Truth and Integrity in State Budgeting: What is the Reality?

The nation’s states and localities spend more than $3.4 trillion a year, equivalent to more than a fifth of the entire US gross domestic product. The purposes and manner in which public funds are spent are matters basic to our well-being as a nation—education, health care, public safety; they all demand our attention.

These spending decisions are appropriate and necessary issues for political debate and decision. The Great Recession and the relatively slow growth of the US economy in recent years have intensified budgetary pressures in many states. Faced with constitutional, statutory, or customary requirements for annually balanced budgets, a large number of states have been forced to reduce or reallocate spending. The potential to defer or obfuscate in making these adjustments is very real. That is why the need for comprehensive and accurate accounting and transparent reporting of the financial positions of individual states is even more compelling.

In this report covering all fifty states over the fiscal years of 2015 through 2017, the Volcker Alliance focuses on five critical areas that explain methods used to achieve budgetary balance, as well as how budgets and other financial information are disclosed to the public. States were given grades of A to D-minus for their procedures in:

• estimating revenues and expenditures;
• using one-time actions to balance budgets;
• adequately funding their public worker retirement and other postemployment benefits;
• overseeing and using rainy day funds and other fiscal reserves;
• and disclosing budget and related financial information.

In addition to assigning grades, the Volcker Alliance proposes a set of best budgeting practices for policymakers to follow.

Critical to this work has been the cooperation of eleven universities, each with a demonstrably strong interest in public service education and particularly in the management of state and local governments. The Alliance hopes to assist schools of public policy and administration by helping to widen the scope of research in the areas of public budgeting and finance while training students looking toward careers in state and local governments. The universities’ research efforts were augmented by Volcker Alliance staff, data consultants at Municipal Market Analytics, and special project consultants Katherine Barrett and Richard Greene.