As the legislative debate continues on Senate Bill 228, it has occurred to me that there are three changes that the General Assembly should consider making to our budget process. The changes would be to increase the 6 percent General Fund limit to 7.5 percent (and not eliminate it, as Senate Bill 228 would do), move the state budget to a biennial budget, and institute zero-based budgeting. Simply put, here’s why!
Increase the 6 percent limit to 7.5 percent:
The biggest problem with the 6 percent Arveschoug-Bird General Fund growth limit is Medicaid funding. Medicaid is a federally mandated program. In Colorado, we have a 50-50 state-federal match on Medicaid expenditures. Each dollar that Colorado spends is matched by a dollar from the federal government. Medicaid expenditures tend to be countercyclical. In bad economic times, Medicaid expenditures grow rapidly, while in good economic times, Medicaid expenditures grow at a much slower rate, or even decrease.
Nationally, from 2000 through 2008, state Medicaid expenditures grew at the average rate of 7.5 percent. In Colorado, the average growth of Medicaid expenditures from 1995 through 2008 was 7.06 percent.
The Colorado Department of Health Care Policy and Financing, the department that administers the Medicaid program, currently consumes approximately 20 percent of General Fund appropriations.
The growth in Medicaid expenditures above the 6 percent puts all other General Fund appropriations at risk.
Moving the General Fund growth limit to 7.5 percent would take the pressure off the other departments while still leaving a funding limit in place.
Move to a biennial budget:
One of the major problems with an annual state budget is that the departments in our state government never have a real opportunity to review programs. At any given time, departments of state government may be working on as many as three budgets at a time: closing the previous year’s budget, managing the current year’s budget, and proposing the budget for the upcoming fiscal year.
When is there an opportunity to review programs? It effectively does not exist!
According to a paper from the National Conference of State Legislatures (NCSL) by Ronald K. Snell entitled “Annual and Biennial Budgeting: The Experience of State Governments,” 21 states have some form of biennial budgeting process, including states as heavily populated as Texas and Ohio.
The major advantages of biennial budgeting are that “it is conducive to long-term planning; that it allows more time for program review and evaluation; and that the process itself is less expensive and time-consuming than that of annual budgeting.” There are disadvantages, too. For more in-depth information on biennial budgets, read Snell’s paper on the NCSL Web site.
We can greatly improve our state budget process by moving to a biennial budge
Employ zero-based budgeting:
Article 2-3-207 of the Colorado Revised Statutes is titled, “Implementation of a zero-base budgeting program.” Simple enough! The legislation has been in place since 1977. It should be put to better use.
Paragraph (1) of the statute is very clear. It states, “It is the intent of the General Assembly that the Joint Budget Committee, in cooperation with the Legislative Audit Committee, implement an ongoing review procedure of existing programs based on zero-base budgeting, as a part of its existing review of executive, judicial and legislative budget requests…” This statute gives tremendous power to the Joint Budget Committee and the Audit Committee.
The statute outlines the analysis process to be undertaken to include :
• A statement listing any other state, federal, or local agencies which administer a similar or cooperating program and outlining the interaction among such agencies;
• A statement of the statutory authority for the history and qualified objectives of the program; and a qualification of the need for the program;
• A description of the activities which are intended to accomplish each objective;
• Indicators of quantified measures of effectiveness and efficiency of performance of these activities;
• A ranking of these activities by priority;
• The level of effort required to accomplish each activity in terms of funds and personnel; and
• A statement detailing what could be accomplished by the funding of the activity at any levels specified by the Joint Budget Committee and ranking priorities in increments as determined by the Joint Budget Committee.
Can you imagine how effective this statute would be, especially within a biennial budget process?
Steve Tool is a former chairman of the Joint Budget Committee, former senior director of the Department of Motor Vehicles and former executive director of the Department of Health Care Policy and Financing.