CHAPTER IV

THE BUDGET AND APPROPRIATION PROCEDURE

The Old System Contrasted with the Budget System:

Long before the budget plan was introduced in this country or thought of in Kentucky, it seems to have been the general idea that the way to finance the several activities of the government was to set apart special revenues for the support of each, and this was usually done at the time when the activities were inaugurated or received their greatest impetus, provisions to this effect being sometimes included in constitutions and charters. Under this policy the various items of expenditure included in the cost of government were financed in one of three ways, viz:

1. Certain large and worthy purposes, especially those deemed somewhat "sacred", were provided for by the setting apart of certain classes of taxes or portions of general taxes, as for instance the so-called "mill" tax. 2. Departments or activities of a regulatory or public service character were authorized to exact fees or other charges and to use the revenues so derived for their own support.

3. The general or administrative cost of government as well as smaller expenditures of a miscellaneous character were provided for currently by appropriations from "any funds in the treasury not otherwise appropriated." These available funds consisted usually of a portion of the general property tax, other taxes not devoted to special purposes, and miscellaneous revenues from other sources.

The effect, if not the purpose, of this method of financing was to reduce the labor and responsibilities of current financial administration to the minimum. No annual or biennial summing up of resources and adjustment of expenditures taking place, the finances of government proceeded in accordance with the formulas of established laws, producing surpluses or deficits, over-providing for some departments and neglecting

or starving others, until from time to time such situations were reached that amendments to the law were necessary. At such times there would be a partial readjustment of revenues and expenditures, but no matter how perfectly these new adjustments were made they could not long be satisfactory because of continual and inevitable changes of conditions. The old plan was not at all the plan which would characterize a legislative body or any other body that was particularly anxious to make every dollar go as far as possible and to see to it that none of the money it appropriated was spent extravagantly.

The budget idea is very nearly the exact opposite of the system just described. In the first place it aims to give the control of the State's resources to those to whom such control properly belongs, namely the representatives of the people for the years in which revenues accrue and resources exist; and it definitely places upon each administration the responsibility to plan and administer the finances of its time so that deficits may be avoided and moneys available may be used to the greatest possible advantage in meeting current necessities.

The budget plan is to appropriate only for needs that are very clearly demonstrated to exist and to make no moneys available that are not covered by the appropriation act. It is a plan also that provides for consideration of the whole of the expenditure program and for a comparison of this with the necessary revenue program. Either the expenditure program is made to match the existing revenue or there is a revenue bill to support the budget.

The budget machinery is primarily a machinery for bringing in the facts, for securing for the Legislature a body of data as to the needs of each branch of the government, for compiling the large amount of data in usable form, and for setting up the summary statements.

The so-called "executive budget" is a recommendation by the Governor which should be of value but of itself should

not be regarded as replacing the machinery for getting facts underlying the estimates straight to the Legislature.

The old idea remains to be dealt with in the present fiscal administration of the States. Such branches of the State government as the Motor Vehicle Department and Game and Fish Commission illustrate in more extreme form the conditions which can exist where the laissez faire principles of the old idea prevail. In general the Legislature and its designated controlling agencies (such as the Auditor of Public Accounts' office) have not yet begun to assume the responsibilities for economical administration which the people of the State may expect. The fundamental traditions of the present order are opposed to real central control and the machinery for such control is lacking.

Criticism of the Present So-Called Budget Procedure:

The State of Kentucky has expressed its approval of the budget idea and nominally adopted it in 1918. In actual fact it apparently has failed to grasp the principle and purpose of the budget, for in the first place it has left the present day resources tied up almost as effectively as they were in the old days of statutory appropriations, and, in the second place, even within the limited field allowed to current appropriation it has failed to develop the budget to its proper character and efficiency, as a means for bringing in information and controlling expenditures. The first of these faults is chiefly a matter of law and the second would be entirely a matter of administration if it were not for certain handicaps imposed upon the Budget Commission by the law which created it. In the following sections each of the two faults will be dealt with in turn.

The Limited Field of the Present Budget: For the year ending June 30, 1923, the total gross receipts of the State Treasury were something over $21,311,000. In this figure was included an indeterminable amount representing refunds, reimbursements, transfers, and corrections of previous entries. Assuming that this duplication amounted to about $311,000

there remains as the total gross revenues of the State $21,000,000. Of this amount over $13,000,000 was automatically set apart by prior. legislation into six major special funds, as fol. lows:

The setting aside of these special funds not only commits. the Legislature to appropriate the money in the ways indicated, but what is still more significant it has been assumed to do away with the responsibility of the Legislature to review estimates of either revenue or expenditure except when (as in days gone by) it is bombarded by requests again to increase the revenues assigned in lump to favored activities.

With the special funds carved out of the total, there is left a balance of less than $8,000,000 in the General Fund to which fund alone the present budget in reality applies.

But this is not the whole story. In the first place there are included in the General Fund a number of minor special funds consisting of certain revenues which are available only for certain uses as already prescribed by the statutes of prior years. Appropriation of these special revenues to the purposes for which they are already appropriated by prior laws are called for by the budget and included in the annual appropriation act. These appropriations in most cases name no amounts of moneys and their inclusion in the budget accomplishes no purpose except that of calling attention to the items-admittedly desirable so far as it goes. In the second place there are a number of expenditures from the General Fund which to a degree are now deemed to be impossible to estimate. For these expenditures indefinite appropriations naming no amounts are specified in the budget and included in the appropriation act. For the year ending June 30, 1923,

expenditures from these two classes of indefinite appropriations amounted to approximately $2,500.000.

On the basis of the preceding figures, it would appear that only $5,500,000 out of the total of $21,000,000 is covered by the budget and appropriation act. As a matter of fact, less than $4,000,000 is so covered. The difference between three million and some hundred thousand dollars and five and a half million is accounted for by inaccuracies in the estimates of general fund revenue which resulted in about two million of revenues being unassigned to any purpose.

Even this is not all. The $21,000,000 gross revenues mentioned above comprise only such revenues as are covered into the State Treasury. There are other revenues of State departments and institutions which are not reported to the Auditor and are not deposited in the Treasury. These amount in total to about a million dollars.

If the State wishes to have a thorough budget system it must make its wish effective by at least radically curtailing the old special fund system which now dominates its finances. Moneys must not be made available for expenditure under special funds without the needs being reviewed just as carefully as they are when money is made available from general funds. Also if the funds are not wholly abolished the Legislature must stand ready at each session to reconsider the apportionment or revenue to each fund on the basis of the present demonstrated needs. In final analysis the special fund and budget systems are incompatible and irreconcilable, eventually special funds should be done away with. Even prior to the introduction of the budget there was the annual appropriation act providing for the general and miscellaneous expenses of government out of revenues not otherwise appropriated. In all essential respects the present day budget of the State is fulfilling just this function of the old annual appropriation act and no more. The adoption of the language and some fragments of the form and procedure of the budget has availed and will avail nothing.