Week 5: Deficits, Budget Balancing, Reforms (cont.) Review Leg. Analyst’s Recommendation on school reform Summarize Kettl Balancing budgets--state and local government Budget balancing strategies Budget reallocation Budget processes –characteristics and goals –examples from students’ assignments –class exercise on school district budget process Preview of week 6

Legislative Analyst’s Analytical Approach Cite research (relationship between time and achievement) Accuracy and appropriateness of comparisons –instructional time v total time –core academic subjects v total time –other things not equal (quality of instruction) More efficient means to same ends (better use of time) More effective means to same ends (look at alternatives) Equity ( not all schools have same opportunity to participate ) Implementation (would not work as proposed) Lacking detail

Different Roles in Budget Process Governor/Dept. of Finance Vision/policy/leadership Budget balance Reserve/flexibility Retain agency support Maintain agenda control Public support Successfully defend Governor’s Budget Legislative Analyst’s Office Frame budget discussions Recommend budget reductions Preserve non-partisan reputation Accurate analysis Gain Legislative approval for recommendations (secondary)

Summarizing Kettl rationality fixes have failed to account for politics process fixes are foiled by circumvention strategies: –snapshot projections and other game playing –with 70% exempt, huge incentives to avoid the axe and by competition between branches and centralization of power within each branch –leads to personal (ad hoc) budgetary politics Other foils: –costs of entitlements (interest group politics) –anti-tax sentiment-- hard to raise $$ for entitlements –divided party government

Summarizing Kettl -- continued Solution: political leadership –confront controversy –promote vision and values –promote citizenship and sense of fairness –define the public interest –other characteristics of effective political leadership? Would a greater sense of fairness of tax and spending policies help? –disconnection between who pays and who benefits –should there be a closer connection?

Balancing Budgets -- State and Local Budget balancing requirement More intense efforts to hide deficits Fewer macroeconomic issues to consider Greater influence of environment on balance/deficit Deficits don’t accumulate--problems more tractable Temporary, not structural deficits -- more fixes available

Budget Balancing Strategies--State and Local Year-end balances –How much is politically acceptable? –Authorization to re-appropriate or carry over –“Pre-buy” from “budget year” –Spend budget year funds this year Projected year-end deficits –Hiring and expenditure freeze –Across the board unallocated cuts Budget year shortfalls –Across the board –Priority-based cuts (reallocation)

Budget Reallocation The value of reallocating resources –meeting changing priorities –differential growth rates among units –static budgets Challenge of reallocation –political -- sense of fairness –requires analysis Built-in constraints –entitlements –spending floors (Prop 98) –permanent positions and labor intensive organizations

Budget Process Designed to meet organizational goals Reflects organizational culture Variables –players –rules/procedures/documents/timelines –balance of executive/legislative power –degree of centralization/coordination –top-down/bottom-up –openness to internal members –openness to external community Examples from students’ memos on budget process

Design a Budget Process for a School District Units: 4 elementary schools 2 middle schools 1 high school Players: elected school board superintendent/staff 7 principals 7 PTAs parents and community Process Variables: roles of various players authority/balance of power rules/procedure documents/timelines executive v legis power degree of centralization top down/bottom up openness to internal openness to external

Preview of Week 6 Begin Part II: Context of Public Finance New Book: Brunori, on sales, income, property tax issues in state government Rubin Chapter 2 on revenue politics Guest speaker, Brad Williams, from LAO –state revenues and process for projecting –politics (and games) of revenue estimation –tax expenditures –current issues in state finance