Executive Summary

Budgetary Reforms

The budget process itself requires new thinking. The Romney administration and the staffs of the Ways and Means Committees should standardize the way in which budgetary information is collected, maximizing efficiency and allowing state agencies to focus on their missions.

Once the data is collected, budget writers should focus on the long-term impacts of their actions with future fiscal and economic impacts informing current decisions. Taxes should also be viewed in the context of their long-term impact. Tax changes should be dynamically scored – a process that takes into account how their impact on decisions made in the private economy will affect tax receipts.

Fund consolidation

The Commonwealth currently has over 100 minor fund accounts, none of which are required for proper accounting methodology. Since they are not included in the overall fiscal balance calculation, these minor funds unnecessarily obscure our actual position and thus they complicate accounting and reporting systems.

A number of these funds are structurally imbalanced and fund revenues are insufficient to support appropriations from the fund, resulting in chronic deficits. The Romney budget eliminates all unnecessary minor funds and simplifies fund accounting by recognizing only:

1. General Fund (the basic fund for operating budget appropriations)
2. Stabilization Fund (for reserves)
3. Highway Fund
4. Intragovernmental Service Fund (for payments between agencies) and
5. Tax Reduction Fund.

Master accounts and flexible line items

The Fiscal Year 2003 budget contains about 700 individual line items, excluding trusts and grants. Including all spending sources, the number of line items is nearly 1800. A line item constitutes an absolute spending limit as well as a restriction on alternative uses of the funds. If two related line items serve essentially the same objective – homelessness, for example – and one is depleted while the other has a surplus, funds cannot be transferred across line items without legislative action. Line items are the foundation behind the “silo” structure of state government.

The Romney budget modifies traditional line item budgeting. Line items will be retained for accounting and control purposes, but greater management flexibility will be created through 72 new master accounts covering all state spending.

The following management flexibility applies equally to all branches of government:

• Spending cannot exceed the total of any master account
• Restrictions, if any, remain in effect for federal grants
• Within each master account, Secretaries will have the discretion to transfer the lesser of:
  • $250,000 or 5 percent of any individual line item amount may be transferred to another line item within the master account with prior notification to Administration and Finance (A&F)
  • an additional $1 million or 20 percent of any individual line item amount may be transferred with prior A&F approval and notification to House and Senate Ways & Means Committees (W&M)
  • an additional $1.25 million or 25 percent of any individual line item amount may be transferred with prior A&F and W&M notification if not denied within 20 days
  • an additional $2.5 million or 50 percent of any individual line item amount may be moved with prior A&F and W&M approval.

The ability to transfer funds between accounts will save money by reducing the need for supplemental appropriations.

Retained revenue incentives

The Romney budget provides important incentives by establishing new retained revenue opportunities. Allowing departments to retain a percentage of collected fees creates an incentive to properly collect revenue and thereby reduce appropriations. Within the Judiciary alone, new retained revenues will save taxpayers $41.5 million in 2004.