TOOLS FOR SUSTAINABLE STATE BUDGETING:
On November 14, The Pew Charitable Trusts hosted a webinar titled “Tools for Sustainable State Budgeting: A 50-State Report”. It was hosted by Josh Goodman, senior officer of the Trusts.
Among the current conditions of state budgets that make sustainability a challenge, according to Goodman are:
Recent surpluses that reflect temporary factors that are dissipating
States using surpluses for a mix of one-time investments, ongoing commitments, and savings
Long-term challenges, including worrisome demographic trends, struggling local governments and costly national disasters.
“In our research we identified two analytical tools states should use to measure their long-term fiscal outlook,” began Goodman. “One of those is what we call long-term budget assessments and the other one is budget stress tests.”
The long-term budget assessments lead to an understanding of structural deficits, while the stress tests attempt to identify shorter term imbalances.
Pew’s research attempted to discover which analytical practices ensure that long-term budget assessments and budget stress tests are of sufficiently high quality to produce realistic comprehensive and policy relevant results; the extent to which states are adopting these tools and following those practices; and whether policymakers are using these tools to make decision and improve the long-term sustainability of their budgets.
The Four Key Findings:
A diverse group of states use these tools. Twenty of them published at least one long-term budget assessment or stress tests, including Alaska, California, Connecticut, Maryland, Montana, New Mexico, and New York, all of which did both.
These tools are making a difference. For example, Rhode Island used its long-term budget assessment to judge what size tax cuts would be affordable; New Mexico directed hundreds of millions of dollars to a trust fund to close structural deficits; Montana raised its rainy day fund cap by 250 percent after a stress test showed the state lacked sufficient savings; and Utah has used its stress test to create a plan for closing temporary budget gaps.
Even states that conducted these kinds of analyses had room to improve.
States that do not use long-term assessments or stress tests do conduct other analyses that could be a starting point for adopting these tools. For example, 15 states and Washington D.C. produce long term revenue and spending projections but have not yet used those projections to assess ongoing budget sustainability. “The good news from these states and others that don’t use these tools,” said Goodman, “is that they can build off their existing analyses to begin producing long-term budget assessments and budget stress tests.”
The full Pew Report, which was published on November 15, can be found here:
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