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The Politics of Public Budgeting Eighth Edition

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The Politics of Public Budgeting Getting and Spending, Borrowing and Balancing

Eighth Edition

Irene S. Rubin Northern Illinois University

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Library of Congress Cataloging-in-Publication Data

Names: Rubin, Irene, author.

Title: The politics of public budgeting : getting and spending, borrowing and balancing / Irene S. Rubin.

Description: Eighth edition. | Los Angeles : Sage/CQ Press, 2016. | Includes

bibliographical references and index.

Identifiers: LCCN 2016016509 | ISBN 9781506354804 (pbk. : alk. paper)

Subjects: LCSH: Local budgets—Political aspects—United States. | Budget—Political aspects—United States.

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Contents Tables, Figures, and Minicases Foreword Acknowledgments 1 The Politics of Public Budgets

What Is Budgeting? Governmental Budgeting

Minicase: City Manager Replies to Scathing Budget Critique Minicase: Missouri Constitutional Amendment Reduces Governor’s Powers Minicase: The Courts and New Jersey Pension Reform Minicase: Doctoring Audit Reports Minicase: The Federal Debt Limit as a Constraint Minicase: Highly Constrained Budgeting—Colorado’s TABOR Amendment

The Meaning of Politics in Public Budgeting Budgetary Decision-Making Microbudgeting and Macrobudgeting Summary and Conclusions Useful Websites

2 Revenue Politics Raising Taxes

Minicase: Louisiana—Getting Around the No Tax Increase Pledge Minicase: A Recent Tax Increase in Philadelphia

The Politics of Protection Minicase: Wisconsin and Unexamined Tax Breaks Minicase: Illinois and the Role of the Press Minicase: Tax Breaks for Hedge Fund Managers Minicase: California and Enterprise Zone Tax Breaks Minicase: North Carolina and Business Tax Breaks Minicase: Michigan—Terminating Its Film Subsidy Minicase: New Mexico and Tax Expenditure Reporting

Tax Reform Minicase: Georgia Tax Reform Left Hanging Minicase: Michigan Tax Reform or Class Warfare?

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Summary and Conclusions Useful Websites

3 The Politics of Process Budget Process and the Characteristics of Public Budgeting

Minicase: Harrisburg—Whose Priorities Dominate? Macro- and Micropolitics

Minicase: Republican Macrolevel Reform Proposals Designing Process to Achieve Policy and Political Goals

Minicase: Micropolitics—Bending the Rules to Win Individual Decisions Minicase: How the Governor’s Veto Is Used

Variation Between and Among Federal, State, and Local Governments

Minicase: Maine—The Governor Versus the Legislature Minicase: Limits of Governor’s Vetoes in New Mexico Minicase: San Diego—Fiscal Problems, Strong Mayor, and Veto Powers

Summary and Conclusions Useful Websites

4 The Dynamics of Changing Budget Processes Overview

Minicase: New York State—Powerful Governor, Weak Legislature, Informal Budgeting Minicase: The Governor Versus the Courts

Federal Budget Process Changes Minicase: Deeming Resolutions and Ad Hoc Budgeting Minicase: Ad Hoc Scoring Rules Minicase: Overseas Contingency Operations

Changes in Budget Process at the State Level Minicase: Maryland’s Legislative Budget Power Minicase: South Carolina’s Legislatively Dominated Budget Process Begins to Budge Minicase: The Executive and the Legislature in Florida’s Budgeting

Changes in Budget Process at the Local Level Minicase: Florida and Unfunded Mandates

Summary and Conclusions Useful Websites

5 Expenditures: Strategies, Structures, and the Environment Strategies

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Minicase: A $17,000 Drip Pan Minicase: Homeland Security—A Program Tied to a Goal of Unlimited Worth Minicase: Amtrak Train Wreck Minicase: Congressional Budget Office and Scoring

Structure Minicase: Budgetary Implications of Direct College Loans Versus Loan Guarantees Minicase: An Open-Ended Discretionary Program— Immigration Enforcement Minicase: California and Mandatory Spending on Redevelopment Agencies Minicase: Fannie and Freddie Minicase: New Jersey’s Fund Diversion From the Unemployment Insurance Fund

The Environment Strategy, Structure, and Environment Combined: The Medicare Example Summary and Conclusions Useful Websites

6 The Politics of Balancing the Budget Balance as a Constraint

Minicase: Is the Wisconsin Budget Balanced? Minicase: Balance in the Federal Highway Trust Fund

Multiple Actors, Ideologies, and Deficits The Environment, Unpredictability, and Deficits Increasing Stress Between Payer and Decider

Minicase: Chicago’s Parking Meters Minicase: Iowa’s Privatization of Medicaid

The Politics of Deficits: The Federal Level The Politics of Deficits: States

Minicase: Detroit Bankruptcy Minicase: Why Did Jefferson County, Alabama, Declare Bankruptcy?

The Politics of Balance in Cities Minicase: The Politics of Deficits—An Urban Example

Summary and Conclusions Useful Websites

7 Budget Execution: The Politics of Adaptation Minicase: Missouri—An Executive Abuses Discretion?

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Tools for Changing the Budget Minicase: Using Holdbacks to Change Legislative Priorities —Maryland Minicase: Herbert Hoover and Legislative Vetoes Minicase: The National Weather Service Reprogramming

Summary and Conclusions Useful Websites

8 Controlling Waste, Fraud, and Abuse The Politics of Finding Waste, Fraud, and Abuse

Minicase: President Obama Fires an IG Minicase: Who Guards the Guards? Not the Guards Themselves Minicase: Acting IG for Homeland Security—Too Close to the Department Minicase: New York State and Medicaid Minicase: The Massachusetts Inspector General Versus the Governor Minicase: Baltimore’s Departing IG

Summary and Conclusions Useful Websites

9 Budgetary Decision-Making and Politics Real-Time Budgeting A Comparison of the Decision-Making Streams Common Themes Reconceptualizing Reform Avenues for Research Summary and Conclusions Useful Websites

Notes Author Index Subject Index About the Author

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Tables, Figures, and Minicases

Tables 2.1 Hedge Funds: Long-Term Contribution Trends 54 3.1 Mayoral Veto Power in Large U.S. Cities 93 3.2 Mayoral Veto Power in California Cities 94 6.1 Average Annual Increase/Decrease in State (Maryland) Aid to Local Governments: 2002–2008 Versus 2008–2014 215 8.1 State Inspectors General 272

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Figures 1.1 Pork-Barrel Spending, 1991–2015 13 1.2 Number of Pork Projects, 1991–2015 14 1.3 Decision Making: Environment, Process, and Strategies 32 2.1 Minnesota’s Tax System Fairer 45 2.2 Reduction in Income Inequality From Government Transfers and Federal Taxes, 1979–2011 67 4.1 Emergency Supplemental Appropriations, Defense and Nondefense, 2000–2012 123 5.1 Federal Homeland Security Spending 153 5.2 Relationship Between U.S. Health Care Spending and Life Expectancy in OECD Countries 180 6.1 Federal Surplus or Deficit in Current Dollars, 1940–2015 201 6.2 Federal Surplus or Deficit as a Percentage of GDP, 1940–2015 202 6.3 Total Federal Spending and Receipts, as a Percentage of GDP, 1930–2017 204 6.4 Minnesota’s History of Funding Local Governments, in Constant Dollars per Capita, 1972–2014 213 7.1 Supplemental Spending as a Percentage of the Deficit and Budget Authority, 2000–2010 236

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Minicases City Manager Replies to Scathing Budget Critique 8 Missouri Constitutional Amendment Reduces Governor’s Powers 11 The Courts and New Jersey Pension Reform 17 Doctoring Audit Reports 21 The Federal Debt Limit as a Constraint 23 Highly Constrained Budgeting—Colorado’s TABOR Amendment 25 Louisiana—Getting Around the No Tax Increase Pledge 39 A Recent Tax Increase in Philadelphia 42 Wisconsin and Unexamined Tax Breaks 50 Illinois and the Role of the Press 51 Tax Breaks for Hedge Fund Managers 53 California and Enterprise Zone Tax Breaks 55 North Carolina and Business Tax Breaks 58 Michigan—Terminating Its Film Subsidy 60 New Mexico and Tax Expenditure Reporting 62 Georgia Tax Reform Left Hanging 69 Michigan Tax Reform or Class Warfare? 70 Harrisburg—Whose Priorities Dominate? 76 Republican Macrolevel Reform Proposals 79 Micropolitics—Bending the Rules to Win Individual Decisions 82 How the Governor’s Veto Is Used 87 Maine—The Governor Versus the Legislature 89 Limits of Governor’s Vetoes in New Mexico 90 San Diego—Fiscal Problems, Strong Mayor, and Veto Powers 95 New York State—Powerful Governor, Weak Legislature, Informal Budgeting 105 The Governor Versus the Courts 106 Deeming Resolutions and Ad Hoc Budgeting 118 Ad Hoc Scoring Rules 120 Overseas Contingency Operations 124 Maryland’s Legislative Budget Power 128 South Carolina’s Legislatively Dominated Budget Process Begins to Budge 130 The Executive and the Legislature in Florida’s Budgeting 133 Florida and Unfunded Mandates 142 A $17,000 Drip Pan 149

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Homeland Security—A Program Tied to a Goal of Unlimited Worth 152 Amtrak Train Wreck 153 Congressional Budget Office and Scoring 156 Budgetary Implications of Direct College Loans Versus Loan Guarantees 157 An Open-Ended Discretionary Program—Immigration Enforcement 160 California and Mandatory Spending on Redevelopment Agencies 165 Fannie and Freddie 167 New Jersey’s Fund Diversion From the Unemployment Insurance Fund 170 Is the Wisconsin Budget Balanced? 188 Balance in the Federal Highway Trust Fund 189 Chicago’s Parking Meters 197 Iowa’s Privatization of Medicaid 198 Detroit Bankruptcy 219 Why Did Jefferson County, Alabama, Declare Bankruptcy? 223 The Politics of Deficits—An Urban Example 226 Missouri—An Executive Abuses Discretion? 232 Using Holdbacks to Change Legislative Priorities—Maryland 239 Herbert Hoover and Legislative Vetoes 242 The National Weather Service Reprogramming 249 President Obama Fires an IG 264 Who Guards the Guards? Not the Guards Themselves 268 Acting IG for Homeland Security—Too Close to the Department 270 New York State and Medicaid 285 The Massachusetts Inspector General Versus the Governor 287 Baltimore’s Departing IG 289

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Foreword

In this edition of The Politics of Public Budgeting, as in prior editions, I argue that public budgeting is necessarily and appropriately political, in the sense of reflecting public priorities. The process of tapping into public needs and desires and incorporating them into the public budget is complicated and not necessarily smooth. In recent years, that process has become tumultuous, much more partisan, and ideological. The work of government budgeters has become more difficult, sometimes nightmarish. Courts mandate spending while ideologues prohibit tax increases; bridges collapse from lack of sufficient money and maintenance, taking lives and property and cutting off transit routes. Social service providers don’t get their contractual payments and as a result shrink services and lay off staff. States run out of unemployment funds and have to borrow, at above market rates, from the federal government or tighten eligibility, shorten the time that the unemployed can receive benefits, and/or reduce the amount of money they can receive.

While the practical problems are often overwhelming, for those who study public budgeting and seek to understand it, it has become more exciting. Many years ago, there was a movie serial called The Perils of Pauline, where the heroine experienced a series of dramatic, life threatening events that were resolved just before the end of each episode. Budgeting has become a bit like that, only sometimes the budget does not escape in time, and government partly or completely shuts down.

Example: Illinois Illinois has a Republican governor and a Democrat-dominated legislature. The governor’s budgetary powers are very strong: He can reject legislative decisions, rewrite portions of legislation, and reduce budget lines. His policies stand unless a supermajority of the legislature votes to overturn his decisions. The state is in severe fiscal stress, the origins of which stretch back in time.

The governor’s solution is to radically change the government. His policies include cutting social services for the poor, elderly, and

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handicapped, while allowing a tax increase to lapse, making the financial stress more severe, and from the governor’s perspective, strengthening his argument that services needed to be cut, public pensions reformed, property taxes frozen, and public unions disempowered. The Democratic legislature has not been willing to go along with the governor’s radical program, which also contains term limits for themselves. While they have not been able to overrule the governor, they don’t have to pass a budget that the governor feels he can sign. One result has been a long running budget stalemate.

Back in June of 2015, the governor drastically reduced eligibility for day care subsidies for poor people. He also increased the amount that parents had to pay as their share of the costs. One result was that 90 percent of new applicants had to be rejected. The governor argued that such cuts were necessary, because the state was in financial trouble and could not afford the payments. He ignored the consequence that low income families might be unable to afford day care and hence might be unable to work and become or remain dependent on the public sector. He did not mention the possibility that poor parents might have to leave their children in unsafe conditions. Under prior rules, when family members took care of the children while the parents worked, the care providers were eligible for some pay, which may have helped lift the family out of poverty. The governor’s supporters argued that family members would continue to provide day care even if they were not paid.

The governor urged the legislature not to restore the childcare eligibility levels. The legislature responded by trying to restore the program and protect it in the future, designing new legislation that would make the day care subsidy an entitlement rather than a discretionary program. That means that the program would become a legal requirement for the state to pay, regardless of the levels of appropriations, which were largely controlled by the governor with his strong amendatory veto powers. The legislative proposal would have protected the program from future cuts by the governor, making future changes up to the legislature. But legislators had to pass their proposal with a supermajority or the governor would exercise his veto and in all probability, they would unable to muster enough votes to override. Earlier in the year, the legislative Joint Committee on Rules (JCAR), which could have rejected the governor’s restricted eligibility rule, had been unable to achieve a supermajority to overturn the governor’s program changes. Reflecting the trend in the state

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toward increased political polarization, JCAR had begun to vote along party lines, even though in the past it had acted in a bipartisan fashion.

If the Democrats could get some Republican votes, they would have a chance to pass their legislation. The governor needed to prevent that possibility. The evening before the key vote in the House, some Republicans along with some Democrats met with the governor to argue in favor of restoring the cuts. Confronting the possibility that the legislation reversing his cuts might pass, the governor offered a compromise, raising the income level for eligibility to about 88 percent of what it had been before his cuts but maintaining his increase in the fees that parents would have to pay. Before the governor’s cuts, the income eligibility level was set at 185 percent of the federal poverty level; after his cuts it was 50 percent of the federal poverty level. The governor’s compromise proposal was for 162 percent of the poverty level. At 50 percent of the federal poverty level, even a family working full time for the federal minimum wage ($15,080 per year) would not be eligible for assistance. (The average annual cost of childcare at a day care center is over $11,000.) Some categories of formerly eligible parents were still excluded under the governor’s new proposal but his offer suggested he would restore categories of eligibility pending further review. He also indicated that he would restore eligibility to 100 percent of its former level when the budget was passed. If the legislators really wanted day care assistance at former levels, they had to agree not only to disempower public unions but also themselves and freeze a major revenue source for local governments.

After the compromise was reached between the governor and the bipartisan group arguing for restoration of former program levels, there was insufficient support in the House to pass the legislation for full restoration and a more secure basis for funding. In the short term, more poor people would be eligible for help than under the governor’s original cuts, but poor families might not be able to afford the new higher fees. Most important, under the compromise proposal, the governor retained complete control over the program and could change eligibility or fees in the future almost at will.

Themes of the Illinois Child Care Subsidy Case and This Edition of the Politics of Public

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Budgeting The story has a number of themes that are emphasized in this edition. One is the increased intensity of partisanship in budgeting and the implications for democracy. A second is that budget stories develop over time—over years and sometimes decades. A third theme is that to understand the politics of public budgeting in the United States, one needs to understand our federal system, the legal, judicial, and behavioral relationships between the national government, the states, and the local governments. Although the national government and the states are in many ways independent of each other, they participate in joint programs, such as the day care subsidy program. Fourth, despite a history of distrust of overly powerful chief executives, the president, governors, and mayors have a great deal of budget power. At the state level, power between the executive and legislative branches is often one sided in favor of the executive, even when the opposition party controls both houses of the legislature. Supermajority voting requirements to override the governor reinforce this outcome.

Partisanship and Ideology The long-term trend toward more intense partisanship was apparent in the Illinois case, where a Democratic majority in the legislature confronted a Republican governor and the Joint Committee on Administrative Rules voted along party lines. This intensified partisanship has been visible at the federal and state levels of government in recent years. Party lines have been more clearly drawn, not only where there is divided government— executive and legislative of the opposite parties—but where there is alternation between parties over time. One party wants to maintain publicly funded health and income support programs while the other wants to reduce them; one is willing to raise taxes especially on the rich, while the other seeks to reduce taxes, especially for the rich.

Along with the rise in voting according to party lines has come an increase in ideology with fixed goals and an unwillingness to bargain or compromise. Reinforcing this ideology, outside groups with particular points of view, like the American Legislative Exchange Council (ALEC), composed of conservative legislators and corporate lobbyists, have written, circulated, and in some cases dictated what they consider model

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legislation. Some wealthy individuals, such as John Arnold, have funded supposedly neutral think tanks to present research results that support their policy goals. Some conservative groups, such as Americans for Tax Reform, threaten to and in some cases actually campaign against those in their own party who have not been firm enough in adhering to the political positions they espouse. On the left, unions and some advocacy groups try to counter business-backed legislative proposals and what they consider biased studies. Unions often support candidates who have been loyal to their cause and take states to court when policies hurt their constituencies. One result is more budgeting rigidity, fewer options, and less adaptability. A second is a loss of quality of information in budget policy debates, because information that is sometimes touted as nonpartisan is actually biased on one side or another. A third consequence is an increased frequency of hostage taking, to force compliance with ideological policy demands, ignoring the damage that may be done in the process.

Intensified Partisanship: Rhetoric Versus Analysis Political rhetoric has thoroughly penetrated budget stories to the point that readers need to be able to recognize rhetoric and distinguish it from analysis. Program advocates and detractors put out stories that are picked up by the press, stories that are intended less to inform and more to persuade. They often look like factual stories but on further examination, turn out to be misleading or distortionary.

One common technique is to make some proposal look bigger or smaller in order to rouse supporters or opponents. If a particular revenue source generates only a small amount of revenue, opponents to increasing it may report only the proposed percent increase, which looks very large on a small base, and omit the actual dollar increase, which may be both modest and affordable. Those who want to cut spending might cite a huge number of dollars of increased spending in recent years without reporting that the amount is only a tiny portion of the whole. The latter technique is magnified by giving figures that cover many years—much larger than the figure for any one year.

An example of a correct but misleading result occurred recently when the federal Government Accountability Office released a report saying that

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from 2005 to 2014, the Social Security Disability Insurance program overpaid $11 billion to beneficiaries who were not qualified to receive them.1

Such reports on overpayments are often used by program opponents to demonstrate waste and thereby justify spending reductions. They typically do not report or subtract out underpayments or describe those who were eligible for payments who did not receive them. They multiply the sums involved by the number of years they pick, which could be any number. Many studies reporting overpayments fail to subtract out the amount of money that the government eventually collects back from recipients who received the money in error.

In the case of disability insurance, although it was not the focus of the report, the GAO did note that the federal government wrote off only $1.4 billion over a ten-year period. When looked at as a percent of program outlays over that decade, the overpayments are extraordinarily small. The accuracy rate is 99.88 percent.2 The response to such a report ought to be, what an amazingly efficient organization, but the takeaway from the GAO report was $11 billion of wasteful spending.

Some of the Illinois governor’s supporters have argued that cuts in day care subsidies are justified because much of the money is wasted. There has been no evidence to that effect, however; it appears that cutting programs for the poor is an item of ideology rather than analysis. Because the day care program is a joint federal-state program, the federal government has an interest in assuring that the programs are tightly run. In line with this concern, the Government Accountability Office did a study in 2010 of five state-subsidized day care programs. It noted that in Illinois the fake applications that the GAO tried to submit were examined and rejected while other states accepted them.3 Moreover, the state inspector general for Healthcare and Family Services in an annual report in 2010 described the number of cases of abuse investigated in the day care program as twenty-six, of which five were unfounded and which resulted in six convictions.4 In a typical year, the program serves 150,000 children. The twenty-one cases thus represent .01 percent—one one hundredth of a percent—of youngsters in the program. The six convictions represent an even smaller proportion of the total, .004 percent of the children. In 2014, the inspector general did not even mention childcare fraud or abuse in the annual report. In the Illinois case, there was no effort to either document

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cheating or provide evidence that cheating was widespread.

Political rhetoric, intended to persuade, often includes extreme examples implying that they are common. Thus public pensions are attacked, because some people have six-figure pensions; conclusion? Pensions are overly generous. Some people gain benefits to which they are not entitled, giving rise to the conclusion that income support programs are riddled with fraud and waste. Given this rhetorical spin on budget discussions, readers need to get into the habit of asking themselves whether the information they are reading is intended to persuade, if there is missing information that might change the interpretation, how many years are included in a study and added up, whether a number is exaggerated or minimized, whether a case is exceptional or common, and the direction of recent trends. Who requested or financed a study may have to become part of the interpretation, and that information is not always easy to find.

Intense Partisanship and Hostage Taking The childcare subsidy example helps to describe recent trends in budgeting. Those trends not only indicate a sharper partisan divide with its accompanying conflicts, rhetorical heat, and distortions, but also an increased willingness to hold government—and in this case children— hostage to satisfy demands of political minorities when majorities won’t go along.

The Republican governor in Illinois was willing to cut off children from day care, making it more difficult for poor parents to work, in order to pressure the legislature to accept his policy agenda, which was not related to the budget and which he knew they did not support. The governor would not approve a budget without legislative acceptance of his unrelated policy agenda, and so the state was without a budget—the stalemate lasted the entire fiscal year 2015–2016. The governor required state employees to continue working and get paid, even without a budget, and he approved the portion of the budget that funded the public schools, while leaving the public universities and contractually provided social services without their funding. Since these constituencies matter to the Democrats who are in the majority in both houses, the governor’s strategy was to force them to agree to his policies by hurting the poor, the elderly, the mentally and physically disabled, and college students who are dependent on government grants and services. If the legislature will agree to the governor’s policy agenda,

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he will stop hurting those most dependent on state aid—and restore the childcare subsidies to their prior level.

Hostage taking and various forms of extortion have become common in public budgeting. Sometimes the budget as a whole is held up, even to the point of closing down the government until the desired policies are approved. At the federal level, Tea Party Republicans have threatened to not raise the debt ceiling, risking the credit quality of the federal government, in order to get their preferred policies accepted. The budget stalemates typically occur when there is divided government, an executive of one party and one or both houses of the legislature dominated by the other party. It doesn’t matter whether the executive is a Democrat or a Republican. While in Illinois the governor was a Republican and the legislature Democratic, a budget standoff in Pennsylvania also lasted for months, in that case resulting from policy differences between a Democratic governor and Republican legislature. Back in 2011, the Democratic governor in Minnesota tried to use a government shutdown to pressure the Republican-dominated legislature to pass a tax increase on the top earners. In that case, the strategy did not work.

In 1991, Maine, Connecticut, and Pennsylvania shut down; and Pennsylvania had a one-day shutdown in 2007 (Pennsylvania’s recent shutdown has been much longer); Tennessee had a partial shutdown in 2002; Minnesota experienced its first shutdown in 2005; New Jersey experienced its first shutdown in 2006. Michigan had a brief shutdown in 2009. While late budgets have been relatively common over the years, actual shutdowns used to be averted, but in recent years, as partisan differences on policy have intensified, shutdowns have become a little more common and last longer. These shutdowns, even when partial or brief, cause service disruptions and increased costs as well as loss of productivity.

The strategy is to use actual harm and the threat of harm—such as threatening to shut down the government—to force compliance with a given policy rather than bargaining and compromise. The more ideological the participants, the less likely they are to be willing to compromise. In the Illinois case, the governor backed down somewhat and negotiated over specific cuts that he had unilaterally imposed only because there was a real possibility that a coalition of Democrats and Republicans might overturn his decision. And despite the negotiations on this one issue, he maintained

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his stance against passing any budget if the legislature did not go along with his policy demands.

Implications for Democracy The intensity of partisanship has led to a search for pressure points, such as using the increase in the debt ceiling at the federal level, which used to be automatic, allowing bills to be paid that had already been approved, to force compliance with minority policy proposals. There has been an increased use of supermajority requirements to make it more difficult to pass tax increases. No-tax-increase pledges have also added ideological rigidity to budgeting, so that cutting spending seems like the only option to balance or rebalance budgets, regardless of the will or needs of the citizens.

In the Illinois case, supermajorities were required to override the governor’s rule changes, and supermajorities were required to pass legislation that would restore program cuts and create funding stability. Supermajority requirements empower minorities, allowing them to block the will of the majority. Forcing a legislature to pass laws of which members disapprove by holding the poor, the elderly, and the disabled hostage is neither democratic nor just. One may agree or disagree with the policies being pressed, such as smaller government or better funding for the public schools, without agreeing that forcing compliance through hostage taking is a good way to achieve those policies.

The increase in partisanship seems to legitimate tactics such as the use of shell bills, the content of which is determined at the end of a legislative session without sufficient time for opponents to read and react to them. Increased shopping around for studies that support a predetermined policy preference and supposedly neutral policy shops that tilt one way or another depending on who asks for a study or who funds it also delegitimize the policy debate.

The seemingly irreconcilable positions of two political parties unwilling to compromise leads to budget solutions such as pretending to follow the rules without actually doing so. Having passed an across-the-board cut in federal spending after a period of hostage taking, conservatives then argued that the cuts should not apply to defense. Those who opposed the reductions wanted to keep the ceilings on defense to create pressure to lift

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the ceilings for nondefense spending as well. While this pressure and counter pressure were ongoing, portions of defense spending were taken off budget, taken out of the rules, so they didn’t have to be offset with revenues and did not have to come under the ceiling. This was an Alice in Wonderland kind of budget approach, to make some expenditure disappear.

Budget Stories Develop Over Time Many of the cases described in this edition took years to reach fruition. In Illinois, the story of the day care subsidy cutback began well before the current governor was elected, as prior governors and legislators continued to spend more than the state was taking in in revenue. The dire fiscal stress created a supportive environment for an increase in the state income tax, which is modest in level and not progressive—that is, rich people do not pay a higher proportion of their income for this tax than poorer people. The tax increase was temporary, but when it came time for it to lapse, it was clear that doing so would dig the state into a deeper hole. The new governor supported the return of the tax to its lower level, exacerbating the financial problems of the state. Then the governor acted on his own initiative to change the rules to kick people out of the subsidized childcare program, arguing that it was necessary because the state was in such bad financial condition.

Only if the researcher’s time span is long enough can he or she see trends or sequences of actions and reactions over time. As described in a later chapter, one city reluctantly agreed to set up an inspector general office to root out corruption but then stalled for years in actually setting up and funding the office. In one state, citizens voted to require a supermajority of legislators to pass a tax increase; that public vote was binding only for several years. As soon as it was legally possible, the legislature rescinded the requirement and, desperate for additional revenue, passed a tax increase. At the federal level, an agreement to cut spending worked out in one year set spending ceilings for the next several years. The amount of money given out in tax breaks is usually available several years later, when credits are finally used. State commissions have been appointed to look at unfunded mandates to see if any can be eliminated to save local governments money. Such commissions may take years to make recommendations, and then it takes time for legislatures to act—or fail to

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act—on the recommendations. Sometimes the commissions are then disbanded. Some events only occur episodically, as when a state takes over a local government revenue source, or the opposite, when a state takes over and funds what had been a local government responsibility. The balance of budgetary power between executives and legislators is not fixed and shifts more toward one or the other over a period of years. All these stories develop over time.

Whether a program grows from one year to the next is much less interesting or important than whether it continues to grow faster than other programs year after year and similarly if cuts occur year after year in particular programs, such as state funding for higher education. Are decreases in state aid to local governments during a recession restored after the recession ends? The stories lie less at a given point in time than in the trends over time.

Federalism Federalism is emphasized more in this edition than in prior editions. The structure of federalism is a key to understanding the politics of budgeting at all levels of government. Federalism is not just about grants from the federal government to the states or from the states to the local governments, the conditions attached to those grants, or mandates that are or are not adequately funded. It is also about taxes, the assignment of responsibilities or preemption of some revenue source, and about jointly provided programs, where the federal government and the states share costs and the states determine program rules, such as eligibility, scope, and the size of payments. The day care subsidy program in Illinois was one illustration of a shared program, but the really big one is Medicaid. In recent years, Medicaid has become very expensive and a topic of partisan contestation. President Obama has sought to expand the program, with the federal government paying for most of the costs, but some states have resisted, despite the offer of money.

The federal government can persuade, offer incentives to the states, and mandate some behaviors as conditions of grants. It can preempt some areas of responsibility but at a fundamental level, the states and the national government are both sovereign and independent. The states are not subordinate units of the federal government. The monetary relationship is thus key to cooperation and policy implementation. The states, by contrast,

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have direct authority over the local government as well as responsibility for them. They don’t have to persuade; they can order. They can determine the scope of services, taxing powers, and budget processes. They can help their local governments when they encounter fiscal stress, or they can hang them out to dry, metaphorically. In the Illinois case, the governor wanted the state legislature to pass a law that would freeze property taxes for local governments.

Because the local governments are subordinates of the state government, the states are responsible for their local governments. In the past, this has meant that states have taken measures to assure the fiscal health of their local governments and have helped them out when they got into trouble. However, the number of municipal bankruptcies of large cities and counties has increased in recent years. Some states have taken over the finances of their local governments, others have allowed or encouraged them to declare bankruptcy under federal law. There has thus been a marked change in the relationship between some states and their local governments, shifting from prevention and help to overruling the local elected officials and taking over budgeting, deciding which creditors lose how much money. This shift may reflect the increase in partisanship and ideology noted above, as some governors, intent on keeping taxes down, cut aid to local governments, deny them additional revenue sources, and refuse to spend much money to bail them out.

Executive Versus Legislative Budget Power The Illinois case illustrates one extreme of executive budget power compared to the legislature. The governor was able to change the eligibility criteria and the fees charged to parents in the day care program on his own initiative. The legislative committee charged with overseeing the rules issued by the executive branch was unable to muster a supermajority to overturn the governor’s rule change. The governor maintains the ability to reduce any appropriation the legislature passes, on a line-by-line basis, for this and any other program. That is why the legislature sought to change the structure of the day care program and turn it into an entitlement, which would give the legislature more and the governor less power over the program’s design. In that, they did not succeed.

While Illinois is on the extreme end of executive budgeting power, the

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cases related later in the book illustrate that the general direction of change is toward stronger and more unified executives with more authority over budgeting, even in states that have historically had strong legislatures.

At the national level, the president has weaker veto powers than many governors, but his power over the budget is still considerable. Nevertheless, it is continually being contested, as Congress works to control the way money is spent and “handcuffs” agencies that diverge from congressional intent and instructions. The president can order the agencies to refuse to implement legislative earmarks or issue signing statements indicating that he won’t carry out some portion of a law that he thinks violates the constitution or other legitimate responsibilities. Congress can limit the amount of discretion executive agencies have in spending money, can use inspectors general to criticize agencies and the president, and can threaten to not raise the debt ceiling (for more on the politics of the debt ceiling see p. 23), among other tactics.

At all levels of government, the balance between the executive and legislative branches with regard to budgeting is somewhat fluid, depending as much on personality and skills as formal powers. It is one area where informal relations may be as important as formal powers. Thus, when the governor in Illinois sensed that he might be facing a coalition of Democrats and Republicans who could overturn his policies, he backed off and negotiated a settlement with a group of legislators.

Conclusion To understand the politics of budgeting today, one has to know not only what happened yesterday and the rules of the game but also that the rules continue to change or may be suspended entirely from time to time. The laws guiding the congressional budget process have changed over the years, but even if one understood all the arcane details, one might not be prepared for the ad hoc nature of the decision-making that sometimes overtakes the formal rules.

This book should help explain the politics of budgeting in two ways. First, it sets out the separate clusters of budgetary decision-making—revenue, budget process, spending, balance, and implementation—and describes the politics that characterize each one. Second, the book emphasizes the direction of change, patterns of adaptation, and chains of action and

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reaction, over time. That the politics of budgeting keeps changing creates some challenges but also rewards curiosity and invites new editions of the book.

Notes 1. Government Accountability Office, “Disability Insurance: SSA Could Do More to Prevent Overpayments or Incorrect Waivers to Beneficiaries,” Report to the Subcommittee on Social Security, Committee on Ways and Means, House of Representatives, October 2015, http://www.gao.gov/assets/680/673426.pdf.

2. David Dayen, “Why $11 Billion in Government Overpayments Is Actually an Insignificant Amount,” The Washington Post, November 4, 2015, https://www.washingtonpost.com/news/federal- eye/wp/2015/11/04/why-11-billion-in-government-overpayments-is- actually-an-insignificant-amount/.

3. GAO, “Child Care and Development Fund: Undercover Tests Show Five State Programs Are Vulnerable to Fraud and Abuse,” Washington, DC: GAO, 2010.

4. http://www.state.il.us/agency/oig/docs/2010%200ig%20annual%20report%20final%20062011.pdf

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http://www.gao.gov/assets/680/673426.pdf
https://www.washingtonpost.com/news/federal-eye/wp/2015/11/04/why-11-billion-in-government-overpayments-is-actually-an-insignificant-amount/
http://www.state.il.us/agency/oig/docs/2010%200ig%20annual%20report%20final%20062011.pdf
Acknowledgments

I would like to thank all those who provided the information on which this book revision is based, including legislative budget offices, investigative journalists, those who design and maintain openness websites, and staff who respond to my queries. I also want to acknowledge the struggles of those in the budgeting trenches, as they wrestle with tax and expenditure limits, with shrinking tax bases, with unfunded and underfunded mandates, and with contradictory demands from rigid partisans. Finally I need to mention the terrific team at CQ Press, who have always been supportive of this project, and the gentle reviewers of the last edition who offered guidance and suggestions for this one.

Publisher’s Acknowledgments SAGE wishes to acknowledge the valuable contributions of the following reviewers.

Whitney Afonso, University of North Carolina at Chapel Hill Leann Beaty, Eastern Kentucky University James Jimenez, University of New Mexico Mark Nagel, Metropolitan State University Paul Pope, Montana State University Lonce Sandy-Bailey, Shippensburg University of Pennsylvania

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1 The Politics of Public Budgets

A public budget links tasks to be performed with the amount of resources required to accomplish those tasks, ensuring that money will be available to wage war, provide housing, or maintain streets. Most of the work in drawing up a budget is technical, such as estimating how much it will cost to feed a thousand shut-ins with a Meals-on-Wheels program or how much revenue a 1 percent tax on retail sales will produce. But public budgeting is not only a technical, managerial process, it is also necessarily and appropriately political.

Budgets reflect choices about what government will and will not do. They reflect the public consensus about what kinds of services governments should provide and what citizens are entitled to as members of society. Should government provide services that the private sector could provide, such as water, electricity, transportation, and housing? Do all citizens have a guarantee of health care, regardless of ability to pay? Is everyone entitled to some kind of housing? Should government intervene when market failures threaten people’s savings and investments? Budgets reflect priorities—between police and flood control, day care and defense, the Northeast and the Southwest. The budget process mediates among groups and individuals who want different things from government and determines who gets what. These decisions may influence whether the poor get job training or the police get riot training—either one a response to an increased number of unemployed. Budgets reflect the degree of importance that legislators place on satisfying their constituents and responding to interest group demands. For example, legislators may decide to spend more money to keep a military base open because the local economy depends on it and to spend less money to improve combat readiness. Budgets provide accountability for citizens who want to know how the government is spending their money and whether government has generally followed their preferences. Budgeting links citizen preferences and governmental outcomes; it is a powerful tool for implementing democracy. Budgets reflect citizens’ preferences for different forms and levels of

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taxation as well as the ability of some taxpayer groups to shift tax burdens to others. The budget indicates the degree to which the government redistributes wealth upward or downward through the tax system. At the national level, the budget influences the economy, and so fiscal policy influences how many people are out of work at any time. Budgetary decision-making provides a picture of the relative power of budget actors within and between branches of government as well as of the importance of citizens, interest groups, and political parties.

Budgeting is both an important and a unique arena of politics. It is important because of the specific policy decisions it reflects: decisions about the scope of government, the distribution of wealth, the openness of government to interest groups, and the accountability of government to the public at large. It is unique because these decisions take place in the context of budgeting, with its need for balance, its openness to the environment, and its requirement for timely decisions so that government can carry on without interruption.

Public budgets clearly have political implications, but what does it mean to say that key political decisions are made in the context of budgeting? The answer has several parts: First, what is budgeting? Second, what is public budgeting, as opposed to individual or family budgeting or the budgeting of private organizations? Third, what does political mean in the context of public budgeting?

What Is Budgeting? The essence of budgeting is that it allocates scarce resources, implying choices among potential expenditures. Budgeting implies balance between revenues and expenditures, and it requires some kind of decision-making process.

Making Budgetary Choices All budgeting, whether public or private, individual or organizational, involves choices between possible expenditures. Since no one has unlimited resources, people budget all the time. A child makes a budget (a plan for spending, balancing revenues and expenditures) when she decides

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