Monday, March 2, 2015

Arkansas’ Fake Balanced Budget

Fake balanced budget
Recently Conduit for Action called for the live streaming on the internet of meetings of the powerful Joint Budget Committee and its subcommittees. [Read Here] The following article not only focuses Arkansas’ fake balanced budget, it also gives you an example why videoing these meetings is so important.
 Arkansas has a balanced budget.  Right?  It does if you don’t count the fact that Arkansas has not been paying all its bills.  
Arkansas has let some state debts continue to snowball while optional programs receive full funding.
  • The debt snowball for reimbursement of counties for housing state inmates became so bad in 2014 that the state had to suspend reimbursements to counties after only two months of the fiscal year.
  • The state keeps playing catch-up on holiday pay and overtime payments to prison employees.
Before discussing “shell game budgeting”, you may need some basic understanding of budget lingo:
  • Appropriation [bill]: This is the authorization by the legislature to spend money.  It does not actually direct or prioritize the spending of the money.  The actual distribution of state general revenue is controlled by a formula in Arkansas’ Revenue Stabilization Act which uses priority categories.
  • Category “A”: This is the highest funding category under the Revenue Stabilization Act.  Items in this category are funded first.  Then if funds remain, other categories are funded, at least in part.
  • Category “B”: Items in Category “B” of the Revenue Stabilization Act are funded only after Category “A” are fully funded.
  • County Jail Reimbursement: Counties house state inmates in county jails while waiting to be transferred into a state correctional facility.  As the state inmate population has increased, more inmates are housed in county jails for longer periods of time awaiting transfer.  The state promises to reimburse counties a designated amount for each housed inmates. 
  • Fiscal Year: Arkansas’ budget is based on a year that runs from July 1 through June 30 of the following year.  We are currently in budget FY 2014–2015 (passed during the 2014 Fiscal Session.)
  • Revenue Stabilization Act: This is a mechanism to prioritize available state funds for various state agencies and state obligations.  Higher categories are funded first. If there is a shortfall, a category may receive only a percentage of the total amount allotted to that category.  Many politicians are in reality referencing this Act during their campaigns when they claim, “I passed a balanced budget.”
What went wrong with county jail reimbursement?
In the 2013 Regular Session $9.4 million was allocated in the upcoming budget to pay county jail reimbursement.  By the 2014 Fiscal Session (January ‘14) leaders knew that this was not enough money for the remainder of the FY 2013-14 (ending June ‘14.)  So $4.2 million was added from the state surplus ($500,000 to the Department of Community Correction + $3.7 million to the Department of Corrections).  Although $7.4 million had been requested just for the Department of Correction, this request was cut in half.[i]  Was this an intentional move to shift another $3.7 million or a part of that amount of the state’s debt into the 2014-15 Fiscal Year by the 89thGeneral Assembly?
Despite these same legislators knowing that $9.4 million had not been anywhere near enough to pay the state’s debt to counties in the 2013-14 fiscal year, no additional funds were put in Category “A” for the 2014-15 fiscal year.  To the uninformed observer it looked like the state was addressing the problem because an additional $7 million was added to Category “B” funding.  Was this just a head fake, knowing that Category “B” would not be funded?
Perhaps there was a sudden economic downturn in 2014 that caused County Jail Reimbursement not to receive Category “B’ funding?  No. Category “B” funding was just a pipe dream. When the Corrections Board announced in September 2014 that that there would be few if any reimbursement payments for the next ten months, state revenue had been near, or perhaps a little above, the state forecast.  July revenues were reported to be lower than forecast by the state, but the shortfall was only 1.9%.  Richard Weiss, the Director of the Department of Finance and Administration, declared the drop was not a cause for concern.[ii]  By August the revenue report showed that Weiss was right as the state’s revenue was higher than the same month in 2013 and was ahead of the state forecast.[iii]
So, only two days after newspapers reported the good revenue numbers and only two months into the fiscal year, the Corrections Board announced to counties to expect few if any reimbursements for the remaining 10 months of the fiscal year.
Reoccurring Funding Shortfall for Prison Employee Pay
It seems that the state keeps getting behind in providing enough funding for prison employee holiday pay and overtime.  Great way to say we value you as employees!
For example, in the 2014 Fiscal Session $10 million in surplus funds were requested to catch up on what was owed to prison employees.  Only $5 million was approved.  (Wonder what the US Department of Labor and the Arkansas Department of Labor would think about a private employer putting holiday and overtime payments on hold?[iv])
Budget Priorities Out of Whack!
Were other projects pushed ahead of paying Arkansas’s just debts?  There is no doubt.  A long list of millions of dollars that were spent on good but optional programs funded by general revenues could be given here.  In addition, a long list of millions of dollars spent on local projects from General Improvement Funds (GIF) could also be added.  But, this is not about what projects are more worthy than others.  It is simply about the embarrassment of failing to provide enough funds to pay the state’s debts while optional “new” programs received funding.  Not paying just debts should never be used as a way to fund other priorities.
Consequences of the fake balanced budget
  • Let’s start with prison employees. Do you think they make so much money that they don’t mind the state not fully funding holiday pay and overtime?  I hope these employees do not go in debt while waiting to receive all their overtime and holiday pay.
  • Next, think about the consequences on county budgets. Counties had to figure out how to do their budgets while having to spend money on state inmates, without being reimbursed.  Counties that were considering improving county services or pay raises for county employees had to reevaluate their plans based on the state’s failure to meet its financial obligations.
  • Failure of the state to correct the problem in 2014 meant that money that should have been paid to counties instead flowed to other state programs that would not have gotten as much money if a real budget had been passed. Had Arkansas’ debts to counties been properly prioritized, the Revenue Stabilization Act would have done its job of adjusting payments to less essential programs. Instead, the problem was exacerbated. Not only does the state have to make up what it owes counties, but the warped priorities for Fiscal Year 2014-15 allowed needed funds to be distributed to less essential programs.
  • Because of the fake 2014-15 balanced budget, Governor Hutchinson has to play catch up on debts for which the state should have already paid. This means less funds for his priorities and for state programs in 2015-16.
  • Now that you have this information, does it erode your confidence in the state budget and cause you to wonder what other unfunded liabilities exist? Well it should.
  • BEWARE! When optional programs are funded ahead of the state’s debts, there is the danger that more taxes could be seen as the solution, instead of readjusting the state’s priorities.
Ending fake balanced budget.
Pass a real balanced budget: To have a budget that is a real balanced budget, first the state must take a realistic look at its debts before dividing its revenue among programs.  When you ask a bureaucrat[v] about unfunded liabilities you will probably be told “Arkansas doesn’t have any unfunded liabilities”; but county jail reimbursement and prison employee pay show otherwise. Second, the state’s budget must prioritize the funding of its debts ahead of good but discretionary projects.  Why would debts ever be put in less than the top funding category?
Shine light on the Joint Budget Committee: Don’t you think we are past due for the meetings of the Joint Budget Committee and its subcommittees to be available for viewing on the internet?  If so, why not let your elected representatives in the House and Senate know your opinion.
 2015-2016 Fiscal Year?
Will our 2015 Legislature prioritize and pay the debts first, such as those owed to counties and state employees, and ensure that essential programs are funded first?   Or will this Legislature continue to pile up debt, spend on new programs, and call it a balanced budget?

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