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Seminars on Legislative
Reform |
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Project Director, Viktor Rudenko, Director, Institute of Philosophy and Law, Urals
Division, Russian Academy of Sciences |
Presentation at the Legislative Seminar of the Case Study: Fiscal Decentralization from Federal to
State Government in the The challenges of governance during the greatest part of the twentieth century have been met by an increase in the powers and authorities of central government, in a word, by centralization. Why has centralization taken place? Some analysts have concluded that centralization was a product of the increased capacity of central governments. “In the United states, as in the other modernizing societies, the general historical record has spelled centralization...the main reasons for this change are...to be found...in the new forces produced by an advanced modernity.” (Beer, 73). Just as economists speak of “economies of scale,” so political scientists may speak of “polities of scale.” For a time, centralization was rational because it concentrated financial resources that could be directed toward problem solving; it improved standards of governance by increasing professionalism and promulgating best practices; it removed interested parties from decision making, thereby structurally excluding conflicts of interests. However, in the latter part of the twentieth century the prevailing current ran in the opposite direction. Governments (as well as virtually all other complex organizations) began looking for ways to decentralize, to “rightsize”, to reduce administrative and overhead costs for the goods and services that government provides. (Heald, Onis, Slater) As the de-communizing countries adopt new fiscal principles, what mix of central and local control is most likely to lead to durable democratic practices? A general principle of public affairs is that the closer a decision is to the people it affects, the more likely it is to be based on reliable information and the more likely the process of decision making is to be accessible to the people it affects. In other words, local control tends to be more transparent and thus lend itself to greater political accountability. Theoretically, this is known as the “theorem of local control”. The theorem of local control maintains that, subject to certain constraints, subsidiarity implies transparency. Subsidiarity is the general principle that functions which local organizations perform more effectively belong more properly to them than to a dominant central organization. In financial terms, subsidiarity implies that “each public service should be provided by the jurisdiction having control over the minimum geographic area that would internalize benefits and costs from such provision.” (Oates: 55) Transparency is the general principle that information relating to public decision making should be accessible to the public. In financial and legal terms, transparency refers to freedom from deceit and misrepresentation. Transparent governance reduces the likelihood of concealed transactions. Traditionally, openness and honesty in government have been supported by a free and open media. But accountable government also rests upon the transparency of executive branch implementation, particularly in such areas as government procurement, distributive policy, and intergovernmental relations. Decentralization is not merely a structural feature
that may be measured in terms of a descriptive analysis of organizational
elegance as judged from the point of view of the institutional analyst. “Reorganizational arrangements should be judged by their
results, and not by their apparent rationality.” (Chisholm, 192) While decentralization is normally
associated with the multiplication of entities, decentralization should
surely not be measured by pointing to a proliferation of uncoordinated
organizational units. Similarly, while
decentralization is normally associated with the autonomization
of entities, it should surely not be measured by pointing to the formation of
a gridlock patterns of countervailing organizational units. Decentralization, rather, should be seen as
a purposive change in the locus of authority which seeks some optimal
relationship between knowledge and decision making responsibility. The goal of decentralization is to bring
decision making in line with information rather than simply deprive national
elites of their authorities.
Decentralization is a purposive instrument of fiscal federalism. An examination of today’s state-local revenue systems helps to explain how they have evolved during the past 25 years. A historical perspective helps to identify some of the constraints--both political and economic--that limit the options that are available to state policymakers. State and local taxes are considered together because they are so interdependent, and because state legislatures play an important role in determining the composition of both state and local revenues. For example, although most states do not receive direct property tax collections, state laws define the property tax base, the method of valuation and legal appeals procedures. In addition, property tax revenues help determine the level of state education aid in most states. State legislatures also choose the mix of tax sources available to local governments. The transparent and accountable state budget process is the key to modern governance. State budgets allocate resources, set policy, review and evaluate policy, and lay the foundation for future planning and program review. Although state practices in the U.S. are fairly similar, differences include annual or biennial budget cycles, the nature of requirements to balance the budget, whether states are subject to tax and expenditure limits, the nature of requirements to maintain budget reserves (rainy day funds), and whether federal funds are subject to the appropriations process. State budget cycles are either annual or biennial; they
last for a fiscal year (FY) or a biennium (two years). Twenty Fiscal years begin on July 1 in all but four
states. July 1 is the date on which
the federal fiscal year began until the federal government changed to October
1 in 1974. Because almost all states have balanced budget
requirements, an accurate revenue forecast is even more important for them
than it is for the federal government, which can routinely borrow to maintain
planned expenditures. With balanced
budget requirements and restrictions on borrowing, states are less able to do
so. In addition, many states mandate
that total expenditures may not exceed the official revenue forecast for the
budget period; in these 26 states, the revenue forecast "binds" the
budget. The average number of
appropriations bills states use ranges from one in about a third of the
states to 500 in The layout and appearance of budget documents vary among states, just as approaches to budgeting differ. Most states use a budget method that is incremental--previous appropriations are increased or decreased by small increments. Due to ongoing funding requirements, a large portion of the previous year's budget is assumed to be committed. And with an emphasis on accounting and control, the focus is on what money buys (inputs) rather than on the service that is provided (outcomes). Incremental budgeting states tend to produce budget documents that include detailed information by line-item. Other states have shifted to budgeting methods that emphasize performance and results. These approaches include performance-based, program-based, and zero-based budgeting. With a focus on outputs rather than inputs, performance-based budgeting allocates resources based on expected agency performance levels. The budget document may include information about performance measures and performance objectives for the ensuing budget period. Program-based budgeting, focusing on granting agencies greater flexibility in determining how best to provide their services, allocates resources by programs or by service delivery groups. Program budgets often display goals and activities of a program and then relate these goals to program inputs and outputs. Zero-based budgeting, as originally developed, disregards current funding levels and operations as a basis for budget decisions. Instead, budget decisions begin at zero and build from there. This process, which is intended to review, evaluate, and analyze all proposed expenditures, is used in its original form only by the Northern Mariana Islands. Although some states have implemented a single budget approach, many use a combination of approaches. Each method has advantages and disadvantages, and states have had mixed results switching from traditional incremental budgeting to approaches that emphasize performance and results. Most states follow the executive budgeting model, where executive budget staff draft a proposed budget to submit to the legislature. With the possible exceptions of state authorities and enterprises that generate their own revenue, the governor's budget recommendation includes all sources of funding and expenditures. It also includes proposals for the budgets of other elected officials--many states elect officials such as the treasurer, the attorney general, the auditor and the superintendent of public schools--who may have substantial budgets to administer. The budgets for the legislature and judiciary are not included in the governor's budget proposal. These branches of government propose their own budgets. Legislatures have unlimited power to change the budget
proposed by the executive and judicial branches in all the states except
three. The time the legislature and the budget committees have
to consider the budget varies widely among states. Time limits for the
legislature range from just over four weeks in Like the structural differences mentioned earlier, political differences exist among states with respect to their budget processes. The most important is the balance between legislative and executive authority in composing the budget. Line-item veto power of the governor is one element in the legislative-executive balance, but tradition and partisanship are equally decisive. Generally, far more cooperation exists between the legislative and executive branches than is typical for Congress and the president. The agenda-setting role of the executive budget in many states is one reason. The executive line-item veto is another reason in the 43 states where it exists. A final reason is the political expectation--that is almost always met--that a state will enact a balanced budget before the beginning of its fiscal year. Late budgets and vetoes are most likely when a state is experiencing serious fiscal difficulties. Otherwise, executive and legislative negotiations are intended to resolve budget disagreements and avoid vetoes and late budgets. Although budgets become effective only after
legislative enactment and executive approval, many states allow revisions to
be made in budgets without the involvement of the entire legislature. Most legislatures
are not in session throughout the year, and some legislatures meet for only a
few months every other year. Requiring legislative consent for every change
in a budget would impose delays or the costs of special sessions. Therefore,
most states allow governors some degree of authority to reduce spending when
it is necessary to maintain a balanced budget, even if enacted budgets call
for specific expenditure amounts. Published as Gregory Gleason, “Fiscal Federalism in the The Urals Legislative Seminars were sponsored by the Russian Legal
Reform Foundation and the World Bank. Contact Viktor Rudenko admin@instlaw.uran.ru Contact Gregory Gleason gleasong@unm.edu |
