Policy Documents

State Budget Reform Toolkit

Managing Editors: Leonard Gilroy and Jonathan Williams –
June 5, 2011

ALEC’s State Budget Reform Toolkit will advance a set of budget and procurement best practices to guide state policymakers as they work to solve the current budget shortfalls. The toolkit will assist legislators in prioritizing and more efficiently delivering core government services through advancing Jeffersonian principles of free markets, limited government, federalism, and individual liberty.  Today, states face structural deficits created by overspending. Most of the legislative “fixes” over the past few years for state budget gaps have merely postponed or obscured the problems rather than addressing them directly.

A contributing factor to state budget gaps is the expiration of the federal stimulus funds provided by the American Recovery and Reinvestment Act (ARRA). Although these federal funds temporarily supported state budgets, the money will not last forever. When it is gone, states will be faced with gaping holes in their budgets, as policymakers in many states have imprudently opted to rely on these temporary federal funds in order to avoid making difficult, but necessary, budget reforms to align expenses with revenues.  

To solve this problem, the temptation will be to use a “business-as-usual” approach: raise taxes, raid non-general fund accounts, delay funding of some legislation, avoid fully funding pensions, and use federal stimulus funds to postpone meaningful budget reforms. Some of these actions may give states a temporary “patch” in their budget shortfall, but when the federal funds expire, when pension tabs for delayed contributions come due, and when there are few off-budget accounts left to raid, states that did not take real action to solve their budgetary shortfalls will face even greater budget defecits. Additionally, as ALEC’s Rich States, Poor States publication so aptly points out, tax increases come at a very high cost: the erosion of state economic competitiveness. In the words of President John F. Kennedy: “An economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs.”