Priority-Based Budgeting Offered as Fundamental Reform

Published February 22, 2011

The American Legislative Exchange Council’s (ALEC) new State Budget Reform Toolkit advances a set of budget reform and procurement best practices, called priority-based budgeting, to guide state policymakers as they work to solve current budget shortfalls.

Eight nationally acclaimed authors provide more than 20 recommendations for legislators looking to modernize state budgeting, improve budget transparency, control cost, and improve government efficiency. The “toolkit” will assist legislators in prioritizing and more efficiently delivering core government services.

The need to reform state budgeting is more vital than ever. As federal stimulus funds recede, states will grapple with even larger budget gaps. The “business-as-usual” budgeting approach of raiding non-general fund accounts and using tricky accounting techniques will no longer rescue states from a budget crisis.

Avoids Tax Hikes
States need innovative budgeting strategies to address these new economic challenges—without resorting to economically damaging tax increases. As ALEC’s Rich States, Poor States publication points out, tax increases come with a high cost: the erosion of economic competitiveness.
This State Budget Reform Toolkit is designed to help legislators address the serious financial crises in the states by changing their budgetary system from the conventional input system, which is clearly a failed policy model, to one focused on outcomes.

Sets Priority-Based Budgets
This new budgetary system is called priority-based budgeting. To make the shift to this form of budgeting, state officials and citizens determine the core functions of government first before working on the budget. This may seem like an elementary step, but it is seldom taken before legislative appropriations are made.

To gain control of a state budget, the following questions should be answered:

1. What is the role of government?

2. What are the essential services the government must provide to fulfill its purpose?

3. How will we know if government is doing a good job?

4. What should all of this cost?

5. When cuts must be made, how will they be properly prioritized?

Focus on Core Functions
Only by carefully considering the proper role of government can legislators and governors effectively protect individual rights while providing essential services to taxpayers in an efficient, cost-effective manner. Great savings can be achieved if legislators and agencies focus on the core functions of government instead of wasting time determining how a nonessential function can be better performed.

In 2003, Washington state implemented priority-based budgeting to eliminate a budget deficit of $2.4 billion without raising taxes. Had the traditional budgeting system been used, legislators would have started with the baseline budget and focused on cutting programs or raising taxes until the general fund matched the forecasted revenue.

Jonathan Williams ([email protected]) is director of the Tax and Fiscal Policy Task Force at the American Legislative Exchange Council.

Internet Info
The ALEC State Budget Reform Toolkit:

Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index: