February 3, 2004

A Budgetary Policy Change is Needed

The Bredesen administration has chosen not to close a spending loophole that the previous administration used to rapidly grow government spending even faster than the official state budget passed each year by the legislature.

In short, the Sundquist administration spent hundreds of millions of dollars more than the legislature budgeted via an extra-constitutional process laid out in the "budget process" of its annual budgets. While the wording is different, the loophole remains open for the Bredesen administration to spend more than the legislature budgets.

Spending the extra money was not only constitutionally questionable, it is fiscally stupid. The Bredesen administration is spending and estimated $22.2 billion this year, even though the legislature passed a budget of just $21.8 billion. That's $400 million in extra spending via the loophole. Why does it matter? Simple: This year's actual spending provides the baseline on which next year's budgetary growth is calculated.

How does the loophole work? It's detailed in the "budget process" section of Bredesen's proposed fiscal 2004-05 budget:

In addition to the review of agency activities by these bodies, the Finance, Ways and Means committees must be informed of any new or expanded programs resulting from unanticipated departmental revenues. These revenues usually are new federal grants, but also may be other departmental revenues. When notice of unexpected revenue is received by an agency, the Commissioner of Finance and Administration, if he wants to approve the program expansion, may submit an expansion report to the chairmen of the finance committees for acknowledgement. Upon the chairmen’s acknowledgement of the expansion report, the Commissioner of Finance and Administration may allot the additional departmental revenue to implement the proposed or expanded program.

Agencies may not expand programs or implement new programs on their own
Appropriations Act during the adoption process. This expansion procedure is not used to increase allotments funded from state tax revenue sources. No appropriations from state tax sources may be increased except pursuant to appropriations made by law.

And this year's actual spending balloons by $400 million, raising the baseline for next year's budget by $400 million.

As longtime readers of my newspaper columns and website know, the Sundquist administration one year spent nearly $300 million in what Sundquist's finance commissioner artfully described as "unbudgeted dollars" - while claiming the state faced a "shortfall" in the coming fiscal year. The administration could have saved those surplus funds for the next year, alleviating the next year's budget crisis, but it chose to spend the money instead.

As I detailed in a Nashville City Paper column back in April 2001, the Sundquist administration spent the “unexpected" funds through a process that involved Sundquist’s commissioner of finance and administration getting authorization from the House and Senate finance committees to increase spending – a process that appears to violate the letter of the state constitution.

Section 24 of the government’s most important legal document reads, “No public money shall be expended except pursuant to appropriations made by law.” The Constitution lays out how laws are made in this state. They are passed by a majority of both houses and signed by the governor. Nowhere in the Constitution does it say public money can be spent pursuant to executive branch bureaucrats getting a wink and nod from committees that include just one-third of the total legislature. It says, “… Appropriations made by law.”

How did this loophole come to pass? It is my understanding that the legislature several years ago passed a law permitting such spending. But that law itself is constitutionally problematic as nothing in the state constitution authorizes the legislature to delegate the appropriations process. Money can only be spent if it is specifically appropriated by the passing of a law. And nothing in the state constitution restricts that provision only to state tax revenue - it says "public money" and every dollar the state has is "public money" regardless of whether it is sales tax revenue, tuition revenue, lottery revenue or federal funds.

Sundquist's last finance commissioner, Warren Neel, declined to answer questions about the constitutionality of such spending, when I posted the questions in an email in June 2001. You can read all about that here.

[Memo to Gov. Bredesen and Finance Commissioner David Goetz: Feel free to answer the six questions in that column.]

Because the Bredesen administration is continuing the practice of spending hundreds of millions of dollars via this constitutionally questionable loophole, the legislature should close the loophole.

If it did, hundreds of millions of "unexpected" and "unbudgeted" dollars would be available at the end of each fiscal year to fill the state's "rainy day" reserve fund, or – in lean economic times – offset revenue shortfalls. Closing the loophole would benefit both legislators and taxpayers.

As I wrote a year ago:

The Bredesen administration has made a good start at restoring the credibility of the governor's office and the honesty of the budget process that were left shredded by his predecessor. Changing how it handles surplus dollars would be a good next step. And if the administration won't fix it, the legislature should.

The Bredesen administration needs to start calling "unbudgeted dollars" what they are - surpluses - and reserve them until the legislature passes a law appropriating them. In fact, lawmakers should demand reform. After all, right now they're left out of the loop. The finance commissioner and the governor get to spend millions of "unbudgeted" dollars by merely notifying the finance committee chairman in the House and Senate - not even getting their approval. Lawmakers have no say and no control. They ceded that power to the governor's office and it's time they take it back.