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Wednesday, December 24, 2008

NH needs to set budget priorities


Traditional approaches to solving the state budget deficit won't work. The governor and Legislature should adopt a priority-based governing approach that will create a path to fiscal balance based on a strategic set of priorities.

The traditional approach to a state budget is codified in our state law, but it makes budgeting in lean times much harder. Our law doesn't require state department heads to prepare the budget the governor asks them to. On the contrary, they start the process just before an election when, theoretically, we aren't sure who might win and therefore which set of priorities should guide them.

The department heads are required by law to prepare what's called a maintenance budget, which is essentially what we did last year and what it would cost if we didn't do anything differently. These first budgets are usually called the agency requests or "agency wish lists" because they often include things deleted from previous budgets and are always pared down by governors as a public sign of their frugality.

So by this traditional process we merely start with the status quo and adjust. Any program funded one time starts with the default presumption of future funding. Any new initiative must find some specific older function to displace.

But that isn't how anyone functions outside of government. Most people, businesses and organizations decide what to do according to a priority list. Mortgage, utilities, groceries are of the highest priority and are funded first. We fund projects in a priority order. If we have to pare back, we fund the lowest priority items last.

In the last recession, Gary Locke, the Democratic governor of Washington state, faced a budget shortfall in the billions of dollars. Rather than nibble and tweak at the existing budget, he established a priorities-based budgeting model to find a better way to balance the budget.

The priorities model doesn't presume an ideology. It was established by a liberal governor and has been championed by a free-market think tank, the Evergreen Freedom Foundation.

Essentially what Gov. Locke did (and what Gov. Lynch could do) was to establish a set of core priorities for government action. Funding those core priorities becomes the first claim on available tax revenue. Programs of a lesser priority are cut first or receive funding last. The highest priorities receive funding first.

On some level, we all do this in our heads. Obviously aid to people with developmental disabilities is a substantially higher priority than running a ski area. It would be foolish to balance the budget by cutting each of those programs 10 percent as if they were of equal weight.

Priority-based budgeting formalizes that internal process. If we have the money, we fund the first eight items on our list. If the economy picks up and revenues come in, we fund nine and 10. An increased slowdown and we drop item eight.

Setting priorities won't eliminate the power of the Legislature and governor to make decisions. Different people will set different priorities, rank some things much higher than others might.

A priority model can also solve Walter Peterson's problem. In an interview in March, former Gov. Peterson said that some department heads made helpful suggestions when he asked them for areas to cut. But others would simply ax the most popular programs in their departments, confident the Legislature would immediately restore such high-priority programs.

New Hampshire's system of semi-independent department heads makes it possible to play that kind of game with the nominal head of government. Requiring each department to develop a list of priorities among all of its programs gives the governor an added management tool.

A priorities of government model is a more transparent outgrowth of the zero-based budgeting Gov. Lynch talks about. The governor wants all department heads to build their budget from zero. If they really do start at zero, they are naturally making assumptions about which programs are more and less important as they build their budget.

This kind of change doesn't require a constitutional amendment. It doesn't even require a law change. It just requires the governor to tell the commissioners and then to share the information with the Legislature and the rest of us.

The traditional approach to nibbling and tweaking whatever we happened to do in the previous budget may be enshrined in law, but it is archaic. Governing is about setting priorities. The people we elect establish the current set of priorities and then fund programs according to those priorities. A priority-based budget model will make the debate more constructive and the budget decisions more transparent.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

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