Week 5: Deficits, Budget Balancing, Reforms

1. Week 5: Deficits, Budget Balancing, Reforms • Week 4 follow up: BCPs – look at sample • Deficit politics – federal • questions raised by Kettl book • rationality in theory • reforms in practice • Kettl’s answers • Deficit politics – state • Proposed reforms: ZBB; new commission • Role of analysis • Budget balancing strategies • class exercise • Preview of week 6

2. Federal Deficit Politics • Questions raised by Kettl • How important is it to reduce the deficit? • Why can’t we reduce the deficit if most people agree it should be done? • Is the deficit a sign of faulty budget process? • Is it possible to make budget process more rational?

3. Is/Should/Can the Budget Process be Rational? • What is rationality? • The economics/politics debate • do concepts of economic efficiency and rationality apply to politics? • do they apply to budgeting?

4. Rationality in Economics and Political Science • Economics • individuals • fixed preferences • maximize expected utility • market mechanism • Economic Rationality Applied to Politics • explains political outcomes as result of self-interested behavior of individuals • citizens/voters as individual consumers • politics is a marketplace • no collective goals or interests • no learning from others or situations • public interest is sum of individual interests

5. from Deborah Stone’s Policy Paradox:Critique of the Market Model of Politics

6. 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 Information is conclusive and authoritative Outcomes projected with certainty Successive Limited Comparisons: Objectives and choices are linked 2. Ends and means not distinct 3. Good policy is one on which agreement can be reached Analysis is always limited 5. Information is ambiguous; subject to interpretation/framing 6. Outcomes rationalized afterward Critique of Rational Model of Policy AnalysisBased on Lindblom: The “Science” of Muddling Through

7. Rationality in Budgeting: Assumptions of Rational Process • 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

8. Critiques of rational budgeting • 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

9. Rational Budget Reforms 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?

10. Reforms to Budget Process The search for an alternative to political struggle: • Gramm Rudman I, II, III • Line item veto • Balanced budget amendment • Biennial budget

11. Summarizing Kettl • 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

12. Summarizing Kettl -- continued • 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?

13. Deficit Politics—State level • 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

14. Role of Budget Analysis • 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? • LAO type of analysis v PPBS, MBO, PB, etc. • More in Week 10

15. Balancing Budgets -- State and Local • 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 ---------------------------------------------------- Class exercise on balancing bugets

16. Preview of Week 6 Begin Part II: Context of Public Finance • Readings • Rubin Chapter 2 on revenue politics • Primer on state taxes • LAO section on “perspectives on state revenues” • Guest speaker, Brad Williams, from LAO • process (and politics) for projecting revenues • current issues in state finance