State Revenue Shortfalls

Autor: L. E. Johnson, Bradley M. Braun, Robert D. Ley
Rok vydání: 1993
Předmět:
Zdroj: American Journal of Economics and Sociology. 52:385-397
ISSN: 1536-7150
0002-9246
DOI: 10.1111/j.1536-7150.1993.tb02560.x
Popis: I Introduction STATES RELIED primarily on expenditure cuts, tax increases, borrowing, and surplus reserves(1) to deal with budget deficits prior to the 1980's. Since then, contingency funds have emerged as a alternative strategy, with some arguing that they represent a preferred strategy during budgetary shortfalls (Vasche and Williams, 1987). This paper examines the budgetary alternatives employed by states in dealing with budgetary shortfalls in the early 1980's. It is based on a 1985 survey of state fiscal officers, which examined the deficit-reduction policies used by states during the first half of that decade. The study suggests that it may be preferable for states to relax the self-imposed requirements for an annually balanced budget.(2) II Survey Design THE EARLY 1980s provided a favorable time frame to examine deficit adjustment practices because most states faced potential or actual budget deficits. State fiscal officers were surveyed in 1985 to determine the policies used in their states during the period 1979-85. The survey asked if deficits occurred, what policies were used to deal with them, the order of implementation, how taxes were increased or expenditures cut, and information on specific mandated budget constraints in force in each state. Of the 50 surveys mailed, 42 initial responses were received. Follow-up phone interviews were successful in obtaining the remaining responses.(3) III Mandated Budget Constraints A MAJORITY OF STATES had to balance their budgets and were either prohibited from or limited in borrowing. Additionally, a number of states faced limitations and restrictions on taxes and spending. In the 33 states required to balance their budget, the governor was obliged typically to submit a balanced budget to the legislature.(4) In some cases the governor could submit an unbalanced budget with specific proposals for tax increases. Twenty-six states faced some type of borrowing restriction. Restrictions on borrowing to cover operating expenses were severe. Four states were prohibited from borrowing for operating expenses, and 12 others faced annual borrowing limits of less than $500,000. Rules regulating changes in taxes or spending in response to revenue shortfalls were introduced during the early 1980s.(5) In 17 states spending had to be reduced, and in four others taxes increased, if a deficit was expected. In two of the states requiring tax increases, rate changes were to take effect only after mandated spending reductions had been made. In addition, four states had tax and expenditure limitations. That number has grown since. Table 1 NUMBER OF STATES WITH MANDATED BUDGET POLICIES BY TYPES Must Balance Budget 30 Borrowing Restrictions(*) 26 Required to Reduce Spending 17 Required to Raise Taxes 4 Tax-Expenditure Limitations(**) 4 No Restrictions(***) 3 * In 16 Of the 50 states, borrowing for operating expenses is prohibited or limited to under five hundred thousand dollars ** Howard claims that by 1987 19 states had Tax-Expenditure limitations (Howard, 1989). *** States without restrictions are CT, TN & VT. In CT & TN, tradition dictates the governor submit a balanced budget. Source: The Council of State Governments, 1976; & Gold, 1983 The final budget policy constraint was earmarking, where states reserve the revenue from a particular tax to finance a specific program. Table 2 indicates this practice was as widespread in 1985 as it had been 30 years earlier (Tax Foundation, 1955 and 1965). IV Contingency Policies INFLEXIBILITY is one result of the budget constraints just described. To counteract inflexibility, states began experimenting with contingency policies in the early 1980's as a way to budget in an atmosphere free from the political pressures of revenue shortfalls. …
Databáze: OpenAIRE
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