Plenty of Room for Improvement in State Budget Planning

Most states fall short on long-term budget planning (see map below) and would reap concrete benefits by adopting proven, non-partisan fiscal tools, according to our new report.  Oregon is a good example.

When Oregon created a state lottery in 1984, it exempted lottery winnings from the state income tax.  But policymakers and the public couldn’t be sure how much that tax break — or any other state tax credit, deduction, or exemption — actually cost until 1996, when Oregon produced its first “tax expenditure report” listing all of the tax breaks and their costs.  That report showed that the lottery exemption cost about $44 million over two years.  Armed with that information, policymakers scaled back the exemption in 1997 and again in 2001, saving more than $40 million over the same time frame.

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States spend tens, maybe hundreds, of billions of dollars each year through tax expenditures, yet roughly a dozen states don’t publish regular tax expenditure reports, and almost every state that does issue them omits essential information. Other areas where many states are deficient include the following:

• Only ten states regularly produce multi-year “fiscal notes” projecting the cost or savings of policy proposals over the next five years or more.
• Only 11 states prepare frequent, detailed mid-year reports comparing the amount spent thus far in the fiscal year to the amount budgeted.
• Only 18 states regularly publish some form of “current services” projection of the cost of maintaining public services at current levels in the next budget period.

This fact sheet summarizes the report’s ten fiscal planning tools and how widely states use them.  As it and our report show, while all states budget for the future to some extent, no state does it nearly as well as it could.