Lies, Statistics, and Balance Budgets

“Figures often beguile me,” wrote Mark Twain, “particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.'” These days he might have added another with regard to the public sector – “lies, damned lies, statistics, and balanced budgets.”

The Legislature is about to conclude its 2013 session and authorize a “balanced budget” for fiscal year 2014. “Balanced” means projected revenues will match or exceed authorized expenditures.

Truth is, the Legislature does not know if the overall state budget and agency sub-budgets will balance or not. That’s why the state maintains a “rainy day fund.” That’s also why the Governor has authority to slash agency budgets should revenues fall substantially below target.

The revenue side of the budget comes from best-guess projections provided by economic experts. State leaders use that input to set a revenue target. Sometimes targets are reasonably accurate, as this year’s seems to have been, sometimes not. When revenue fell short in 2009, Governor Haley Barbour had to slash budgets 9.5%. Next year the unknown impact of new tax credits could short revenues.

Then there are agency deficits arising from programs with uncontrollable costs such as Medicaid, corrections, and emergency management. The Legislature usually covers these deficits during its next session.

There are also tricks used by legislators to make budgets seem in balance. The dominant one is to use “one-time money” to fund recurring costs. This practice is what dried up the billion dollar tobacco settlement trust fund; the Legislature kept drawing down those funds to cover recurring expenses. Over $400 million in recurring expense is covered by one-time money in the current budget.

“My goal is to get the one-time money down to about $250 million,” said House Appropriations Chairman Herb Frierson. Frierson recognizes that such practices should be eliminated but he will have to try and wean his colleagues off that udder over time.

As opaque as the state’s “balanced budget” is, the federal budget seems all smoke and mirrors…cuts that aren’t cuts, limits that aren’t limits, etc. Last week Congress passed a “continuing resolution” to fund government through September 30. This resolution sets spending limits for the rest of the year. It does not tie or limit spending to federal revenues. Indeed, the projected budget deficit is over $800 billion.

The House and Senate also each adopted 10-year budgets that will go to a joint committee to try and work out differences. Both forecast more huge deficits, though the House claims its budget would reach balance in 10 years. Of course, these budgets are non-binding and unenforceable.

“Balanced budgets” – trust them like you do politicians.

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