main event. Budgeting is a foundational aspect of government, regardless of how minimal a state you prefer.”  If policymakers on both sides fail to find a way to work together, enough to raise the debt ceiling, we will indeed be at the main event.  The Wall Street Journal discusses why the debt ceiling is of greater concern to investors than the shutdown.  The Economist provides a perspective from across the pond.  So does the Financial Times with an update on the market response and how banks are preparing for the possibility of a default.

Rating agency Standard & Poors’ press release (10/2/2013) summarizes their estimate of the impact of the ongoing shutdown on the economy and points out the potential impact of the lack of federally-produced economic data on the Fed’s decision-making and their own ability to analyze the situation.  Their July 10 2013 analysis of US sovereign creditworthiness makes very useful reading – I commend it to you even though we have not gotten to the part of the class that deals with debt and ratings.  S&P report that their rating takes into account the risk that political ability to make progress on “fiscal consolidation” (i.e., reducing the structural imbalance between Federal spending and revenues, whether by expenditure policy changes, tax policy changes, or a combination) will continue to be limited due to Washington gridlock in a divided government:

The stable outlook indicates our view that some of the downside risks to our ‘AA+’ rating on the U.S. have receded to the point that the likelihood that we will lower the rating in the near term is less than one in three. We do not see material risks to our favorable view of the flexibility and efficacy of U.S. monetary policy. We believe the U.S. economic performance will match or exceed its peers’ in the coming years. We forecast that the external position of the U.S. on a flow basis will not deteriorate.

However, that is certainly not the same as saying that the government could default on its debt with impunity due to this gridlock; the next paragraph of the Outlook section continues:  

We believe that our current ‘AA+’ rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling. We expect these debates, however, to conclude without provoking a sharp discontinuous cut in current expenditure or in debt service. [emphasis added] We see some risks that the recent improved fiscal performance, due in part to cyclical and to one-off factors, could lead to complacency. A deliberate relaxation of fiscal policy without countervailing measures to address the nation’s longer-term fiscal challenges could place renewed downward pressure on the rating.

At the end of the rating report you can see the rating history – S&P downgraded the unsolicited US sovereign debt rating in summer 2011 in response to the last episode of debt ceiling brinkmanship and ongoing inability to work productively on fiscal consolidation.

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Last one out, turn off the lights

The federal government is approaching a shutdown, continuing a pattern of brinkmanship as every new deadline approaches – rather than disciplined and regularized budget process observance.  Even should we make it past this turn of the fiscal year without a shutdown (unlikely) the symbolic raising of the debt limit deadline is just around the corner.  We are currently operating in the “sequester” which I discussed in a previous semester.  As you observe events unfolding in these unusual budgetary times, make an effort to get past ideological shortcuts and take an analytical perspective based on your learning in the MPA program.

Observing the executive and legislative branches’ behavior and gamesmanship in recent years makes the detailed budget processes covered in the textbook appear meaningless.  Nevertheless, the players in this drama (and it is depressingly dramatic; boring routine in fiscal matters would be a refreshing relief, and would be better received by the markets) are quite aware of the institutional rules which they can manipulate to force confrontation; those rules are grounded in budgetary and fiscal legislation.

Quartz.com (an Atlantic Monthly property, also publishes Government Executive) addresses “Who will notice a US government shutdown” – the metaphor of ice freezing through the economy over time as a shutdown persists is particularly apt.  The New York Times bemoans the fact that the shutdown 17 years ago appears to have left little impression on the Congress of today – “Last shutdown a lesson lost on Capitol Hill”  The Wall Street Journal summarizes recent events leading up to the shutdown.

The intergovernmental impact of a shutdown is substantial.  Governors respectfully request that Congressional leadership not slam on the brakes, in a letter at the National Governors Association; note the emphasis on the value of predictability.   The nations’ mayors oppose a shutdown as well.  The National Conference of State Legislatures provides a location for updates on the impact of the shutdown.

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