Monday, July 18, 2016

Providing Discretionary Funds Instead of Performing Meaningful Budgeting

Rainy Day Deception Part 3

Never, never, never rely on the title of Arkansas legislation!

For example, fiscal conservatives learned the hard way after relying on the title of Senator Jim Hendren’s SB343 of 2015 which said it was prohibiting the establishment of an Arkansas-based Obamacare Exchange, but Hendren’s legislation still allows the creation of such an exchange and, in addition, the agency created to establish a state based Obamacare exchange still exists and is still spending money.[i]

by Conduit for Action: The establishment of the “Rainy Day Fund” is another example of a bill with a deceptive title. In the case of the Rainy Day Fund, the deception may have been more of an overstatement. The Rainy Day Fund was proposed as HB1066 of 2007 (Act 1055 of 2007) and the title of the bill read:

AN ACT TO PROTECT THE OPERATIONS OF ESSENTIAL STATE GOVERNMENT PROGRAMS BY ESTABLISHING TRANSFER PROCEDURES TO AND FROM THE ARKANSAS RAINY DAY FUND.

Although the title of HB1066 reflects the concern of legislators at the time, the sponsor, Bruce Malloch, failed to include any limitations on how the fund could be used. This means the Rainy Day Fund can be spent not only to protect “essential services” but also to fund any whim a governor might put on his wish list. To spend the money, the Governor only has state the “need” and the amount to be transferred and request approval from the Arkansas Legislative Council, which has served as a rubber stamp for Rainy Day Fund requests.

In a recent interview on the Paul Harrell Program , David Ferguson, described the environment that produced the Rainy Day Fund. In 2007 the legislature still only met once every two years. A number of legislators had become frustrated over the difficulty of projecting state needs over a two-year period and found it impossible to anticipate the state of the economy two years in advance. Two very different plans came out of the 2007 legislative session.
  • One plan dealt with uncertainty by increasing the power of the Governor by giving him the discretionary fund, the Rainy Day Fund.
  • The other plan sought to provide better state budgeting by asking the people to approve annual legislative sessions and annual budgets.
After the people adopted the amendment for annual budgeting, you might expect the legislature to end or reduce the Governor’s discretionary fund that was created to deal with the two-year cycle. However, that did not happen.

Ferguson also noted the legislature has never taken full advantage of the adoption of annual budgets.  The Democratic majority in 2009 decided to continue making a two-year budget recommendation, and instead of taking a detailed look at the budget for the fiscal session they decided to begin with the recommendation already made for the fiscal year and to just have a short hearing schedule to merely make tweaks in those budget recommendations.

Here’s the situation as we understand it:
  • Once Democrats gave Governor Mike Beebe discretion over tens of millions of dollars, they had not stomach or desire to take back budgeting control.
  • Republicans don’t appear anxious to limit Governor Asa Hutchinson’s control over the discretionary funds.
  • Many politicians are pleased to be able to mislead the people into thinking the Rainy Day Fund is not really general revenues and is instead just some old stack of money that has been gathering dust and is rarely used.
  • Although 46 states have gone to annual sessions, Senator Jim Hendren, nephew of Governor Hutchinson, wants to return to two year budgets without the legislature ever taking full advantage of the opportunity to do detailed budgeting.
  • Legislators got a huge salary increase in 2015 in part because some argued they are now full time legislators, but some do not want to spend more time on budgeting or on having annual sessions because it might turn them into full time legislators.
  • Many state agency budgets are determined by how much of an across the board increase can be given, without an evaluation ever occurring on whether the agency’s programs should continue to grow or be cut back or eliminated.
The Rainy Day Fund was recently renamed the “Long Term Reserve Fund” without any real change being made on how the funds may be used. It is still a rainy day deception. And, it represents the lack of sensible state budgeting.

Republicans are supposed to be more fiscally conservative than their Democrat counterparts, but we are not aware of any move to refine or improve the budget process.  It is a situation we think should be remedied.

For more information, see Rainy Day deception – Part 1 and Save it for a rainy day: Rainy Day Deception Part II.
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[i] AN ACT TO PROHIBIT THE ESTABLISHMENT THROUGH STATE LAW OF A STATE-BASED HEALTH INSURANCE EXCHANGE IN THIS STATE UNDER THE PATIENT PROTECTION AND AFFORDABLE CARE ACT AND THE HEALTH CARE AND EDUCATION RECONCILIATION ACT OF 2010; AND FOR OTHER PURPOSES.

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