Tracy Gordon (Tax Policy Center) presents Fiscal Democracy in the States: How Much Spending is on Autopilot? at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Lilian Faulhaber:
State governors and lawmakers frequently complain about Medicaid, pensions, and debt service crowding out other budget priorities. Academic researchers, credit rating agencies, and journalists have also taken note of this phenomenon. However, few analysts have sought to define state budget pre-commitments more broadly and measure how past choices may be constraining current decisions.
This paper develops a taxonomy of state budget constraints including pensions and other legacy debts as well as state constitutional requirements, federal formula-based obligations, earmarked funds, and court decisions. Based on key informant interviews, state budgets and other financial reports, and national data sources, we apply the taxonomy to six states (California, Florida, Illinois, New York, Texas, Virginia) to develop comprehensive estimates of state “autopilot spending” and how it has been changing over time. We also consider other sources of constraint, including political pressure to maintain constant spending in real terms or as specified under “current law” and rising tax expenditures.
To our knowledge, these are the best estimates of state budget pre-commitments available. Unlike at the federal level, there are no state definitions of mandatory versus discretionary spending, nor are there budget processes that reflect and reinforce those concepts. There are also few independent agencies and outside groups that replicate and recast state budget numbers in informative ways.
Our in-depth consultations and data analysis allow us to understand not only the range of state budget constraints but how they have been changing within states over time. Results have implications for understanding potentially declining fiscal democracy at all government levels. They also suggest how states can better present budget and revenue forecasts to compel explicit rather than implicit tradeoffs.