Late budget isn’t a ‘governance weakness’

But here’s 4 steps to speed things up

LIKE EVERY YEAR since 2010, the Commonwealth of Massachusetts began fiscal year 2020 on July 1, 2019, without an approved budget in place and currently relies on an interim budget to keep the machinery of state government moving. According to press reports, Moody’s described the tardiness as a reflection of “governance weakness.” The statement raises concern among fiscal managers and watchdogs as Moody’s characterized the Commonwealth’s governance as a “strength” just a few months ago and noted it as a component of the state’s stable credit rating outlook. A late budget isn’t great, but it should be viewed as a process that can be improved rather than a management weakness.

There should be no doubt that late budgets cause problems, though not the problems cited by Moody’s. For example, Moody’s worried that local governments would not receive monthly payments. The Commonwealth’s interim budget legislation is brief (less than 250 words), but it authorizes local aid payments explicitly. The state’s debt payments, another potential concern, are already fast-tracked by the state constitution and have little risk of going unpaid.

One real problem of a late budget is it hinders the state’s ability to achieve its public policy goals. Though many observers view an approved budget as the end of the planning process, it is a waypoint for state agencies. Once legislators and the governor have done their parts, agency leaders must develop spending plans for the fiscal year. The task is especially challenging for new or expanded programs that often require new employees, contracts, and regulations. This is the hard work of transforming laws into policies that change lives. Spending plans for most agencies are reviewed and approved by the Executive Office for Administration and Finance, usually in September. When the budget is late, it means more than a quarter of the fiscal year may pass before an agency is ready to act.

The planning process is critically important but when it impinges on the implementation period, citizens are right to be disappointed by state government’s inability to deliver services and make life better for everyone.

With this real problem in mind, steps can be taken to improve the budget development process. The Legislature already made progress this year by limiting the number of so-called “outside sections,” or policy changes, appended to the proposal as it moves through the House and Senate. Last year, for example, there were 274 outside sections added to the budget that needed to be reconciled compared to 205 such sections this year. Further progress toward shifting contentious policy debates to standalone legislation and out of the budget will be helpful.

Second, while the disagreements receive most of the attention, the items that legislators agree on is much larger. Of the $43.2 billion in spending appropriations included in both the House and Senate budgets for fiscal 2020, the two chambers agree on more than $43 billion. If disagreements over less than 1 percent of spending appropriations are holding up the other 99 percent, legislators could choose to pass a budget they agree on, set aside funding for the disagreements in reserve accounts, and then sort out the differences later in the year.

If creditworthiness is in jeopardy, changes to the budget calendar may also be considered. Every budget since 2010 has been late but the average delay is 13 days. Compressing the timeline by just two weeks would produce more on-time budgets.

It is important to remember budget planning is a dynamic, moving process that requires legislators to integrate new information as they negotiate. In developing plans for fiscal 2017 and 2018, for example, legislators had to reduce tax revenue estimates by $750 million and $650 million, respectively, amid lagging tax collections in the previous years. Given the unexpected uptick in tax collections in recent months, the Massachusetts Taxpayers Foundation recommended conferees upgrade the tax revenue estimate for fiscal 2020 by $113 million just two weeks ago. Adding more structure to the tax revenue review process in June may also help facilitate on-time budgets.

Meet the Author

Heath W. Fahle

Director of policy and research, Massachusetts Taxpayers Foundation
Weaker credit ratings mean higher borrowing costs, so decision makers should consider the criticism from Moody’s carefully. The Commonwealth’s financial governance is not a weakness, but the process used to develop the state budget each year can be improved to assuage concern among rating agencies and deliver on better public policy for the residents of Massachusetts.

Heath W. Fahle is the policy director at the Massachusetts Taxpayers Foundation