February 24, 2008

The other state budget -- always balanced

Here's a goofy question. Why is the special funds side of the state budget always balanced, even as lawmakers and the governor struggle to deal with billions in shortfalls and deficits on the general fund side of the budget?

This year the special funds will total $26 billion. That's more than the entire budgets of all but a few of the states. Yet year in and year out the special fund side -- funded by fees and earmarked taxes -- is balanced with relatively little rancor.

The easiest answer is that the general fund pays for entitlements and for programs where costs are more difficult to control, such as the state prisons. But that can't be the entire answer.

I think it has something to do with the way the money is distributed, and the mindset. Look at Prop. 63, the mental health program funded by the new, voter-approved tax on million-dollar-earners. That tax is producing hundreds of millions of dollars a year, and the money is distributed in grants to local agencies by a state commission. Everyone knows they have a certain amount of money to spend, and that's how much they spend. No more. The same is true for dozens of other programs funded by fees and special taxes.

On the general fund side, there is no such accountability. With hundreds of programs thrown into one pot, no single program is accountable for its contribution to the general fund deficit. And when revenues run short, all of the progams are in competition for the now limited amount of money.

I am not a fan of ballot box budgeting or budgeting by formula, but maybe there is a lesson for the general fund budget writers in the way the special fund side of the budget just keeps humming along.

Posted by dweintraub on February 24, 2008 6:32 PM