Smart budgeting and accountability:Washington cannot have one without the other

By Maurice McTigue

A few years ago the state of Washington became an innovative leader in budgeting by doing what families do all the time but governments seldom do. Families first establish how much money is available then set the priorities. They spend on the highest priorities first and continue only up to where the available funds will allow. Well the last time Washington did that with determination and vigor was in the 2003-05 budget when it closed a potential deficit problem. It is time to resurrect that budgeting strategy as the state faces a staggering budget deficit.

Faced with a potential $3.2 billion deficit, Washington is mired in the same inertia that traps so many governments in financial crises. And without serious correction this shortfall could nearly double to more than $6.3 billion for the 2011-13 budget. But there are ways to quickly find solutions and avoid digging a deeper hole.

Washington residents may take some comfort in knowing that they are not alone. In the second quarter, state and local government spending across the nation rose 7.8 percent over last year, whizzing past revenue, which only grew 2.5 percent.

If Washington is going to climb out of the hole it now finds itself in, it will take a combination of political will, a supportive population and smart budgeting with clear accountability measures.

Too often budgets give only a short-term picture of the fiscal health or ills of the state. An improvement would be to extend the estimates in the budget to include 10, 15 and 20-year predictions. The urgency of problems in such a scenario become immediately apparent and highlights the burden to be picked up by future generations.

When it comes to spending, institutional restrictions are becoming a trend as a number of countries have passed “fiscal responsibility” legislation that (partially) defines fiscally irresponsible behavior and as a result moderates the spending impulses of the government. Washington’s Initiative 601 was such a measure that effectively restrained spending from 1993 to 2005, during which time General Fund state spending never rose above 10 percent.

Unfortunately, recent statutory changes have weakened its effectiveness, resulting in 2005-09 budgets that grew more than 33 percent. Given the current problems, combining this initiative with the new constitutional rainy day fund would help ensure that spending decisions remain predictable, insulated from underlying economic volatility, and are fair to future generations.

Often people will comment that you cannot compare the private sector with the public sector: success in the private sector is identified by profit, which does not apply in the public sector. But there is a measure of performance in the public sector: public benefit. Policymakers must continually ask: what is the public benefit achieved by this expenditure? Agencies must never be allowed to feel entitled to their appropriation; they must provide evidence of the public benefit.

An instructive example comes from our experience with unemployment programs in New Zealand, which showed that if funding was applied only to those programs that provided evidence that they were successful at placing people into work, then it was possible to place 300 percent more people into work for the same expenditure. Or stated the other way, the status quo meant tens of thousands of people did not get jobs – a public benefit that was forgone by sticking to the same old way of doing things.

The alternative is to risk spending money on things that do not work, and that is simply irresponsible. But failing to actually know whether programs are effective is grossly irresponsible.

Transparency is an essential element to accountability. It takes myriad agencies, committees, watchdogs, and private citizens to fully keep watch on all the money and to whom it is going. Transparency has the additional benefit of inspiring confidence and trust in government. With the light of day cast on every dollar, taxpayers can feel secure and informed about how their hard-earned dollars are being spent.

Maurice McTigue is vice president of Mercatus Center at George Mason University. His recommendations in this editorial are based on research in Washington Policy Center’s book “Policy Guide for Washington State.” McTigue led a successful effort to restructure New Zealand’s public sector and to revitalize its stagnant economy between 1984 and 1994 period as minister of employment.

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