Decision about how much of society’s resources we want to take from the private sector to use for problems of broader public interest

 line item -- emphasize control  pushes policy into background  minimizes conflict  program budget -- emphasize policy  what should government do  requires more analysis  performance budget -- emphasize management  productivity of specific tasks, not overall goals  administrative outcomes

 Federal:  economic and political perspectives  expenditure driven  entitlements  defense  State/Local:  organizational and administrative perspectives  revenue driven  more unified executive control  more issues concerning citizen input

 Theory: a framework for accumulating knowledge  Normative, descriptive, positive  normative -- what should be  descriptive -- what is  positive -- what will be (predictions)  V. O. Key 1940 question in search of normative theory: “On what basis should it be decided to allocate X dollars to activity A instead of B”

 Aaron Wildavsky ◦ normative theory impossible -- utopian ◦ descriptive theory: incrementalism  how decisions are made (process or outcome?)  how strategies selected  main theory today but partially discredited

 how much can revenue estimates be politicized before other means are found?  how much of the political can be treated technically without loss of political accountability?  how does the political or technical become more dominant at one stage or another or in various circumstances?  when does executive v legislative have upper hand?  does citizen participation in resource allocation increase support for government?

Traditional  focus on control  centralized  private exercise of admin power  line item format  formulas  minimal flexibility for managers  accountability for inputs Contemporary  Focus on policy/performance  decentralized  public sharing of information  program format  priorities  maximum flexibility for managers  accountability for outcomes

 Greater executive control than in Federal process  Budget balance requirement  Focus on agency programs and policy  One committee, one bill, one process in each house  Senate Budget and Fiscal Review  Assembly Budget  Appropriations committees no budget bill role  Trailer Bills  Governor’s Budget sets agenda for budget hearings  LAO gives item by item analysis (not done by CBO)

 Governor  Department of Finance (equivalent of federal OMB)  Executive agencies  Senate and Assembly budget committees/subcomm.  Legislative Analyst’s Office (equivalent of federal CBO)  Timeline (about 12 months)  Initial preparation: July-August  Agency budget development (BCPs): Sept - Dec  Governor’s Budget Presented: January 10  LAO Analysis published: mid-February  Budget subcommittee hearings: February - May  May Revise  Conference Committee/”Big Five”: June  Constitutional Deadline for Legislature: June 15  Start of fiscal year: July 1

Assembly  Education  Resources  Health and Human Services  State Administration  Information Technology / Transportation Senate  Education  Resources  Health  General Government  Energy

 Purpose:  how do issues rise and fall on the agenda?  how do agendas translate into policy?  how can non-incremental change be explained?  Key feature: distinction between agendas (problems) and alternatives (policies)  different processes  different participants and roles  Major challenge to linear models of policy making!

 Three streams or processes  problems (agendas)  policies (alternatives, solutions)  politics  Two types of participants  visible cluster (dominate agenda and political streams)  hidden cluster (dominate policy stream)  Window of Opportunity  predictable, e.g. elections, budget process  unpredictable, e.g. natural disaster

 Three streams must converge  Being on agenda is necessary but not sufficient  need solutions and ripe political conditions  Role of the policy specialists  form communities and work on alternatives  look for opportunities to match to problems  policy entrerpreneurs  bring the solutions together with problems  importance of framing

 key concept: understanding budget problems as policy problems ◦ not a question of economic efficiency but values ◦ allows application of Kingdon  how do budget issues get on the agenda?  how does budget policy get made?  State Budget Offices play a key role ◦ gatekeepers ◦ how do they make decisions? (micro model)

 Control orientation ◦ Compile agency requests ◦ Don’t question policy orientation ◦ Budget execution emphasis ◦ Far removed from Governor’s policy staff  Policy orientation ◦ Analyze agency proposals against Governor’s policy ◦ Develop alternatives ◦ Proactive on major policy/budget issues ◦ Focus on agency mission and effectiveness ◦ Closer involvement with Governor’s policy staff

 Budget analysts are like Kingdon’s policy entrepreneurs ◦ nexus of macro and micro budgeting  manage top down and bottom up information flow ◦ bring together problems, solutions, politics ◦ part of “hidden” cluster of actors (institutional memory) ◦ two major deadlines provide windows  Skills used ◦ efficiency analysis: technical/economic ◦ effectiveness analysis: political, social, legal

 More constrained—less discretionary  Less political executive influence  More managerial/staff-driven ◦ city manager drives budget ◦ mayor policy positions not very public  More expectation for direct citizen access and participation  More or less ideological?

 What is rationality?  The economics/politics debate ◦ do concepts of economic efficiency and rationality apply to politics? ◦ do they apply to budgeting?

Rational-Comprehensive Method: 1. Clarify objective apart from policy choices 2. Ends-means analysis 3. Good policy is the best means to the ends 4. Analysis is comprehensive - -accounts for all relevant impact 5. Information is conclusive and authoritative 6. Outcomes projected with certainty Successive Limited Comparisons: 1. Objectives and choices are linked 2. Ends and means not distinct 3. Good policy is one on which agreement can be reached 4. Analysis is always limited 5.Information is ambiguous; subject to interpretation/framing 6.Outcomes rationalized afterward

 economic, not political  based on analysis  comprehensive review of options  orderly decision rules  allocated funds where they are most needed by objective measures  promote reallocation from lower to higher priorities

 Practical critiques: ◦ comprehensive analysis is impossible ◦ asks analysts to do what they cannot  Normative critiques ◦ budgeting is about choosing among values ◦ political process does a better job of solving value problems ◦ political strength of program = deserving of $$ support ◦ incrementalism/bargaining is the most fair ◦ process reflects political system – change system not process ◦ analysis must serve, not replace, politics

Proposed to replace line-item budgeting – why?  Performance budgeting ◦ links inputs with outputs  Planned Programming Budgeting Systems ◦ link program goals/strategic plans with program costs  Management by Objectives ◦ links manager-driven objectives with budgets  Zero-Based Budgeting ◦ justify all costs above specified level  Do the outcomes justify the efforts?

 rationality fixes have failed ◦ technique cannot substitute for political judgment ◦ role of Congress must be honored ◦ implementation problems  process fixes have failed ◦ procedures cannot substitute for political judgment ◦ always a circumvention strategy ◦ procedures cannot force unwanted decisions ◦ creativity and game playing  Other foils: ◦ top-down, centralized process open to interest groups/closed to citizens ◦ anti-tax sentiment ◦ divided party government

 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?

 Does the state face the same pressures toward deficits?  Do process or rationality “fixes” have a better chance of success at the state level?  Current deficit  what’s the constituency for budget balance?  what strategies (gimmicks) are being used?  real alternatives – who is proposing them?  Proposed reforms  ZBB  Commission on Government Waste and Inefficiency

 Are politics and analysis antithetical?  How can analysis serve, rather than replace politics?  What should analysis try to accomplish?  If analysis is rejected by decision makers, is it useless?  What should budget analysts try to accomplish?  Would unlimited analysis achieve rationality?

 Balanced budget requirement  More intense efforts to hide deficits  Fewer macroeconomic issues to consider  Greater influence of environment on balance/deficit  Deficits don’t (usually) accumulate-- problems more tractable  Temporary, not structural deficits -- more fixes available

The problem: getting support for increasing revenues is much harder than getting support for spending proposals 1. Public officials must go about getting support very carefully 2. “anti-revenue” politics: politics of protection from taxation, tax reductions, exceptions 3. Attention to protecting individuals, interest groups, regions from taxation leaders to piecemeal, complicated, inconsistent, inequitable structures => pressures for reform

 Confront issues of fairness, public good, options  Accountability for use of funds  Timing – e.g. crisis  Earmark revenues  example: California Lottery  Temporary increases  Tax politically weak/outsiders  Gimmicks (smoke and mirrors)

 Equity ◦ similar situations treated similarly ◦ differential burdens fair  Administrative feasibility ◦ efficient, uniform ◦ high degree of voluntary compliance  Appropriateness ◦ sufficient; stable; predictable  Political feasibility (acceptance)  Accountability/Visibility ◦ payer understands charges

 Logic: capacity to pay as measured by earnings  Importance: over half of State General Fund  Policy issues ◦ tax rates v tax base (deductions, exclusions, credits) ◦ simplification (relates to acceptance) ◦ reliance on volatile source

Logic: capacity to pay as measured by consumer spending Importance: provides about 1/3 of state and city revenues Policy issues:  Role in local finance (regional growth)  Exemptions of household purchases  Tax expenditure programs  Include services in addition to goods – erosion of base  Internet sales  fairness and revenue issues

 Logic: capacity to pay as measured by property holding  Importance: about 30% of local revenues Policy Issues  public opposition – ideological reasons  equity  allocations by state among local governments  assessment methodology (subjectivity leads to public opposition)  importance to school finance (other states)

Purposes  Promote certain economic behavior  e.g. research and development  Prevent harmful activity  e.g. tax benefits for alternative fuel  Tax relief for certain segments of society  e.g. low-income tax credits  Facilitate tax administration  e.g.conform to Fed tax Criteria  Efficient accomplishment of policy goal  Subject to review and periodic reporting

 Similarities to budgeted expenditures  aimed at accomplishing public policy objectives  cost to the taxpayer  subject to interest group pressure  pork for constituents  Differences from budgeted expenditures  not directly measurable--must estimate (indirect effects)  subject to far less analysis  less visible; beneficiaries harder to discern  more resistant to cuts -- become entitlements

 Board of Supervisors used to set a countywide property tax rate to fund countywide services  Counties had a greater share of the costs of human services programs  VLF was a much less significant revenue source 37

 Board of Supervisors had discretion over property tax rate & property tax revenue  There was a political balance between taxing and spending.  An elected official could gain political credit for keeping tax rates down 38

 Property tax rate reduce to 1%  Base growth capped at 2%  System forced to use growth to maintain base spending  Subsequent Ballot Initiatives: ◦ Shifted of property taxes from schools to local government ◦ Had the State of California assume greater share of human services 39

 The state’s support of local government was withdrawn in the early 1990s  Realignment -- share of sales tax replace shares of support for human service programs 40

 Funding mandates ◦ County shares of state & federal programs  Honoring contracts ◦ County workforce ◦ Debt  Political priorities ◦ Some are more equal than others 41

42

 Requirement ◦ Appropriations ◦ Reserve contributions  Financing ◦ Fund Balance ◦ Revenues ◦ Reserve releases 43

 Net cost of programs is determined & compared to general purpose financing  Net cost is equal to program expenditures less program revenues  General purpose financing is not linked to specific programs or groups of programs  No link between program net cost & availability of general purpose financing 44

 baseline cost/workload data (which base year to choose?)  justify changes from base (e.g. quantify workload increase)  comparisons (relevant)  formulas and standards (appropriate and inappropriate uses)  “fair share”  research on cause and effect  best practices  pilot (where research may be lacking or inconclusive)  fit under budget office guidelines, strategic plan, etc.  propose accountability measures  check to avoid “the big mistake”

 Frames request in terms of program priorities/strategic plan  Provides baseline data for a few years, for context  Clearly lays out different parts of request  Deals with each part in turn (and they add up!)  Provides quantitative justification for dollar amounts  Makes logical arguments  Reflects research – not the easy way out  Doesn’t try to fool the analyst  Honest about current resource availability  Addresses issues of priority within the department  Acknowledges recent history of budgeting in the unit  Addresses one-time v on-going needs openly  Includes objectives, expected results, and performance measures