Commission recommends biennial budget cycle

Twelve days after the fiscal 2006 budget took effect for Missouri state operations on July 1, a memo went out to state government department heads.

The subject? Making plans for fiscal 2007.

State budget director Larry Schepker warned that revenue is sluggish, demands for the supplemental budget already exceed the money available and there's no cash for anything not mandated by law.

"The current year's budget will require careful managing and the fiscal year 2007 budget will be very challenging," Schepker warned top state officials.

To find money for new initiatives, Schepker said directors need to examine their current operations for program cuts or eliminations. And do it at the same time they are putting together their budget requests.

Finding the time to analyze department operations in depth is the main justification for one of the 84 recommendations from the Missouri State Government Review Commission. The panel wants state government to move to a two-year budget cycle, freeing top administrators from the minutiae of annual budgeting to concentrate on policy and long-term planning.

"Departments and directors can simply plan better if they know what their budget is going to look like for a two-year cycle," said Ray Wagner, commission member and leader of the subcommittee that recommended the change.

"It would be less subject to political manipulations," said Wagner, director of the Department of Revenue under former governor John Ashcroft. "You would not be having to go every year and defend the agency's core mission from the annual whims of legislators."

There's no set model for states to follow when writing a budget, according to the National Conference of State Legislatures. Of the 50 states, 29 write a budget every year. Another 15 write two-year budgets even though their legislators meet every year. In six states, legislators write a budget when they meet every two years.

Missouri moved to annual budgeting during the administration of Gov. Warren Hearnes, when the supplemental appropriations needed during nonbudget years grew to resemble regular budgets.

A critic of the idea of two-year budgets, Associate Circuit Judge Chris Kelly of Columbia said he doesn't see any gain in the proposed change. Kelly is a former House member who spent seven years as vice chairman of the House Budget Committee and four years as the panel's leader.

A longer budget cycle, Kelly noted, means more errors in forecasts of how much money is available. That creates a temptation to accept rosier predictions, leaving decisions on what to cut in tough times to the governor.

And in an era of term limits, Kelly said, a two-year budget cycle means lawmakers in charge of overseeing spending would have little experience with the process.

"By the time I was budget chair, I had been through it nine times and I was terribly, terribly insecure about not having the knowledge to do it," Kelly said. "The budget is being made by people who have no idea what they are doing. I don't mean they are stupid. I don't mean they are bad people, but they just don't have the experience."

Budgeting in state government is an incremental process. Much of the spending goes to mandated services, such as education, prisons and social services, Ronald Snell wrote in a report for the National Conference of State Legislatures. Decision-makers tend "to divide up any additional resources largely in proportion to the size of program budgets in the past," Snell wrote. "In the absence of dramatic economic change, state budgets rarely impose dramatic changes in agency budgets."

Missouri, like many states, experienced just such a dramatic change in its budgets for fiscal years 2002 and 2003. For the first time in decades, actual revenue from taxes fell below the previous year's levels, forcing major cuts.

Lawmakers wrote a state operating budget for the current year of $19.2 billion, which is $323 million more than last year. But it is $82 million less than budgeted for fiscal 2002.

General revenue spending for this year stands at $7.16 billion. The general revenue budget passed by lawmakers for 2002 envisioned spending $8.1 billion.

General revenue funds most operations of state government; the total budget includes federal money spent to match state funds as well as state taxes dedicated to a specific purpose such as roads and conservation.

General revenue spending this year is up about $30.5 million. But just one item, state employee benefits, grew by $30.1 million because of rising costs for health insurance and bigger contributions to retirement plans to offset sluggish investment returns.

That means that any other increases had to be covered by cuts elsewhere.

The decision of whether to turn to two year budgets will focus on how much, if any, the change would ease those chaotic swings in revenue.

A lawmaker who is an expert on state revenue said changing to a two-year budget would mean that mistakes in projecting state income would be bigger. State Rep. Ed Robb, R-Columbia, won election after retiring as director of the University of Missouri's Business and Public Administration Research Center, where state revenue forecasts are made.

Robb is a member of the House Budget Committee. A two-year budget, he said, would require that lawmakers use the most conservative estimates of revenue. "Doing it on an annual basis gives you a little more control over the budget process," he said. "You would pick a lower revenue estimate for the second year than you would otherwise."

From an economic viewpoint, Robb said, the likelihood of the revenue drops repeating are small. State revenue fell because of the dramatic fall in stock prices combined with state tax cuts and an economic recession, he said.

Schepker, the state budget director, said no decision has been made by Gov. Matt Blunt on whether to change how budgets are written. "We would like to take a look at the pros and cons and whether it would allow us to do a more in-depth review," Schepker said. "There are concerns about projecting revenue for two years at a time."

The idea of a two-year budget cycle is intriguing, said Senate majority leader Charlie Shields, R-St. Joseph. Republicans promoted the idea in the 1990s, he said, but did not have a legislative majority to implement it.

"Our whole idea was to allow greater scrutiny of departments," Shields said.

One downside of writing a budget every two years, Kelly said, is that it frees up time for lawmakers and staff who would otherwise be occupied.

"I don't want the legislature to have more time to pass legislation, I want them to have less time to pass legislation," Kelly said. "If there is less time in general, only the best ideas will percolate to the top."

rkeller@semissourian.com

335-6611, extension 126