The Impact of Federal “Crisis Budgeting” and Uncertainty on States

March 13, 2013

Today I am testifying before Congress on behalf of the states’ budget officers raising our concerns about the impact of federal uncertainty. Years of short-term federal budgeting through continuing resolutions (CRs) and crises like the fiscal cliff cost money and make it difficult for programs to reach their goals’ full potential. You can read my full testimony here.

The hearing, held by the Senate Committee on Homeland Security and Governmental Affairs and titled “The Costs and Impacts of Crisis Budgeting,” will examine the negative impacts that federal budgetary uncertainty can have on governments, businesses and the public..

Jason Dilges, Chief Financial Officer of South Dakota and current NASBO President, said at a recent meeting, “the uncertainty causes many more problems than do specificity and certainty, even when that certainty is not always good news.”

Even with the economy improving, states do not have enough money for all top priorities. Money at the state level is tight. NASBO’s most recent data show that state revenue and budget growth averaged 6 percent per year before the recession, but now averages 2-3 percent. So, tough decisions will continue to have to be made by states to maintain balanced budgets, preserve their bond ratings and fulfill their obligations.

While the impacts of federal “crisis budgeting” are sometimes hard to measure, their costs are real, and significant. Uncertainty about federal funding prevents strategic planning and disrupts program management, forcing many state programs to focus on the next few weeks or months rather than on long-term results. This can include difficulties planning for the next school year such as determining how many teachers to hire, or having the necessary lead time to plan for the prevention of crop devastation by pests.

State CFOs report that federal funding volatility can lead to program instability, increased staff turnover, and decreased productivity. Ramping up and down staffing to carry out a federal program can be especially expensive. A state finance official in the west calls these “rollercoaster costs.” These staffing changes can also be costly to state government contractors affected, and such costs may be passed onto states through higher costs for short-term and stop-and-start contracts. Uncertain federal funding levels may also prevent state and local governments from signing long-term agreements at reduced costs.

Lack of funding certainty from Congress can lead to forgone or delayed investments that increase costs and prevent us from getting the results we want. For example, delays in road construction and repair due to federal funding uncertainty can be especially costly in northern states with short construction seasons. Just in March of last year, after another temporary extension of surface transportation programs, a number of states reported the negative impacts of the short-term extension. North Carolina delayed projects that would have employed 41,000 workers, while Michigan cited 3,500 jobs at risk as a result of project delays.

These are just some of the impacts; there are many more costs including cash flow issues, possible impacts on state and local bond ratings and payment delays. Any actions that provide increased certainty of federal appropriation amounts – and when they will be provided – will be positive. This will help save money and focus on program results. Federal, state and local governments must work together to make budget preparation, financial management and strategic planning more efficient and less costly.