One of your most important duties as a legislator is spending taxpayer dollars wisely. Building a budget that serves all residents of your state is a difficult task. Tradeoffs are required and are often exacerbated when specific behaviors, products, or industries are rewarded, punished, or prohibited. The following questions should be considered as you engage in those deliberations.
What is an ideal budget?
State government’s core role is to protect residents’ life and liberty so that they can better control their destiny. State budgets should prioritize making it easier for residents to seek improved ways of serving each other. When government spending and taxation exceed this positive role, it undermines opportunities for all.
While no state budget is ideal, those that attract investment and people have low and flat—or no—rates of personal income tax or corporate net income tax. This helps employers stay in the state and entices businesses to relocate there, minus preferential tax credits to connected industries. Other factors matter beyond the state budget and tax climate, including regulatory burdens, labor laws, fiscal responsibility, risk of litigation, and personal liberties. What opportunities exist to make your state more inviting?
How much revenue does my state collect?
States collect revenue from taxes, bonds, fees, federal funds, and other funds. Each state’s funding is unique. Many states have a personal income tax, corporate net income tax, sales taxes on products and possibly services and various excise taxes.
- How much does your state budget rely on each source?
- Is the budget primarily funded by low, flat, stable sales taxes, or does it rely on highly volatile taxes on specific industries?
- How much does the state collect and spend compared to similar states?
- Is revenue collected outside of the general fund, like fees dedicated to certain funds or large cash funds?
How much does my state spend?
The budget includes a general fund, federal funding, and cash funds or other funds. While states vary, the average federal funding is 32 percent, general funds are nearly 40 percent, other state funds or cash funds are 26 percent, and bonding is around 2 percent of the total. This national average is far from ideal.
The general fund allocates the majority of state dollars, and it is what legislators control most. Context matters.
- How much does your state spend relative to other states, and how do spending patterns differ?
- What constitutional and statutory spending (and revenue) controls exist in your state? Does your state respect or evade them, and can they be strengthened or otherwise improved?
- Is the budget passed yearly or bi-yearly?
- Is there a culture of making budgetary decisions for the future or only the present?
How is the funding used?
Many state budgets have similar spending priorities. K-12 education is the largest expenditure, making up over 35 percent of the general fund budget. Medicaid—averaging nearly 20 percent—is usually second, followed by higher education at 9 percent, and corrections around 7 percent. Nearly one-third of the general fund is comprised of many smaller expenditures.
- What are your state’s taxpayers liable for regarding bonded obligations, unfunded pension debt, and promised other-post employment benefits?
- How much spending is required by contract such as public pension obligations, and how much is dictated by the federal government?
Corporate welfare such as film tax credits or other industry-specific tax breaks are unnecessary spending. Eliminating them could reduce tax rates across the board. Every legislator should seek opportunities to root out waste and unnecessary spending.
How can you influence the budget?
The governor’s budget proposal is not a final product. Many executive branch agencies, legislative committees, and legislators help craft each enacted budget. Budget offices can provide the specifics that budget and appropriations or fiscal committees in the legislature need to inform legislators as the budget takes shape.
Legislators vote on the budget and its various pieces. They also cultivate the underlying statutes that create the programs that the budget funds. Your state’s budget may be one bill or many pieces of legislation. For many states, spending, taxing, and regulatory activities are left out of the budget process that belongs within it.
Ask questions and demand answers of party and committee leaders as well as other experts so that you know how your work on the budget affects all the people you represent and the fiscal health and priorities of your state as a whole.