HJ 1 9305 AS UC-NRLF $B b33 T7E w y ^ PEMMSTLVANIA STATE CHAMBER OF COMMERCE Harrisburg, Pa. STATE BUDGET SYSTEMS A Budget Plan for Penns3)lvania Penns3?lvania's Appropriation Methods and Budget Systems in the States 3K •.;aa •.S:i To Accompany Referendum Number Six 1932 wis! GIFT OF Prof > P, Orman Ray PENNSYLVANIA STATE CHAMBER OF COMMERCE Harrisburg, Pa. STATE BUDGET SYSTEMS A Budget Plan for Penns3)lvania Pennsylvania's Appropriation MetKods and Budget Systems in the States » ) o - •* -^ -' ' j:I> • :> > , > ■ ' • a ^ ->• -^ 1 •<» To Accompany Referendum Number Six 1923 ^6" Q' Oj^ ^Uyv-^ 6IFT • • • •,• • ".• » • • . » • • • • * » o • ,• • • • • * • • • • - • TABLE OF CONTENTS Page Foreword 5 A Budget Plan for Pennsylvania — Prepared by the Committee on a State Budget — Defects of Pennsylvania's appropriation methods 9 Reasons for recommending an executive budget system 11 Budget law to supplement proposed constitutional amend- ment 12 A budget plan for Pennsylvania 14 Advantages of this budget plan 16 Further requirements for an effective budget system 19 Pennsylvania's Appropriation Methods and Budget Systems in the States, by the Director of the Research Bureau — Chapter I Methods of Appropriating State Funds in Pennsylvania — A need for appraisal of the state's financial methods 22 Lack of unity and coordination in presentation of appropria- tion bills and revenue measures 26 Inadequate information on expenditures and revenues avail- able to the legislator 28 Ineffective consideration of appropriation bills by the senate and house appropriations committees 33 Piecemeal, haphazard and hasty action upon appropriation and revenue measures by the senate and house 34 Governor's reduction of appropriation bills to balance reve- nues and exi)enditures 35 Lack of adequate control over expenditures 37 Chapter II The Budgetary Movement in the States — Definition of budget 41 Adoption of budget acts . . 42 Four types of state budgets 43 The executive budget in the states — I Maryland and related group — Utah, Nevada, Indiana, New Mexico, Alabama and West Virginia 45 II Virginia and related group — Delaware, Oklahoma, South Carolina, Wyoming, North Carolina, Idaho and Florida 49 III Illinois and related group — Nebraska, Utah, Ohio, Idaho and Missouri 51 IV Massachusetts 55 V New Jersey and Kansas 58 VI Miscellaneous group — Arizona, Colorado, Indiana, Iowa, Minnesota, Mississippi, New Hampshire and New Mexico 59 Administrative budget systems — I California 60 II Connecticut 62 III, IV Louisiana, Texas 63-64 V, VI Washington, West Virginia 64-65 VII Alabama 65 VIII, IX Florida, Montana 66 X Tennessee 67 XI Michigan qs XII Oregon tjy M153064 XIII Kentucky 69 Summary 70 Administrative-leffislative budget systems — I Wisconsin 71 II North Dakota, South Dakota, Vermont 74 III, IV Maine, North Carolina, Georgia 75-76 V New York 76 Leyislattve budget system — Arkansas 80 Summary of budget proqf^dures 80 Chapter III Operation of State Budget Systems — Executive budgets — Maryland 84 Utah 89 Nevada 89 Virginia 90 South Carolina 92 Oklahoma 93 Illinois 94 Nebraska 95 Massachusetts 96 New Jersey 100 Kansas 103 Arizona, Colorado 104 Iowa, Minnesota 105 New Mexico » 106 Ohio 106 • Administrative budgets — California 107 Connecticut, West Virginia 108 Montana, Tennessee 109 Michigan 110 Administrative-legislative budgets — Wisconsin Ill North Dakota, South Dakota 113 Maine, Georgia 114 New York 114 Legislative budget system — Arkansas 116 Summary of operating results 116 Tables I Appi-opriations by Pennsylvania Legislature, 1901-1921 24 II Statement of Cash Receipts and Disbursements of General Fund, Commonwealth of Pennsylvania, Dec. 1, 1915 to May 31, 1921 25 III Summary statement of Cash Receipts — By Funds Common- wealth of Pennsylvania, Dec. 1, 1915 to May 31, 1921 39 IV Classified List of State Budget Systems 44 V Personnel of State Budget Boards 46-47 Appendix References to state budget laws and amendments 119 FOREWORD To Members of the Pennsylvania State Chamber of Cmnmerce: The two outstanding public questions in Pennsylvania, today are the systematization of state finances and the reorgan- ization of state administration. Representing organized business in Pennsylvania the State Chamber is vitally interested in mak- ing both of these constructive reforms effective as quickly as pos- sible. Experience indicates that there can be no effective budget system without a unified and responsible state govern- ment. . Sentiment for a state budget system was largely inspired and popularized by the efforts of the State Chamber. Early in 1921, through its Research Bureau, the Chamber began a scien- tific appraisal of Pennsylvania's appropriation methods and the budget systems of other states. At its third annual meet- ing, October 10-11, 1921, the State Chamber adopted this res- olution : WHEREAS, It is now generally conceded that a budget system is indispensable to the systematic and intelligent handling of governmental as well as business finances; and WHEIREAS, The Federal Government and all of the states, ex- cept Pennsylvania and one other state, have followed approved business practice by installing a permanent budget procedure; therefore be it RESOLVED, That the Pennsylvania State Chamber of Com- merce strongly urge the installation of a budget system in our state government to expedite the creation of a balanced rela- tionship between revenues and expenditures, and the adoption of a work program through correlated and proportional appro- priations to state services and institutions. This action received extensive publicity and gave rise to a wide-spread demand for a state budget system in Pennsylvania. Owing to its effective campaign for systematic control of state finances, the State Chamber was officially recognized in the Governor's appointments to the Commission on Reorganiz- ation of State Government. The Chamber's representative is participating in the Commission's deliberations to devise plans for the greater application of business methods to state admin- istration. And it was the State Chamber's privilege to re- ceive and publish the six preliminary recommendations of the Reorganization Commission, first released by Chairman Wood- ward at the Chamber's conference of state affairs committees, representing the local chambers, on April 6, 1922. Everybody is for a state budget, but there is no such unan- imity on the type of budgetary control desired. To this prob- lem the Chamber's committee on a state budget has given long and earnest study, aided by the investigations of the Chamber's Research Director. On the basis of this study the committee now reports an executive budget plan for Pennsylvania, adapted to local conditions and embodying the practices found most successful under* existing budget systems. This proposal to establish an executive budget by legislation, pending the adop- tion of a constitutional amendment, coincides with a prelimin- ary recommendation of the Reorganization Commission. The budget committee's report and the supporting research study are now published to give the Chamber's membership reliable data upon Pennsylvania's appropriation methods and the budget systems of forty-six states. With this information at hand the Chamber's Board of Directors have thought it op- portune to authorize Referendum No. 6 based upon the recom- mendations of the committee on a state budget. Alba B. Johnson, President. A BUDGET PLAN FOR PENNSYLVANIA Prepared by tKe COMMITTEE ON STATE BUDGET Penns>)lvania State Chamber of Commerce Submitted to TKe CKamber's Board of Directors June 8, 1922 MEMBERS OF COMMITTEE ON A STATE BUDGET OP THE PENNSYLVANIA STATE CHAMBER OF COMMERCE Hamilton Stewart, Vice-President, Harbison-Walker Re- fractories Company, Pittsburgh, Chairman. J. E. B. Cunningham, Attorney, Harrisburg. Franklin S. Edmonds, Attorney and Member of House, Legislature of 1921, Philadelphia. Spencer C. Gilbert, Member of Henry Gilbert & Son, Har- risburg. E. E. Knobloch, Treasurer, Union Iron Works, Erie. George D. Ogden, Traffic Manager, Central Region, Penn- sylvania System, Pittsburgh. John Uhl, Vice-President, Penn Tobacco Company, Wilkes- Barre. 8 5 i J , 5 ' > 1 3 1 REPORT OF THE STATE CHAMBER'S COMMITTEE ON A STATE BUDGET TO THE CHAMBER'S BOARD OF DIRECTORS The business, men of Pennsylvania, contributing thre^- f ourths of the state government 's tax receipts, view with alarm (1) the steady increase in annual appropriations from $13,000,000 twenty years ago, to $31,000,000 ten years ago, and $58,000,000 in the current biennium; (2) the growing habit of the state to live beyond its income, as illustrated by the chronic deficiency appropriations of the past twenty years and the estimated $30,000,000 excess of appropriation liabilities over income in the current biennium ; and (3) the lack of unified financial planning and control responsible for several outstanding defects in the state's appro- priation methods. Defects of Pennsylvania's Appropriation Methods These major shortcomings will be noted briefly here, for they are fully set forth in Chapter I of the accompanying re- search report. (1) Little is done to focus the attention of the legislator and public upon the state's financial and work program as a whole. Neither constitution nor statute affectively centralizes responsibility in any official or board for a study of state needs and submission to the legislature of a complete expenditure and revenue program. Besides the general appropriation bill for- mulated by the house appropriations committee, there were over 600 separate appropriation measures introduced by individual legislators in 1921, 450 of which were passesd and sent to the governor. (2) Financial information available to the legislator is very inadequate. He lacks summary and detailed data compar- ing the general and special expenditures proposed with the costs for the current and two preceding fiscal years, classified by organization units, character, functions and objects. He has no accurate data facilitating a comparison of specific state service on the basis of utility, efficiency and operating cost. No official estimate or analysis of available or proposed state revenues accompanies the general appropriation bill. No bal- anced statement of general and special funds is placed in the legislator's hands. (3) Owing to the piece-meal presentation of appropria- tion requests and the delay in evolving a coordinate revenue program, members of the appropriations committees themselves are unable to get a birds-eye view of the state's finances. Few members of these committees, except the chairmen and their clerks, have a thorough grasp of the state's finances and are able to balance appropriation requests against each other and the probable income. (4) In the last congested weeks of the session a mass of uncorrelated appropriation bills is reported out to the houses for action. As a rule the legislator looks out for the individual bills he has sponsored and takes the others on faith — accepts the committee recommendations. This situation inspires log-rolling and trading of votes among members to get funds for their local institutions or political friends — a process not conducive \ to economy or aid to the most worthy. The legislator loses sight of available state revenues, the importance of his project in the state's work program as a whole, and the relative util- ity and efficiency of various services performed by public and semi-public agencies. Generally bills are jammed through the houses by perfunc- tory roll calls, most of them in the few days before adjourn- ment. (5) The legislature adjourns without knowing by how much the total appropriations exceed probable income, and passes to the governor the task of acting on several hundred appropriation bills to balance expenditures and revenues dur- ing the biennium. 10 Hence the governor does his thinking about the state's fin- ances after, instead of before, legislative adjournment. (6) There is no effective check upon the evil of defici- ency appropriations. (7) Too much discretion is permitted in the expenditure of contingent funds. (8) ** Ear-marked" funds complicate the preparation of a balance sheet, remove certain state agencies from strict bud- getary control, impoverish the general fund, and thereby force some state agencies and institutions to borrow money while special funds are tied up in state depositaries at a low rate of interest. Reasons for Eecommending an Executive Budget System Our own observations and the facts established by a thorough study of budget systems in other states, made for us by the Chamber's Research Director, prompt the recommend- ation of an executive budget system for Pennsylvania to intro- duce more business-like methods into state finances. This type predominates in over half of the forty-six states now operating under a budgetary procedure of one kind or another, especially in those states comparable to Pennsylvania in size, population and wealth. Twenty-four states now have an executive budget system; thirteen, an administrative budget system; eight, a mixed administrative-legislative bud- get system; and one, a legislative budget system. Expert opinion of accountants, research agencies and state efficiency- commissions is in favor of the executive budget. Among its prominent advocates are the Institute for Govern- ment Research, Washington, D. C. ; the Government Research Conference; the Institute for Public Service, New York City; the New York Bureau of Municipal Research; the New York State Reconstruction Commission; the New York State Associa- tion ; the Massachusetts Commission on State Administration and Expenditures ; the Philadelphia Bureau of Municipal Research ; the Ohio Institute for Public Efficiency; the Detroit Bureau of Governmental Research; and Griff enhagen and Associates, Ltd., efficiency engineers and accountants, Chicago. 11 Through unified financial planning and control the execu- tive budget has shown superior working advantages over the other types. A budget board weakens the governor's admin- istrative powers, divides financial responsibility, and encour- ages padding of estimates by administrative officials on the board. By making Ijie governor responsible for the formulation and execution of the financial and work program, he becomes in fact as well as in theory the directing head of the state's business affairs. This is his legitimate function. He is the state's outstanding public officer and represents the whole Com- monwealth, not a single department or legislative district. ''As the chief executive he is in the best possible stratgetic position for securing the information essential to the preparation of the budget, and for enforcing the restrictions inherent in a thor- ough-going budget system. He is, moreover, the one man whom the citizens hold responsible for what the state does. He is the one man to whom the citizens look for initiative in state matters. ' ' Integration and consolidation of Pennsylvania's state ad- ministration is sufficiently accomplished or under way to make possible the preparation and execution of a financial and work program by the governor. And lodging financial responsibility in the governor compels his attention to the problem of fur- ther reorganization and tightening of state administration. Finally, in vetoing or reducing items of legislative appro- priation, the governor of Pennsylvania is forced to improvise a work program for the state at the eleventh hour. If he ought to be invested with the power to veto and reduce items of appropriaation after the legislature adjourns, when his word is final, should he not be fully empowered to prepare xn ad- vance the state's financial program for legislative review and action? Budget Luw to Supplement Proposed Constitutional Amendment The budget amendment prepared by the recent Commis- sion on Constitutional Amendment and Revision generally 12 meets the basic requirements for systematization of state fin- ances. It provides: ( i i( Article III Budget and Appropriation Bills. "Section 12. The governor shall submit to the general assem- bly a budget on or before March 1 of each year in which it shall be in regular session. The budget shall contain a complete plan of proposed appropriations and complete estimates of the reven- ues and funds available for appropriation for the two ensuing fiscal years, Including appropriations for charitable, educationnl and benevolent purposes. In submitting proposals for appropri- ations to charitable, educational or benevolent institutions not under the absolute control of the state government, the governor shall at the same time submit a plan of distribution among the classes of institutions to be benefited. "When the governor presents the budget to the house of repre- sentatives, he shall submit a general appropriation bill contain- ing the proposed appropriations for the fiscal years covered by the budget' and may also submit any bill embodying recommendations as to sources of revenue. "The presiding oflicer of the house of representatives shall immediately cause such bills to be introduced. "The general assembly may increase, decrease, strike out or otherwise alter any item in the general appropriation bill, or may add new items thereto. "Until the general appropriation law has been enacted neither house shall consider an apipropriation bill other than the general appropriation bill unless the appropriation shall be solely for the immediate needs of the general assembly or unless the gov-, ernor shall request the general assembly to act upon the bill in advance of the general appropriation bill. "After the general appropriation law has been enacted no ap- propriation shall be made for any purpose, object or item in- cluded therein or in the general appropriation bill as submitted by the governor, unless the governor shall request the general assembly to pass a bill making such appropriation. "The general assembly shall not finally adjourn for ten days after the general appropriation bill has been presented to the governor." But this budget system established by a constitutional amendment— adopted by the legislatures of 1923 and 1925, and ratified by popular vote in 1926^ — would not function until the 13 legislative session of 1927. Meanwhile, the state's finances sorely need the systematic control inherent in budgetary procedure." An executive budget law enacted in 1923 would meet this need, and also supply actual experience in budget-making as a basis for the administrative practice and supplementary legis- lation essential to full operation of the budget amendment. Of course, a budget system established by constitutional amendment has greater permanence than one established by statute. A budget amendment binds subsequent legislatures and governors and is repealed with great difficulty; while a Imdget law is easily nullified by a succeeding legislature. However, it is likely the current demand for ordered state finances would safeguard a budget law passed in 1923 against early repeal. There is abundant evidence that public senti- ment can give real security to a statutory budget procedure. Of the forty-six states now operating under a budget system only three have incorporated it in their constitution. Yet no state has repealed its budget law except to pass one that is more ef- fective. A Budget Plan for Pennsylvania Pending the adoption of a budget amendment to the con- stitution we recommend an executive budget law, as outlined below based upon local needs and the experience of forty-six states now operating under a permanent budgetary procedure. (1) All departments, agencies and institutions receiving state funds shall transmit their appropriation requests, includ- ing proposed expenditures of ear-marked funds, to the governor by November 1 of each even-numbered year, on estimate blanks prepared and submitted by him. These blanks shall be in such form and call for such inform- ation as the governor may require. On such blanks shall be spaces to show, among other things, (a) information as to the revenues and expenditures for the last two completed fiscal years, (b) the appropriations made by the previous general as- sembly, (c) the expenditures therefrom, (d) an estimate of the amount thereof required to complete the fiscal period, (e) any encumbrances upon such appropriations, (f) the amounts 14 unencumbered and which will be unexpended, (g) an estimate of the revenues and expenditures for the current fiscal year, (h) and an estimate of the revenues to be received and appro- priations required for the next two fiscal years. The governor with the aid of a budget director and staff will then compile and collate these requests and proposals, com- paring them with past and current expenditures, present needs and available income. Such budget director will be appointed by the governor with the advice and consent of the senate for a term of six years. (2) From the auditor general the governor will receive annually, by December 15, a statement of receipts and expend- itures during the fiscal year last ended, a statement of estimated revenue in the current and the next succeeding fiscal years, a balance sheet of the state's finances, a statement of unexpended balances from previous appropriations of the legislature, a gen- eral and special fund statement, and a statement of the state debt. (3) The governor will review and revise all appropria- tion requests, holding joint public hearings in February of each odd-numbered year with the chairmen of the appropria- tions and ways and means committees of the house and senate, the state treasurer and the auditor general. The governor may delegate the budget director to hold such hearings. (4) The executive budget estimates transmitted to the legislature by March 1 of each odd-numbered year will show in summary and itemized form the amounts requested by all spending agencies, classified by organization units, capital, maintenance and operation purposes ; the funds from whch such requests are payable; the governor's recommendations thereon; his explanation of increases or decreases as compared with pre- vious grants; the amounts spent by the several agencies in the last two completed fiscal years; and the estimated expend- itures in the current fiscal year. (5) Accompanying the governor's expenditure recom- mendations submitted to the legislature will be a statement of 15 revenues in the two last completed fiscal years, a statement of estimated income to balance expenditures proposed, a balance sheet of state finances, a fund statement and a debt statement. (6) With the budget estimates the governor will also submit a general appropriatjion bill covering the needs of all state departments, interest on the public debt, and the public schools, together with individual bills for all special appropri- ations as required b/ the constitution. All appropriations, ex- cept for construction under way or where contracts have been let, shall lapse at the end of the fiscal period for which made. All appropriation items shall be classified by organization units, capital, maintenance, and operation (personal services and commodities) purposes. Appropriations to each executive department will carry for legislative approval a schedule of salaries and a plan of expending special funds credited to each department. Appropriations to the Board of Commissioners of Public Grounds and Buildings and to the Department of Public Print- ' ing and Binding will carry for legislative approval schedules of funds available to each state agency for service, materials, supplies and printing furnished by these departments. (7) Beginning not later than March 15, the appropria- tions committees of the house and senate will meet jointly for consideration of, and public hearings upon, the governor's fin- ancial program. (8) In the exercise of the power granted by the consti- tution, the legislature may increase, decrease, add to or strike out any items in the executive budget bills, and may permit the introduction, consideration and passage of any additional ap- propriation bills. (9) All budget information collected by the budget di- rector shall be permanently preserved in the governor's office and placed at the disposal of each incoming executive. Advantages of this Budget Plan Let us consider briefly the significance of these budget pro- visions. To pass upon the appropriation requests, intimate knowl- edge of each organization unit — its needs, efficiency, and oper- 18 ating methods — is required by the governor's staff. Hence a budget commissioner appointed by the governor is provided for continuous study of the state's finances. Such official will also be in a strategic position to observe opportunities for improve- ment in administrative practice and organization. The auditor general is a check both upon the governor and legislature and his record of the state's assets and liabilities is authoritative and complete. Therefore, his full cooperation in budget-making is absolutely indispensable. Public hearings by the executive on the estimates will have a great publicity value, focus the voter's attention upon the state's financial conditions and problems, and bring the gov- ernor, the state's fiscal officers and the legislature into closer working relations. Preparation of the executive budget estimates will require the governor to do his thinking about state finances before the legislature adjourns; provide a unified financial and work pro- gram for consideration by the public and legislature; and fur- nish legislators and committees with the requisite financial in- formation for intelligent discussion of the state's needs and rev- enues. Executive budget bills will avoid the danger of having the budget recommendations regarded merely as an administrative report; compel legislative action upon a comprehensive financial plan; and thus increase legislative responsibility for state ex- penditures, by reducing the margin between appropriations passed and those finally approved by the governor. So long as the present constitution is unamended, individ- ual appropriation bills are necessary for items not properly included in the general appropriation bill. However, the unity of the appropriation program can be preserved by inserting all appropriate items in the general bill— a practice not now fol- lowed — and authorizing the governor to submit individual bills for all special grants. Under this practice log-rolling will become increasingly dif- ficult, since every additional and questionable expenditure will be carefully scrutinized for its effect upon the executive pro- gram of financing bona fide state needs. 17 Similarly, deficiency bills will decrease in number and amount. A well planned work program should tend to elimin- ate the necessity of supplementary grants except for emergency purposes. And more systematic appropriations and controlling accounts will disclose any evidences of waste, incompetence or irregularity responsible for deficiencies incurred. Besides, a governor committed io a balanced program of expenditures and revenue will exert strong and constant pressure upon depart- ments and institutions to live within their allotted income. Failure to do so will publicly discredit the executive's capacity for financial planning and control. Headings of the executive appropriation bills, though less detailed, will be uniform with the classification of estimates. Such classified headings will eventually be standardized for all estimates, appropriations and controlling accounts. This stand- ardization will facilitate a fair comparison of the operating costs and efficiency of state departments, with respect to equipment, commodities and personal service; narrowly restrict the use of contingent funds; and subject the expenditure of special and general funds to a similar measure of budgetary control. Joint meetings of the house and senate appropriations committees will attract attention, conserve time and hasten agreement of the two branches upon a financial program, thus eliminating the confusion and error incident to last minute amendments by one house or the other. The constitution prevents a limitation upon legislative power to increase executive budget recommendations, and with the Pennsylvania governor's veto power such restriction is hardly necessary. However, some arrangement must eventually be made whereby the governor's budget bills shall be given a preferred legislative status in the manner contemplated by the budget amendment. Without a definite guarantee of early legislative action upon the executive budget bills, the danger of hasty en- actment of appropriation acts in the closing days of the session is not fully removed. But, under the proposed budget law such enactment would be tempered by complete financial informa- tion not now available to the legislature. 18 Unless the incoming governor has access to the budgetary information collected by his predecessor, he will be greatly handicapped in formulating a financial program and will treat with scant respect such recommendations as the retiring exec- utive may make. Further Requirements for an Effective Budget System For the most effective operation of a budget certain sup- plementary legislation is desirable. Adoption of the calendar year for all state business is nec- essary to eliminate the confusion now incident to the differing financial, appropriation and tax years; simplify the state's book- keeping methods; and increase the reliability of fiscal estimates fqr budget making purposes. Merging of ''ear-marked" funds with the general fund is needed to prepare a balance sheet of state finances, to subject all departments to budgetary control, and to simplify the prob- lem of maintaining adequate cash balances without tying up unusually large amounts of money or making temporary loans. In lieu of abolition such special funds when not currently needed for a dedicated purpose may be made available to meet demands upon the general fund. In formulating its executive budget plan our committee has proceeded cautiously and with an eye for facts only. We have carefully checked and supplemented our first-hand know- ledge of state finances with a scientific study of state budget systems, begun by the State Chamber's Research Director eigh- teen months ago and completed early this year. This research study is printed with our report and contains the most complete appraisal extant of Pennsylvania's appropriations methods, the technique and operating results of budget systems in the American states. We have evolved no fiscal ''cure-all." But we believe that installation of our proposed executive budget will remedy the principal defects in Pennsylvania's method of expending pub- lic funds, and secure for the Commonwealth the substantial advantages of budgetary control now accruing to the states having the most practical and approved budget systems. To 19 obtain these results, however, will require capable and faithful state officials, supported or criticized — as occasion warrants — by an alert electorate reliably informed of the state's needs, its financial condition and problems. Though absorbed in local affairs on the one hand, and attracted by national issues on the other, we can ill-afford to neglect state government which vit- ally affects ninety pgr cent of all of our personal and business relations. 20 PENNSYLVANIA'S APPROPRIATION METHODS AND BUDGET SYSTEMS IN THE STATES Survey by LEONARD P. FOX, PK. D. Director of tKe Research Bureau Pennsylvania State CKamter of Commerce Under tKe Supervision of the State Budget Committee April, 1(522 Chapter I METHODS OF APPROPRIATING STATE FUNDS IN PENNSYLVANIA A Need for Appraisal of the State's Financial Methods A critical appraisal of Pennsylvania's methods of appro- priating public funds is particularly timely and urgent in view of (1) budgetary progress in the states, (2) mounting cost of our state government, and (3) the present controversy over the state's finan- cial condition. « Following approved business practices, the Federal Govern- ment and all of the states except Rhode Island and Pennsyl- vania have established a permanent budget procedure. Advo- cates of a budget system for Pennsylvania need not be disheart- ended by rejection of the recent call for a constitutional con- vention promising speedy adoption of a budget system. The door to an individual budget amendment is still open. More- over, only three states — Maryland, Massachusetts and West Virginia — of the forty-six now operating under a budget plan incorporated it in their state constitutions, forty-three having installed it by legislative enactment. In the 1921 legislature an act to submit the Constitutional Commission's executive budget amendment to popular vote passed the house but died in the senate committee on appropri- ations. A bill creating a budget commission consisting of the governor, auditor general and state treasurer was adopted by the house but held up by the same senate committee. Another executive budget bjll never reached the floor of the senate be- cause it was not reported out by the appropriations committee. The need for economy in state expenditures makes this rejection of a budget system especially ill-timed. From Table I, it appears that the state's annual appropriations have in-. 22 creased from $13,000,000 twenty years ago, to $31,000,000 ten years ago, and $58,000,000 in the current biennium. Recently Main and Company's audit of state accounts re- vealed that the Commonwealth now owes, or has pledged for ex- penditure in this biennium, a sum of money probably in excess of the estimated revenues it can collect. The audit indicates a net appropriation liability. May 31, 1921, of $139,382,027.72, including payments due to municipalities from receipts of for- eign fire insurance companies and obligations under the acts of 1915, 1917, 1919 and 1921. To this liabiUty for the two year period ending May 31, 1923, will be added such defici- encies as no doubt will occur prior to that date, which for the period ending May 31, 1921, amounted to $8,606,843.63; also such liabilities as will arise in carrying out the provisions of acts similar to that establishing the Wyoming Valley Memorial Park.i In approving appropriations by the last legislature, the governor estimated the maximum income of the state for 1921-1923, at $114,000,000. The expert accountants claim that deduction of ear-marked and non-revenue funds from this amount reduces the available revenue to $89,000,000, plus $22,- 000,000 expected from new taxes.^ But the gasoline tax will yield only $3,000,000; the coal tax estimated at $12,000,000 to $15,000,000 may be found unconstitutional; the increase in the collateral inheritance tax is problematical; and business de- pression may diminish returns from the corporation taxes. Therefore, the state faces a possible deficit of more than $20,000,- 000 at the end of the biennium. On the other hand, the state treasurer predicts a surplus of $2,000,000 at the close of the present appropriation period. New taxes and increased yield from old levies, owing to the normal expansion of business, will assure total receipts of $106,- 000,000.2 Payments made prior to June 1 reduced the 1921 (1) Accountants Report to the Auditor General Showing Financial Status of the Commonwealth of Pennsylvania, May 31, 1921, pp. 2-3 (2) Philadelphia Public Ledger, September 18, 1921. (3) This is an optimistic estimate; for in 1921 the general fund receipts of $47,215,826, excluding the gasoline tax, exceeded those of 1920 by only $1,426,572. Harrisburg Telegraph, December 3, 1921. 23 C<) c^q as tH C o < •I-l 03 hH Cfi ^ •r-l a < > d J o PH U o ^ •i-i [z] cS PL^ •rH G fo S o bu Vi o :z] a> tf pel !^ H m W 'C r/j fl O (— H h > •l-H 4-> tf ^ Ph o ^ ^ 05 T-i iH 00 c- id 05 CM o C5 Tt< ■rP r-i CO 00 rH • «e- iH tH o rf LO CD O tH CM iH - tH 00 00 CM CO CM o LO CO «D ■r-i CM !>• CO o lO CO «D 00 OS CM CM LO 00 CM LO OS CO CO o> LO iH «C) 00 ■^ OO iH r-l "^^ '^^ Ci O" CO* O t- O (M -^ CM J. •* "^ 1^ t>- CM O ^ 00 CO CM* 00 OO o rH* O CO CM OO 00^ CO ■^* CM ^ CM CO «C> CO • • O CO l> -^ «D*b- Tj< O r^ 00 CO "^ iH ««■ CM o o o OQ •1-H Q OO CO CM I I iH CM rH r-< OS Oi o OQ •1-4 t-i CM tH CO LO i> OS <-> o o o o 05 05 as as c^s rH 00 "5 t^- 1=^ r^ 'H tH IH jH tH CM (^ ^ as OS OS OS 24 < m o w H iJ << O o o 73 c3 u et-l O 0) 02 OQ •1^ ft •I— I 03 u o c(3 m Ci Q r-i a CO 03 Pi 3 S o Oi o8 Q ^ O cc 05 r-l OS oo as o 05 O CO > o as tH OS Oo ■^co a; P as o 00 as Oo Q rH as o •rH as CO o p tH OS a; Q o as o CO > o 00 CD • O CO CO o C<1 00 lO o 00^ 00 CO 00^ •4-9 00 lO <6 oo 00 LO as «3 K3 00 as rH 00 CO CO CO 69- C• LO oq 00 CD ci l> LO (TCI eq as CO '>:*^ 00 oq CO CO •<*^ o LO iC> -M o c^ CO • i-H ^^ Vt O as CO CC! -^^ oo CO a» "^ t- o^ P C<1 LO 00 C<1 Tt< -^ CO t- rj^ oo !>• as CO - t- LO • • as lo CD 05 as Tt< 00 cd" lO Tt< t- LO C 0) o Q ^ as -J *^ CO tH OS O 00 tH as -'-' CO o Q CO rH as o OS 2^^ . CO O) Q rH 05 Q > o CD ■r-i as o CO o . • iX> rH « •> CO C<1 csi '^ as '^i GO ^^ • _• CO -^ lO o C- "^ CO LO ^ oo -^^ oo '^ CO as 00 • " as <^ C£l 00 OS rJH^ oo c-^ TjH OS t-Tto as ^ • • lO "^ CO 5^^ TjToo O LO »o CO «^ S5 ^ ^ bJO ?^^ S o ^ .l-H •'-I 2 o V ^ o a 0) ej ^ a ^^ o r-i ■4-) bfi oj ft o "Ph o o tJD a. 2 pH ci 6X) O ^ 0^ ft CC P^ 2 § <^ S > ^5 O p:5 O be a •i-H mm d M O .p-( '^ m > 'SPh O (U ft Kj- O •i-i T3 bog u-5 OO lO oo oo CO CO LO 00 id lO CO LO co CD as CD to CO CD '^ CO CD rH O ■• LO 05 t~i • ^ S^ s-« '* bJD " rH ^ rH o t3 C 40 Definition of Budget A budget has been defined as a plan of expenditures for a definite period based on a careful estimate of needs and re- sources, together with definite proposals for financing these expenditures.^ Reduced to its simplest terms a budget in- volves answers to three questions:^ *'l. How much money will be needed for the conduct of the government during the fiscal year? "2. V^hat money is on hand? From what source is more expected? "3. V/hat shall be the amount appropriated to each function of government?" The following essentials, however, should be included in a compre- hensive budget system, according to the Ohio Institute for Pub- lic Efficiency:^ "1. A definite program of work and plans for financing that work, to be submitted by a responsible official, preferably the ^ief executive, to the legislative body, together with such data as may be necessary to furnish a proper understanding of the proposals. "2. Proper consideration of and action upon this financial plan by the legislative body, to authorize the raising and ex- penditure of funds by the designated officials. "3. Proper independent audit of financial transactions to in- sure that the moneys due are collected, aocounted for or ex- pended in accordance with the authorization of the legislative body." To secure the full benefits of budgetary control the budget must be regarded primarily as a work program and only sec- ondarily as an accounting problem. As Gladstone remarked, ' ' Budgets are not merely affairs of arithmetic but in a thousand (2) Reorganization in the State Government, New York State Re- construction Commission, 1919, p. 303. (3) Fitzpatrick, E. A., Budget Making in a Democracy, Macmillan, 1918, p. 15. (4) A State Budget System for Ohio, Ohio Institute for Public Efficiency, Columbus, 1920, p. 3. 41 ways go to the root of the prosperity of individuals, relations of classes, the strength of kingdoms. '^ On this point the comments of the New York Institute for Public Service are especially suggestive;^ "For decades American cities, states and national government have penalized the public by failing to tell the truth about neg- lected needs and by focusing attention on the money side of budgets while wearing blinders on the work side. "Wherever needs are frankly and intelligently stated experi- ence shows that lesser needs give way to greater needs. It is not true that money is more easily wasted where budget esti- mates start with a frank listing of needs. On the contrary, it ^becomes extremely difficult to get money for waste if neglected needs are put in competition with waste. The reason federal budgets have by common consent carried waste by the hun- dreds of millions is that they have been treated as fiscal bud- gets, not as work budgets." Adoption of Budget Acts Beginning with California in 1911 and Wisconsin in 1918 the budget idea has been accepted by forty-six states in the past decade. Of this number only three — Maryland, 1916, Mas- sachusetts, 1918, and West Virginia, 1918 — incorporated a bud- get system in their constitutions, the others installing it by legis- lative enactment. Three states established a permanent budget procedure in 1913 — Arkansas, Ohio and Oregon; seven states, in 1915 — Connecticut, Iowa, Minesota, Nebraska, North Dakota, Washington and Vermont; four states, in 1916 — Louisiana, Maryland, New Jersey and New York; six states, in 1917 — Illi- nois, Kansas, New Mexico, South Dakota, Tennessee and Utah; six states, in 1918 — Georgia, Kentucky, Massachusetts, Missis- sippi, Virginia and West Virginia; fourteen states, in 1919 — Alabama, Arizona, Colorado, Idaho, Maine, Michigan, Montana, Nevada, New Hampshire, North Carolina, South Carolina, Ok- lahoma, Texas and Wyoming; and four states, in 1921 — Dela- ware, Florida, Indiana and Missouri. (5) Report of the Michigan Community Council Commission to the Michigan State Legislature, Chapters 1 to 5, 1921, based upon an Or- ganization Survey of the Institute for Public Service, pp. G6-67. 42 In 1919, Connecticut, Nebraska, New Mexico, South Dakota and Vermont revised their budget laws; in 1921, California, Idaho, Miclygan, Montana, Nebraska, Nevada, North Carolina, New York, Ohio, Oregon, South Dakota, Utah and Washington. These revisions affected details rather than the type of budget, except in Oregon which changed from the executive to an ad- ministrative budget, and New York which substituted an ad- ministrative-legislative budget for its legislative budget. Four Types of State Budgets The budget plans adopted by the states are classified under four types with reference to the location of responsibility for the initiation of the budget : 1. The executive type — the governor is made responsible for the formulation of the budget; 2. The administrative type — a board of ad|ministrative officials serving ex-officio or by appointment of the governor, is respon- sible for the preparation of the budget; 3. The administrative-legislative type — a board of adminis- trative and legislative officials serving ex-officio or by appoint- ment of the governor prepares the budget; and 4. The legislative budget— a legislative committee formulates the budget. As shown by Table IV, twenty-four states now operate under an executive budget; thirteen under an administrative budget; eight under an administrative-legislative budget; and one under a legislative committee budget. The executive budget continues to predominate in the states, but the budget boards or commissions have increased substantially since August, 1919. At that time twenty-two states had an executive budget; nine, an administrative budget; six, an administrative-legislative budget ; and two, a legislative budget. The governor is a member of nine of the present administrative budget boards and ap- points a majority of the four remaining boards. He is in every case a member of the eight administrative-legislative budget boards. Table V indicates the precise personnel of each budget board. 43 m O Q m H o H CZ2 Q 02 o > en bX) h4 > •4-1 1—4 03 •l-H J >> ^ «J w PP <1 o m > •r-< Oi •r-( <«1 CO OS CO Ci >^ Ci ?^ (M >->1 ^~H C5 Ci Ci >^ Ci e^ »o PSJ ■^ '^ ^ Oi Ci Ci Ci r-lT-lTHTHi-t'-^rj'-J « 03 ► c3 fl nS O S Cw 0) o § ^ cti o Q o as ^ ^ ^ o o S3 O m o 2 a; > a; O 05 **H Oi Ci Oi *S ■»*< ■**< '^^ cvj ©I Ci Ci Ci >1 *H '^ Oi airHiOTHOOCiarcOt~-<55LOOO r-lT-lTH(MiHrHi-lrHiHT-l^iHTH Oi<^CiOi<^0505<350i,550iai THi+HTHrHTHrHTHTHiHTH^iHr-l ^ cj 1— « ■*■» © W) 1 »« 3 ^ bl) • 4-> fl s a 03 03 O o f— 1- ■«J « - cj C 'd O •4-J OJ -M o 03 ••-^ G 'O O d a •c-l u 5 •1^ P. ■4^ O -^s a v—' >* • • 09 'O a (V bO ^ of rt- «« S 5? 'So s a> cc "S --5 ;3 bo 5 S 03 "^ ^ '2 5 *7 •- 5 o fl r "S -s -?, fl S) « s M OS Ci ^Oi Ci *-< c:, Ci Ci OiCiiHOil^-iHlO t-CCOOlOOOr-llOOiOiCOb-eOOiOitr-CXJOi r^ r-i C<1 THTHCH o *^ f" p3 <3. U P HH P t— t r5 cJ CQ O rt 03 03 CO 03 03 zj >i Vi U Oi -t 03 2 03 P< O .1-1 t^ CO OJ ^ 5 02 MJ S 03 CO 03 O) CO 03 c V X 0) "ot 03 HH H? g o3 T3 ^ > ^ ^ ^ Qj Qj Qj D gj 03 S O 03 OS C o 03 O 03 ^ 44 O o U2 bC be. O The Executive Budget in the States The Maryland and Virginia budget systems originally found great favor among the states adopting the executive type of budget. Essentially, the difference between the two forms is that the Maryland amendment places limitations upon the power of the legislature to increase executive proposals, while the Vir- ginia law does not. /. Maryland and Belated Group — Utah, Nevada, Indiana, New Mexico, Alabama and West Virginia By constitutional amendment in 1916, Maryland estab- lished an executive budget in the fullest sense of the term The main features of the state's budgetary procedure are sum- marized as follows:^ I. The governor is made responsible for the initiation of the budget. II. Preparation and filing of estimates. Estimates are re- quired to be made by all spending agencies to the governor at such time and in such form as he may prescribe. Estimates of legislature are certified by presiding officer of each house and those of judiciary by comptroller. III. Review and revision of estimates. Governor may re- view by public hearings all estimates and may revise all esti- mates except those of legislative and judiciary departments and those relating to public schools. IV. Preparation of budget. Governor shall prepare two bud- gets, one for each of the ensuing fiscal years. V. Form and contents of budget. Each budget shall be di- vided into two parts: 1. "Governmental appropriations" including estimates of ap- propriation for (1) general assembly, (2) executive department, (3) judiciary department, (4) to pay and discharge principal and interest of state debt, (5) salaries payable by state under constitution and laws, (6) public schools, (7) other pur- poses set forth in constitution. 2. "General appropriations," including all other estimates. Each budget shall contain a complete plan of proposed ex- penditures and estimated revenues, and shall show the estimated (6) New York Reconstruction Commission's Report, 334-335. 45 r^^ ' >>«M >> bO >, >. 2 £2 O ^ p3 ^^ a o a? "2 ^ ft ^1 -d -d -M a ■e «3 ._S 03 u O »ers appoir LCt as he of finance rs appoint or overl years. s appoint d confirm verlapping •2 -t-> d .1-1 o memb Lor; a board electo or f of six lember 3r an for CO u A OJ -H d a rt .- < • Thre gover state Three gover terms Six ] goveri senate X t-l o saa:j^traraoo 1 1 1 1 1 i 1 1 1 1 1 1 1 1 1 1 (snBai\[ puB sXba\.) 1 1 1 1 1 1 1 ' 1 ! 0) •i-i aouBui^ JO uauiJiBiio 1 1 1 1 1 1 1 1 1 1 1 1 1 J 1 t saa:j:^iraraoo snoi^BiJdojddv 1 1 1 1 1 1 1 1 1 1 1 .1 W ! 0) JO uamJiBqo 1 1 1 1 1 1 f 1 c» 1 j:> J asnoH JO aa^tBadg 1 1 1 1 1 1 1 1 1 1 1 1 1 1 i 1 1 1 1 1 1 1 1 ; 1* O max o.id 1 1 1 1 1 1 1 1 1 -Offic ai^Buag JO ^juapisajj 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ^ X jauoissiunnoo XbavhSjH 1 1 1 1 1 1 1 1 1 1 1 ■:\ 1 03 d jauoTSsiuiraoo xbj. 1 1 I X 1 X 1 1 1' aan^inouSv JO -jrauioo 1 1 1 1 1 1 1 1 'i 1 1 uonBon,pa JO •:»dns 11 ! 1 M ! 1 IBaauao Xaujo:j:>v >< i ll < 1 jo^ipuy a;B;s rS 1 1 1 X 1 1 J jaansBajx ^V^^^ 1 1 1 X >< 1 1 1 1 X joujaAoo XI 1 1 1 1 X X >< \ 1 X • • bO d 1 • • d • f^ o • • d b£ ^ ' • o QQ OS a ontrol, nance. c OS > d o MM cS u 03 Sd < be d 0) s 6 o % •o ft o 9> d % rQ TJ £ 1 g^ § o U2 t>c U U c a> 73 . >>13 ;; d • i-H o ft •i-i (Dta .t^ a O K (V > O ft •1—1 ft ft •I-I O ;-• a^^ 9. dJ dX) ctJ C3 CJ d o a t ;3 a o CM N O •rH fcj 1— 1 > o ;-< o O aj ;^ oi 3i ri iH t^ •:H o 03 o su 0) ft -M >^ ft (D Cj > a -'=! *^ " ^J -4-J ^ o o «1^ o u o 1— ( >- O ^ a ^ O '^ G H- bf) H t2 ft O a>< 1 odX 1 1 1 1 GQ 1 1 1 1 II II III II III II II III II * < 1 L>^ II II III 1 1 1 1 1 1^ II II III II III 1 1 1 1 : X 1 1 1 1 1 1 1 1 1 1 1 1 X 1 1 1 1 1 1 1 X 1 1 1 1 1 1 X X X X X X X X X X 1 I X X X X 1 1 >*1 1 1 1 1 X 1 1 i ^ X 1 1 X X X X X X 1 1. X t^ i X X X X 1 ^ X X X X X -X X X X X X t3 • 1 r1 • • • • 1 et-i • 1 ^ o ■ < : ii ^ t£ O ' d" ^ /— s oT 1 PQ 73 •» o •f-H 02 I— 1 2 ^ -1 •2W o •^H CO CO •l-H a a o o •fH Oi 0) -^ CO (D -a o a -4-> o u ft 'd • >-H CO u ft affa ard. 0) o A ri ,Q • -M 03 "^ -cs •g ^ . fl S^ 03 03 CO ca <=> a 02 oj -2 Oi a a 00 s ga o ^ •iH -t-J Ti r^ ft - o 03 5r "^ ti 0) ft c3 r; CO ft OJ .t; O fl c; ^•S 11 0) a^-2 0) 2 m c3 •s J3 H .rH +J t3 B b£ CO •M Oj a^ W)f c3 O ft CO bC-M ^ Qi OI B%1^ 6 • c3 CO lA-^ O! X2 flt^*^ a 51 •l-H •t-H O C 0) a> ^43 o g a CM ^ a * s 03 S 0) iS a o 2 S"" O) fl sa-g <1> o 02 •S 3 b •rH ^J P CC ;h •fH ^ •«-) s ^^ O O H Hgopq c3 47 surplus or deficit of revenues. An accompanying statement shall show: (1) revenues and expenditures for each of two fiscal years next preceding, (2) balance sheet, (3) debts and funds, (4) estimate of state's financial condition at the end of the fiscal years covered by budget, (5) explanations by governor. VI. Suhmission of budget and consolidated appropriation hill to Legislature. Governor shall deliver the budgets and a bill of proposed appropriations, clearly itemized and classified, to the presiding officer of each house within 20 days (if newly elected, 30 days) after the convening of the legislature. VII. Budgetary procedure in legislature. The budget bill or appropriation bill, must be introduced immediately upon receipt. The governor may amend or supplement the bill while in the legislature. Governor and administrative officers shall appear before the legislature to defend the budget bill. VIII. Legislative* action on consolidated appropriation hill.' Legislature shall not amend the budget bill to change the public school funds, or salaries and obligations required by the con- stitution; it may increase or decrease items relating to the jud- iciary, but can only reduce or strike out others. Legislature shall not consider other appropriations until the budget bill has been finally acted upon. If budget bill is not enacted three days before expiration of regular session, the governor may by proclamation extend session. Budget bill becomes law upon passage of the legislature with- out signature of governor. IX. Supplementary appropriation hills. Every supplementary appropriation shall (1) be embodied in a separate bill, limited to a single purpose, (2) shall provide the revenues necessary to pay the appropriation by a direct or indirect tax, (3) shall receive the majority vote of the elected members of each house, (4) shall be presented to the governor and be subject to his veto. X. Expenditure and control of appropriations. Appropriations are made to organization units in lump sum with itemized schedule attached. Each lump sum appropriation is paid out in accordance with the schedule which relates to it, unless and until such schedule is amended by action of the governor upon request of the spending agency. (Budget Bill, Chap. 206, Sec. 3, Laws 1918). Measured by its adoption in other states the Maryland budget system is not gaining prestige. Utah's budget law closely follows the Maryland provisions except that an amend- ment of 1921 creates a department of finance and budget under 48 Tt^ the governor with budget and supervisory functions like those exercised by the Illinois department of finance. A Nevada law of 1919 limited the legislature to striking out or reducing items in the governor's budget bill, but has since been repealed. The Indiana legislature of 1919 passed a joint resolution proposing a constitutional amendment modelled after Maryland's budget plan; but the succeeding legislature refused to submit this amendment to popular vote. In New Mexico the voters recently rejected a constitutional amendment restricting the legislature to striking out and reducing items in the executive's appropria- tion bill. Alabama and West Virginia, with administrative budget boards, follow Maryland's practice governing legislative increase of appropriation bills and passage of supplementary appropriation acts. Montana, also having an administrative budget, imposes in modified form Maryland's restriction upon supplementary appropriations. « 11. Virginia and Belated Group — Delaware , Oklahoma, South Carolina, Wyoming, North Carolina, Idaho and Florida Owing to the prevalence of Virginia's budget system in other states its major provisions are abstracted below.'' I. The governor is responsible for initiation of the budget. II. Preparation and filing of estimates. Estimates shall be made by all spending agencies to the governor upon official esti- mate blanks by November 1st of odd numbered years. Esti- mate blanks furnished by governor shall be uniform and shall clearly designate information desired. Estimates are required in itemized form showing amount needed for each year of en- suing biennial period beginning March 1st. Auditor of public accounts shall furnish governor by Decem- ber 1st estimates of general assembly, certified by presiding officer of each house, also estimates of judiciary, as provided by law, both of which shall be itemized in accordance with the governor's budget classification. Auditor of public accounts shall on November 1st furnish gov- ernor with (1) statement of balance to credit of each spending agency at the end of last preceding appropriation year, (2) statement of monthly expenditures and revenues from each (7) New York Reconstruction Commission's Report, 358-359. 40 appropriation account during last preceding appropriation year, (3) statement of annual expenditures and revenues from each appropriation account for each of last two appropriation years, (4) complete balance sheet for preceding fiscal year ending September 30th, (5) other statements retiuested by governor. III. Review and revision of estimates. Governor shall, dur- ing November, provide public hearings for review of all esti- mates. Governor may require additional information from spending agencies not contained in estimates. Governor and his assistants by December 1st, biennially, must have completed a careful survey of all spending agencies which shall be a basis for his recommendations. Governor may revise all estimates except those of the general assembly and the judiciary. IV. Preparation of budget. Governor shall prepare a budget for the biennial period. V. Form and contents of budget. Budget shall contain a com- plete and itemized plan of all proposed expenditures for each state agency^ classified by function, character and object, also estimated revenues and borrowings for each year of the en- suing biennial period. Opposite each item of proposed expen ditures the budget shall show in parallel columns the amounts appropriated for each of the last two preceding appropriation years, and the increase or decrease. Accompanying the budget shall be (1) a statement of revenues and expenditures for each of the two preceding appropriation years, (2) a current balance statement, (3) a debt and fund statement, (4) a statement of condition of the treasury at the beginning and end of the two appropriation years covered by the budget, (5) a balance sheet for state at close of last preceding fiscal year ending September 30th, (6) general survey of state's financial and natural resources, with a review of its general economic, indus- trial and commercial conditions. VI. Submission of budget and consolidated appropriation bill to legislature. The governor shall submit to the presiding officer of each house, within five days after the beginning of the legis- lative session, printed copies of the budget, also a tentative ap- propriation bill, clearly itemized and properly classified for each of the ensuing appropriation years. VII. Budgetary procedure in legislature. The standing ap- propriation committees of the legislature must begin within five days after the budget is submitted to hold joint and open ses- sions on the budget. This joint committee may require repre- sentatives of spending agencies to appear before it and give in- 60 formation, and it may admit and hear all persons interested in the estimates. Governor, or his representative, and the gover- nor-el^t shall have the right to sit at these public hearings and to be heard. VIII. Legislative action on consolidated appropriation bill. General assembly may increase or decrease items in the budget bill. Further and special appropriations, except in the case of an e;naergency, can be made only after the budget bill has been finally acted upon. IX. Supplementary appropriation Mils. All appropriation bills originating in the legislature must conform to the governor's budget classification. Besides allowing legislative increase of executive proposals, Virginia's budget law (1918) differs from the Maryland amend- ment in requiring but one budget for the biennial period; thie classification of proposed expenditures by function, character and object; and joint committee hearings on the budget. Nor does the Virginia procedure include lump sum appropriations to organization units, with itemized schedule attached, as pro- vided in Maryland. Virginia's budget system is followed very closely by the executive budget laws of Delaware (1921), Oklahoma (1919), South Carolina (1919), and Wyoming (1919). North Carolina's budget law of 1919 also resembled Virginia's but was largely nullified by an amendment of 1920 exempting current expenses of the legislative, executive and judicial departments from budgetary control. In Idaho budgetary procedure in the legis- lature and legislative action on the budget bill are modelled after the Virginia provisi)ns. And Florida, under an admin- istrative budget (1921), accepts the Virginia practice governing the preparation and filing of estimates, form and contents of the budget, budgetary procedure in the legislature, and legis- lative increase of administrative proposals. ///. Illinois and Related Group — Nebraska, Utah, Ohio, Idaho and Missouri. According to Cleveland and Buck, the executive budget idea was most fully exemplified in American law and practice 51 in. 1920 by Illinois.^ And W. F. Willoughby, writing in 1918, regarded the powers and duties of the Illinois department of finance, in respect to the preparation and presentation of a budget and collateral matters, as the furthest advance yet made by any government in the United States toward the adop- tion of a budgetary system.^ The Civil Administrative Code of 1917 reorganizing the' Illinois statutory departments provides, with reference to the budget i^^ I. The governor who appoints the director of finance is re- sponsible for the initiation of the budget. II. Preparation and filing of estimates. The director of fi- nance shall by September 15th of the even numbered years dis- tribute to all spending agencies, including the elective officers, University of Illinois and judicial department, estimate blanks in such form as he may prescribe. He shall procure information of the revenues and expenditures for the two fiscal years pre- ceding, the appropriations made by the previous legislature, the expenditures therefrom, the encumbrances thereon, amounts un- encumbered and unexpended, estimates of the revenues and expenditures for the current fiscal year, and estimates of reve- nues and amounts needed by the several spending agencies for the succeeding biennium. All spending agencies shall, not later than November 1st, file with the director of finance their estimate of receipts and ex- penditures for the succeeding biennium. Such estimates shall be accompanied by written explanations. III. Review and revision of -estimates . The director of finance may approve, disapprove or alter the estimates. He may at his discretion make inquiries and investigations. He shall by Jan- uary 1st submit to the governor in writing his estimates of revenues and appropriations for the next biennium. IV. Preparation of budget. The governor shall submit to the legislature a budget for the biennial period. V. Form and contents of budget. The budget shall contain the amounts recommended by the governor to be appropriated to (8) Cleveland and Buck, The Budget and Responsible Government, Macmillan, 1920, p. 240. (9) Willoughby, W. F., Movement for Budgetary Reform in the States, Appleton, 1918, pp. 49-50. (10) New York Reconstruction Commission's Report, pp. 328-329. 52 the several spending agencies, the estimated revenues from taxa- tion and from sources other than taxation, and the estimated amount required to be raised by taxation. Together with the bud- get, the governor shall transmit the estimates of receipts and expenditures received by the director of finance from the elec- tive officers in the executive and judicial departments and from the University of Illinois. VI. Submission of budget and consolidated appropriation bill to legislature. The governor shall submit to the general assem- bly the budget not later than four weeks after its organization*. VII. Expenditure and control of appropriations. Bach de- partment shall, before an appropriation for such department be- comes available for expenditure, prepare and submit to the de- partment of finance an estimate of the amount required for each activity to be carried on, and accounts shall be kept and reports rendered showing the expenditures for each such purpose. Under this code the functions of the department of finance are -M (1) To prescribe and install a uniform system of bookkeeping, accounting and reporting for the several departments; (2) To examine into the accuracy and legality of accounts and expenditures of other departments; (3) To examine and approve or disapprove all bills, vouchers and claims against the other departments; (4) To prepare a budget for submission to the Governor; and (5) To formulate plans for better coordination of the de- partmental work. The director of finance acts as the financial advisor for the governor and all the departments under his control. Through the director a centralized control of the expenditures made by the agencies responsible to the governor is effected. While the finance department has no direct control over the expenditures made by any non-code department, it is authorized and required to study the entire field of governmental needs in order to pre- pare the budget. The actual work of preparing the Illinois state budget is done by a superintendent of budget and his staff under the supervision of the department of finance. Both of these officers (11) Cleveland and Buck, 243-245. Si are appointed by the governor with senate approval for a four year term, beginning on the second Monday in January following the governor's election. Unlike Maryland and Virginia, Illinois has recognized the necessity of integrating and supervising state administration to facilitate budgetary control. The Civil Administrative Code consolidated over one hundred executive offices, boards and com- missions into nine departments with directors appointed by the governor. In further contrast with these states, Illinois does not require the governor to submit a budget bill or bills to the leg- islature. Neither does the Code provide for public review of the estimates by the governor, or for appearance of the governor and administrative officers before the legislature to defend the budget estimates. Again, no reference is made to budgetary procedure in the Illinois legislature. The budget can be referred to regular committees or considered by the legislative bodies sitting as a committee of the whole. The general assembly has the power to revise, amend, decrease, increase or disregard the governor's recommendations entirely, subject, however, to his veto. The Illinois department of finance is the model for budget- ary and administrative organs in five other states having an executive budget. In 1919 Nebraska eliminated eight boards and commissions and grouped ten departments with similar func- tions into six main divisions. The secretary of finance was given powers like those of the Illinois director of finance. Sim- ilarly by an act of 1921 Utah created a department of finance and purchase under the governor which is his staff agency in the preparation of the budget, and also has wide supervisory powers over all of the state's administrative agencies. No gen- eral administrative reorganization was attempted. The Ohio Administrative Code of 1921 repealed the budget law of 1913 and constituted a department of finance with the usual budget making and supervisory administrative powers. Statutory ad- ministrative agencies were reorganized and consolidated into eight departments. Idaho in 1919 replaced forty-six statutory boards, commissions and other administrative offices by nine departments. One of these was a department of finance like 54 I that of Illinois. A law of 1921 establishes a bureau of budget and taxation to assume this department's budgetary duties, in- vestigate the efficiency of state departments, and formulate plans for their better coordination. In Missouri a law of 1921, subject to a referendum in 1922, provides a department of budget un- der the governor which acts both as a budget-making agency and instrument of general administration. Washington — having an administrative budget board — con- solidated its statutory administrative agencies into ten depart- ments (1921). The director of efficiency is required to prepare the biennial statement prescribed by law as the basis for the state budget; and, together with the director of business con- trol, enjoys powers and duties comparable to a standard depart- ment of finance. IV. Massachusetts The essential relation between administrative reform and budgetary control is also recognized by Massachusetts. Follow- ing administrative surveys by the Economy and Efficiency Com- mission appointed in 1912, by its successor — the supervisor of administration — created in 1916, and by a joint special com- mittee on finances and budget procedure, 1917, the Massachusetts legislature in 1919 adopted an Administrative Consolidation Act grouping some two hundred executive and administrative agen- cies into twenty departments — the maximum number fixed by constitutional amendment in 1918. Besides preparing the budget for the governor, the supervisor of administration ap- pointed by the governor and council for a three year term, is em- powered to make current efficiency studies of the organization and operation of state departments. By constitutional amendment and statute, 1918, Massachu- setts has established an executive budget system as outlined below :^2 I. The governor is responsible for initiation of the budget. II. Preparation and filing of estimates. All agencies receiv- ing or expending money from the treasury shall by October 15th (12) New York Reconstruction Commission's Report, 336-337. 65 annually submit to the supervisor of administration estimates of amounts required for the ensuing fiscal year, with explana- tions, citations of statutes and other information; also state- ments showing in detail the amounts appropriated for the current fiscal year. These estimates shall not include require- ments for any new or special purposes not authorized by statute. Duplicate copies of the estimates shall be filed with the auditor of the Commonwealth. Spending agencies asking for the expenditure of state money from any source of revenue, including expenditures to be met by assessments or the issuance of bonds for any purpose not covered by the estimates mentioned in Sec. I above, shall by October 15th submit requirements therefor in detail to the supervisor of administration together with such other informa- tion as he may require. The state auditor shall by December 26th prepare and file with the clerk of the house and with the supervisor of adminis- tration statements showing in comparative tabulations the es- timates filed for all purposes authorized by statutes, including interests, sinking fund and serial bond requirements, the ap- propriations for the preceding year and expenditures for all state purposes for the three preceding years. He shall also file his estimates for the ordinary and other revenue of the state in comparative tabulations with the actual revenue for the preceding three years, together with a statement of the free and unencumbered casih balance and other resources avail- able for appropriation. III. Review and revision of estimates. The supervisor of ad- ministration shall review the estimates and shall make such investigations as are necessary for the preparation of the bud- get. The governor may call upon the auditor for assistance in the preparation of the budget. IV. Preparation of budget. For the purpose of preparing his budget the governor shall have power to require any spend- ing agency to furnish him with any information that he may deem necessary. V. Form and contents of budget. The budget shall contain a statement of all proposed expenditures of the state for the fiscal year, including those already authorized by law, and of all taxes, revenues, loans and other means by which such ex- penditures shall be defrayed. The budget shall be arranged in such form as the legislature may by law prescribe, or in de- fault thereof, as the governor shall determine. The budget shall show separately estimates and recommenda- £ions of the governor for: (1) expenses of administration, 56 operation and maintenance; (2) deficiencies or over-drafts in appropriations of former years; (3) new construction, addi- tions, improvements and other capital outlay; (4) interest on public debt, sinking fund and serial bond requirements; (5) all requests for expenditures for new projects and other under- takings. It shall also include definite recommendations of the governor for financing the expenditures recommended and the relative amounts to be raised from ordinary revenue, direct taxes or loans. VI. Submission of budget and consolidated appropriation bill to legislature. The governor shall recommend to the legislature a budget within three weeks after the session convenes. The governor shall submit to the legislature such supplemental data with reference to the budget as he may deem expedient, and during the session he may submit supplemental message on re- commendations relative to appropriations, revenues or loans. VII. Budgetary procedure in legislature. All appropriations based upon the budget shall be incorporated in a single bill called the "general appropriation bill." The governor may from time to time recommend to the legislature supplementary budgets. VIII. Legislative action on consolidated appropriation bill. The legislature may increase, decrease, add or omit items in the budget. It may provide for its salaries, mileage and ex penses and for necessary expenditures in anticipation of ap- propriations, but before final action on the "general appropria- tion bill" it shall not enact any other appropriation bill except on recommendation of the governor. IX. Supplementary appropriation bills. After final action on the general appropriation bill or on recommendation of the governor, special appropriation bills may be enacted. Such bills shall provide specific means for defraying the appropriations therein contained. The governor may disapprove or reduce items or parts of items in any bill appropriating money. Massachusetts like Illinois does not provide public hear- ings on the estimates by the governor or executive representa- tion at legislative or committee sessions devoted to the budget bill, as noted in Maryland and Virginia. Unlike Illinois, Mas. sachusetts — as is the case in Maryland and Virginia — requires the governor to submit a consolidated budget bill. Massachus- etts and Virginia differ from Illinois and Maryland in pre- scribing joint legislative committee meetings to consider the budget bill. With reference to legislative increase of items in . ' 67 the budget bill Massachusetts' practice follows Illinois and Vir- ginia. But the Massachussetts' limitation upon the passage of special appropriation bills resembles the Maryland provis- ions. V. New Jersey and Kansas New Jersey paved the way for its executive budget system, created in 1916, by providing for a single appropriation bill and one joint committee on appropriations; im^proying its methods of accounting and auditing; and intregating more than twenty separate administrative agencies into six major depart- ments with heads appointed by the governor. The main features of New Jersey's budget law are:^^ I. The governor is held responsible for initiation of the budget. II. Preparation and filing of estimates. Estimates prepared by all spending agencies on prescribed blanks, giving itemized lists and trial balance, and presented to the governor on Octo- ber 15th. (As amended by chapters 221 and 144, Laws of 1918,) Rules 1 to 8, appended to law, contain a budget classification and prescribe the form of the estimate sheets in detail. Each estimate must he sworn to by the administrative head or other designated officer of spending agency making the same. Estimated revenues furnished governor by comptroller and treasurer jointly. III. Review and revision of estimates. Governor shall review all estimates and determine necessity of appropriations. He may conduct hearings, summon witnesses, and make in- vestigations. For this purpose he is allowed to name two special assistants and to call upon administrative officers. IV. Preparation of budget. Governor shall prepare a sum- mary of the estimates and make recommendations thereon, the total of which shall not exceed the anticipated revenues of the State. V. Form and contents of budget. The budget shall be in the form of a separate message to the legislature, containing a summary of the estimates and reports with recommendations thereon. Budget message shall be in easily understood form. .VI. Submission of budget and consolidated appropriation bill to legislature. Governor shall submit his budget to the legis- lature on second Tuesday of January. (13) New York Reconstruction Commission's Report, 344-345. 68 . Budget given such publicity as is deemed wise. The governor may transmit special messages to the legislature requesting additional appropriations after budget has been sub- mitted. VII. Supplementary appropriation Mils. It is the intent of the budget law that there shall be no supplemental, deficiency or incidental bills. VIII. Expenditures and control of appropriations. No money shall be drawn from the state treasury except by the general appropriation act. Provides for transfers within appropriation of any organiza- tion unit by application to the state house commission, composed of the governor, comptroller and treasurer. (As amended by chapter 290, Laws of 1918.) Governor has the power to investigate the revenues and in- come of spending agencies, which are not derived. directly from the state treasury. Without substantial administrative reorganization Kansas enacted a budget law in 1917 closely following that of New Jer- sey. Kansa^s, however, lacks a single appropriation bill, a joint appropriations committee, an adequate budget staff and a system for the transfer of appropriations. • VI. Miscellaneous Group — Arizona, Colorado, Indiana, Iowa, Minnesota, Mississippi, New Hampshire and New Mexico There is little new or distinctive in the executive budget laws of Arizona, Colorado, Indiana, Iowa, Minnesota, Missis- sippi, New Hampshire and New Mexico — states without any substantial measure of administrative consolidation. In gen- eral the budget provisions of these states are less comprehen- sive and effective than those previously considered. Estimates of expenditures and revenue are made to the governor in all states of this group except Indiana, where esti- mates go to the state accountant, and New Hampshire where the state treasurer receives them. Only four states — Colorado, Minnesota, Mississippi and New Mexico — specifically authorize the governor to review and revise all estimates, except those of the legislative and judicial departments. The budget is pre- 69 pared by the governor in all of these states except Indiana and New Hampshire where the state accountant and treasurer, re- spectively, formulate it for the governor. Apart from Color- ado and Indiana no adequate provision is made for assistance to the governor in the preparation of a budget. In each state the governor submits a budget to the legis- lature covering all appropriations. But Iowa, Minnesota, Miss- issippi and New Hampshire do not require the inclusion of revenue proposals. Three states only — Arizona, Colorado and Indiana — prescribe the submission of a budget bill or bills by the governor. In New Hampshire the appropriation committee shall report to the legislature one appropriation bill unless the governor requests the making of appropriations in separ- ate acts. Colorado is alone in giving the governor and admin- istrative officials the right to appear and be heard by the ap- propriations committees of either house of the legislature. None of these states limits the legislature's power over the general and special appropriation bills in the manner of Maryland or Virginia. Nor has any state made effective pro- visions for the speeding up of legislative procedure on appro- priation acts. Minnesota's allotment procedure has attracted some favor- able attention. Each department shall immediately upon an appropriation for its support being made, proceed to sub-ap- propriate or allot the sum so granted for the purposes set forth in the budget. This allotment may be subsequently changed upon report to the auditor who keeps his accounts under the established allotment heads. Administrative Budget Systems I. California California's budgetary system is an outgrowth of the general movement for the improvement of administrative meth- ods in that state. In 1911 there was established the state board of control described as a bureau of general administration and enjoying plenary powers over the business and financial affairs of the Commonwealth. The board is composed of three full-time members appointed by the governor and holding office at his 60 pleasure. It may examine the books of all spending agencies; audit claims against the state and approve or disapprove thein ; exercise general supervision over all matters concerning the fiscal and business policies of the state ; approve contracts for the pur- chase of all supplies ; and devise, install and supervise a uniform system of accounting and reporting. • Though lacking statutory authority, the board of control has by mutual agreement with the governor and state insti- tutions constituted itself and the comptroller a budget board. Prior to the legislative session all spending agencies of the state file their requests for the biennial period with the board of con- trol on forms prepared by it. These requests are audited and com- piled by the board's department of public accounting and then presented to the budget board for its inspection. Then every department, board, commission and institution is represented at the hearings of the budget board to justify every item contained in their requests. After the conclusion of these hearings the budget board trims the estimates to amounts deemed necessary for the operation of each spending agency for the ensuing two year period. This board's final recommendations are based not only on the evidence at its hearings but upon the previous operating expenses as shown by the reports filed with the board of control or ascertained by personal visits of the board mem- bers to the state's spending agencies. By law the state board of control must make its recommend- ations for appropriations at least thirty days before the meet- ing of the legislautre. These recommendations are transmitted to the comptroller who in turn submits them to the governor and each member-elect of the legislature within ten days of the opening of each regular session. The printed budget recommend- ations are without supporting details or adequate comparison with previous biennial periods. Since the governor appoints the board of control he usually accepts the budget board's recom- mendations as his own, thus giving them official sanction and force. Excepting the general appropriation bill, no bill appropri- ating money shall contain more than one item and that for one single and certain purpose to be therein expressed. 61 ^. Under the nominal consolidation of its administrative units /t^lr into seven departments in 1921, California created a department L^-.f "^^JL^f finance regularizing the procedure of the infonnal budget /^^ board. The work of this department is divided into seven divisions — institutions, budget and accounts, purchases and cus- tody, printing, motor vehicles, capitol building and grounds, and libraries and history. . The chiefs of the three divisions first named constitute the governing board of the department of finance ; but each division chief is in charge of his own particular division. In this connection Governor Stephens said:^* "Certain constitutional requirements concerning the Board of Control make it necessary to retain nominally this board, and therefore, it is expressly provided that these three chiefs shall be ex-offlcio members of the State Board of Control. The reasons for this apparent departure from the principle of individual de- partment control are certain constitutional provisions dealing with the authorization and issue of bonds, in which bond issues the specific functioning of the chairman of a State Board of Con- trol is indispensable. In addition board action is required for the final determination of the state budget, a duty of such great importance and magnitude that in my judgment it would be more easily and equitably performed by a board than by a single in- dividual." In other words, a state budget prepared by the chief of the division of budgets and accounts and subject to the final det- ermination of the ex-offico board of control is authorized by the act creating the department of finance. • II. Connecticut In Connecticut the budget is initiated by a state board of finance. It is composed of three electors appointed by the governor with over-lapping terms of six years, the comptroller and tax commissioner (appointed by the governor) and the treasurer, ex-officio. The appointive members have no responsi- bility for the conduct of the government and devote little time to their duties for which they receive $500 per year. y . (14) Letter from Department of Research and Service, Security Trust and Savings Bank, Los Angeles, August 25, 1921. 62 The board of finance holds hearings on and tabulates the estimates of all spending officials, which together with the board 's recommendations thereon are printed in a book by the comp- troller. Since the governor is not a member of the board and does not always completely control its personnel, as in California, he is virtually eliminated from the framing of budget estimates. No provision is made by law for the form and contents of the budget or submission of the budget and appropriation bills to the legislature. There is a joint standing committee on appropriations in the Connecticut legislature; but reference of appropriation bills to this committee may be dispensed with by two-thirds vote of each house. For hearings and action on appropriation bills joint meet- ings of the board of finance and appropriation committee are prescribed. Finally the board of finance is given power to examine and control the expenditures of departments and institutions. III. Louisiana Under a constitutional amendment of 1916, Louisiana's state budget is initiated by a board of state affairs consisting of three members appointed by the governor and confirmed by the senate for overlapping terms of six years. The board receives, compiles and reviews the estimates of all spending agencies, and obtains additional information through examination, interviews and correspondence. It pre- pares a formal printed budget containing detailed and com- parative estimates of actual revenues and expenditures. This, together with the board's budget recommendations and reasons therefor, is submitted to the legislature. The only participa- tion granted to the governor in framing a financial and work program is that he may have included in the budget statement his opinion concerning the funds that should be granted. By the budget law of 1916 the board of state affairs is also empowered to investigate (1) duplication of work; (2) central control of institutions; (3) cost of state printing; (4) advisability of central purchasing; (5) other matters pertain- 63 ing to economy and efficiency. This grant of .power recognizes that a true budgetary system involves continuous effort to pro- mote efficiency of administration. IV, Texas In Texas the budget is prepared by a state board of con- trol composed of tliree citizens appointed by the governor with the senate's approval for over-lapping terms of six years, one being appointed every two years. Each state spending agency must submit itemized estimates for the biennium; to the board of control; also an itemized account of expenses for the preceding two years in the form prescribed by the board. Upon receiving the esti- mates the board investigates and considers them at hearings and obtains pertinent information from every available source. It is the duty of the board to frame the budget which is printed and mailed to members-elect of the next legislature, to the governor and to heads of spending agencies. The board of control's jurisdiction is not confined to initia- tion of the biennial budget. It is organized into divisions of public printing; purchasing; auditing; design, construction and maintenance; estimates and appropriations; and eleemosynary institutions. In the nine other states having an administative budget the governor and ex-officio members constitute the budget board. V. Washington Washington consolidated its statutory administrative agencies into ten departments in 1921, establishing a director of efficiency to prepare the biennial budget statement. To- gether with the newly created director of business control he has powers and duties comparable to a standard department of finance. This budgetary, statement is utilized by the state finance committee in making its budget recommendations to the legis- lature. The governor, state treasurer and state auditor con- stitute this committee. 64 VI, West Virginia West Virginia has an administrative budget board consist- ing of the governor, secretary of state, auditor, treasurer, attor- ney general, superintendent of schools and commissioner of ag- riculture (all elective officers), which is responsible for initia- tion of the budget. Aside from the substitution of a budget board for the gov- ernor, the West Virginia budget amendment is practically ident- ical with that of Maryland. A further variation is that in West Virginia the state board of control makes up the appro- priation requests for state institutions submitted to the bud- get board. The governor appoints the three members of this board for six years with over-lapping terms. They are empow- ered to manage the charitable institutions of the state and take charge of the financial and business affairs of the educational institutions. VII, Alabama In Alabama the state budget commission is composed of the governor as chairman, attorney general and state auditor. It has authority to secure the necessary clerical assistance. The commission prepares a budget on the basis of itemized estimates of needs and revenues submitted by spending agencies in the form prescribed by the commission. The budget con- tains a complete plan of proposed expenditures and estimated revenues for the ensuing quadrennium. It is transmitted to the legislature by the governor as chairman of the budget com- miaigion, together with executive bills for all proposed appropri- ations clearly itemized arid classified. The house and senate committees in charge of appropria- tion measures sit in joint public meetings to hear all parties interested in the budget estimates. Members of the budget commission may be present and heard on all matters coming before the committees. By rule of procedure the legislature will alter the budget bill except to strike out or reduce items, unless by vote of two-thirds of the members elected to both houses, provided that appropriations necessary for the payment of interest or 66 principal due on public debt will not be reduced or eliminated. This practice approaches that of Maryland. Until the budget bills have been finally acted upon by the legislature, neither house will consider any other appropria- tion except an, emergency legislative expense. Every supple- mentary appropriation bill is restricted to a single purpose, and is not valid if the amount added to appropriations author- ized by the budget bills produces an excess of expenditures over the quadrennial revenue estimates of the budget. VIII. Florida A Florida law of 1921 creates a state budget commission consisting of the governor, comptroller and state treasurer. Virginia's practice is adopted for the preparation and the filing of estimates, form and contents of the budget, and legis- lative procedure on the budget. The commission shall provide for public hearings on the estimates and complete a careful sur- vey of all spending agencies. It prepares a biennial budget for submission to the legislature within five days after the beginning of the session. IX, Montana In Montana the responsible heads of all state spending agencies submit their estimates to the state board of examiners, composed of the governor, secretary of state and attorney gen- eral. The board passes on the necessity of the appropriations requested and submits to the legislature, ten days after its convening, a printed budget containing: 1. Current balance sheet of state finances; 2. Fund statements; 3. The revenues, expenditures and balances for the preced- ing biennial period and the estimated revenues and expenditures for the succeeding biennium; 4. Also the amounts which the board of examiners recommend, item for item, with columns, showing the relation between the proposed allowances and similar grants for the preceding period, for each office or department, with explanatory statements from 66 each office or department, showing their reasons for any requested increase, and statements from the board of examiners giving reasons for their recommendations. Following Maryland's practice a budget is prepared for each fiscal year, and appropriations are divided into ''govern- mental" and "general". The legislature also acts on special appropriation bills under restrictions similar to those of Mary- land. . X. Tennessee The Tennessee budget commission consists of the governor as chairman, comptroller, treasurer and secretary of state (all elected by the legislature) and the auditor (appointed by the governor). It may provide necessary clerical assistance. Each agency receiving state moneys, except educational boards and institutions, shall file estimates of its needs and rev- enues with the commission arranged in the manner prescribed by it. At the same time the governor receives from the comp- troller statements covering balances to the credit of these spend- ing agencies; also statements of monthly and annual expendi- tures and revenues from each appropriation account during the two preceding fiscal years. The board for the administration of state institutions man- ages these institutions, formulates their budget requirements and purchases supplies for them. It is made up of the governor, treasurer and general manager of state institutions, but the governor's control of the board is made effective through the fact that the general manager is appointed by the governor and removable by him for cause. The commission is required to make biennial and field sur- veys of state agencies, and has authority to secure desired inform- ation by examination of witnesses and accounts. It shall hold public hearings on the estimates open to state officers, the gover- nor-elect and members of the legislature; and may revise the estimates according to its judgment. A tentative budget is prepared by the commission con- taining comparative summaries showing revenues and expendi- 67 tures, reasons for increases or decreases, definition of functions, and any suggestions for greater efficiency of service. It also includes the commission's estimates for emergency purposes and is accompanied by the original estimates submitted to the com- mission. As chairman of the commission the governor submits the budget to the legislature, together with such recommendat- ions for appropriations as he may deem proper. Legislative committees shall consider the budget in joint public sessions at which all interested parties, including the budget commission, may appear and be heard. The commission supervises the expenditure of emergency appropriations and the transfer of appropriations within a spending agency. XI. Michigan In Michigan the newly created state administrative board (1921) has acquired the. powers of the state budget commission. Members of this board are the governor, chairman, the secretary of state, state treasurer, auditor general, state highway com- missioner and superintendent of public instruction. Spending agencies of the state must furnish the. board with estimates of their needs and anticipated income for the en- suing biennium, and other financial information necessary to preparation of the budget. The board is authorized to examine the books and records, as well as buildings and offices, of state spending agencies. Having assembled the estimates the board shall examine and revise them, holding public hearings before final revision at which any executive officer of the state government has a right to be heard. The governor-elect shall be invited to sit with the board at these hearings. He may examine the estimates and make recommendations for their revision. The governor as chairman must transmit the budget pre- pared by the board to each house of the legislature ten days after convening of thei regular session. This statement shall show the estimated amounts required by all spending units of the state government for each year of the ensuing biennium, together with the percentage increases and decreases from ex- penditures for the preceding biennium and the first year of the current biennium ; an estimate of the state 's revenues for the ensuing two year period; the expenditures, including bills due and unpaid, for the three years preceding the current fiscal year ; an estimate of the amount needed for emergency purposes, also to pay the interest and principal of the state debt. XII. Oregon , In 1921 the Oregon state board of control consisting of the governor, secretary of state and state treasurer, was made the budget commission of the state. It is authorized to appoint an executive officer or statistician and employ further assist- ance for this purpose. The board prescribes appropriate blanks, forms and state- ments for uniformly furnishing the estimates; and may hear or require the officers or employes of any agency receiving state funds to appear before it, and give orally or in writing all in- formation or data desired. All agencies spending state funds must furnish the commission with estimates of biennial needs and revenues. By law the board may examine and revise, increase or diminish the estimates of the several spending agencies. Statements and data filed with the commission, together with its recommendations, are transmitted to the secretary of state. These are compiled and printed by him with the addi- tion of comparative data, estimates of income and amounts ap- propriated for the current biennium. The governor and mem- bers of the legislature receive this printed compilation prior to the opening of the session. XIII. Kentucky By a law of 1918 Kentucky established a budget appro- priation commission composed of the governor as chairman, state auditor and chairman of the state tax commission. Every agency requiring or expending money from the state treasury must file its estimates with the commission, classified by (1) salaries, (2) maintenance and operation, (3) supplies, (4) repairs and (5) permanent improvements. 69 After review of the estimates the commission prepares an appropriation bill for each of the two ensuing years, including recommendations for all spending agencies except the judiciary, legislature and common schools. The budget shall include a summary statement of all estimates; show the source of income of all state agencies; also the expenditures classified under (1) interest charges, (2) salaries, (3) maintenance and operation, (4) permanent improvements, and (5) number of employes. It is transmitted to the legislature together with the budget bills not l^ter than the third Monday after the beginning of the session. Summary Owang to the lack of dominant types is is impossible to gen- eralize satisfactorily upon administrative budget systems in the states. California and Washington are the only states that have attempted administrative reorganization ; and they, together with Connecticut, provide for efficiency studies of state adminis- tration; Louisiana, Tennessee, Texas and West Virginia have constituted special boards to introduce business methods in the conduct of state institutions. The governor appoints the budget boards in California, Connecticut, Louisiana and Texas. In Alabama, Florida, Ken- tucky, Michigan, Montana, Oregon, Tennessee, Washington and West Virginia the budget board is composed of ex-officio mem- bers, always including the governor. By complete domination of the board in California, by executive budget bills or recom- mendations in Alabama, Louisiana and Tennessee, and by con- trol over the administration of state institutions in West Vir- ginia and Tennessee, the governor may wield considerable power over budget procedure in these states. Special assistance in the preparation of the budget is fur- nished to the boards of California, Florida, Oregon, Tennessee and Washington. In every state the board apparently has the power to revise the estimates or make recommendations thereon. Eight states specifically require or authorize the budget board to hold hearings on the estimates — California, Connecticut, Flor- 70 ida, Michigan, Oregon, Tennessee, Texas and West Virginia. The board generally submits its budget to the legislature. How- ever^ in Connecticut the comptroller merely prints the board's estimates; and in Oregon the comptroller compiles the board's, estimates and prints them with other data for distribution to the governor and legislature. Barring Tennessee, the budget estimates cover the needs of all spending agencies; but they are not accompanied by recomriiendations for a revenue program. The budget laws of only four states — Alabama, Florida, Kentucky and West Virginia — require the board to submit bud- get bills. Aside from Alabama, West Virginia, Florida, pre- viously noted, the legislature is not restricted in its action on appropriation bills or budget estimates submitted by the budget boards. Connecticut is unique in its joint standing committee on appropriations. Alabama, Connecticut and Tennessee per- mit members of the budget board to be heard at the joint meet- ings of the legislative appropriation^ committees. In West Virginia and Florida the governor and representatives of spend- ing agencies may be heard by the legislature in defense of their budget requests. Administrative-Legislative Budget Systems I, Wisconsin The Wisconsin state board of public affairs is the oldest and most interesting example of an administrative-legislative budget board. It is composed of the governor as chairman, secretary of state, president pro tem of the senate, speaker of the house, chairmen of the senate and assembly finance com- mittees, and three members appointed by the governor and confirmed by the senate, subject to removal by the governor. The board employs a secretary and such other help as it deems necessary. Essential provisiions of the Wisconsin budget procedure are outlined below :^^ I. Preparation and filing of estimates. The state board of public affairs shall furnish estimate blanks to each public body, (15) New York Reconstruction Commission's Report, 360-361. 71 not later than July 1st. Each public body, not later than Sep- tember ist, shall present to the board its estimate for the en- suing biennium. II. Review and revision of estimates. The board shall cause the estimates to be compiled forthwith and reviewed through such field examinations, interviews or correspondence as may be necessary to obtain full information. The board as a whole, be- tween November 10th and December 1st, shall consider and re- view the results of the preliminary examinations, together with the estimates and explanations. The governor-elect shall have the right to attend review meetings, personally or through a representative, and to receive all reports and information sent to members of the board. III. P7'eparation of budget. The board shall prepare a budget. IV. Form and contents of budget. The budget shall show comparisons of estimates for the ensuing biennium with each year of the current biennium and each of the three years next preceding; the amount of each item recommended; whether the amounts recommended are equal to, above or below the amounts requested and the amounts for the first year of the preceding biennium; reasons for recommended allowances or disallowances; a record of the vote on each recommendation that is not unani- mous; and any recommendation which a minority of the board or the governor-elect may wish to have included. The board shall accompany the conclusions or recommendations of all its reports with a summary of the facts upon which its conclusions or find- ings are based, the names of the members approving the report, and the summary of the investigation pursued to obtain the facts. Three budgets are prepared for each public body; for icapital, maintenance and operation. V. Submission of budget and consolidated appropriation bill to legislature. The board shall recommend a budget to the leg- islature not later than December 15th; and not later than Janu- ary 1st shall distribute copies of the estimates with its recom- mendations thereon to the members of the legislature. VI. Budgetary procedure in legislature. The financial com- mittees of the two houses of the legislature act jointly, a pro- cedure similar to that of New Jersey. Usually this joint com- mittee on finance introduces from twelve to twenty regular ap- propriations bills, separating the grants to individual depart- ments. VII. Expenditure and control of appropriations. The board shall have such supervision of every public body as is necessary to secure uniformity and accuracy of accounts and it may devise uniform systems of accounts and uniform accounting procedure for all such public bodies. 72 The board shall also investigate duplication of work, ineffi- ciency of the organization and administration, and shall formul- ate plans for greater coordination and the improvement of ad- ministration in general. Like the California board of control and the Illinois depart- ment of finance, the Wisconsin state board of public aifairs is both an organ of budgetary control an^i general administration But unlike California and Illinois, Wisconsin has adopted the idea of ''government by commission" and set its face resolutely against integration of state administration. ' ' The board form of government, as it is being developed in Wisconsin, has been in the direction of removing from the gover- nor his power and control over the state administration. The members of these boards have in practically all cases over-lapp- ing terms which are very much longer than the two year term of the governor. The result is that the governor can never con- trol the boards, because he can not appoint a majority of the mem- bers during his short term of office. More than this, all appoint- ments made by the governor must be approved by the senate. Since the legislature, under the Wisconsin plan, is the controlling factor in matters of administration, in so far as control may be exercised at all, and the board of public affairs is the controlling body in budget making, the governor can do nothing more than nominate to office those persons who stand well in the favor of the senate and exert an infiuence in the preparation of an ad- ministrative and financial program for the state. "In financial matters the governor has very littie power. He may concur with or dissent from the proposals of other members of the board of public affairs (all excepting three of which are elective like himself) in^preparing budget recommend- ations which are made to the legislature. Even then the legis- lature may disregard his recommendations altogether -and not even discuss them. He msiy then send special messages to the legislature, as Governor Philipp did last year (1919), calling at- tention to the mounting appropriations and urging the legis- 73 lature to curb its action. Finally he has the power of veto, which, however, under the system of continuing appropriations may amount to little.''^® II. North Dakota, South Dakota and Vermont ■ The state budget board of North Dakota is composed of the governor as chairiiian, state auditor as secretary, attorney gen- eral and chairmen of the senate and house appropriations com- mittees of the preceding legislature. Provision is made for the board's employment of necessary accountants, clerks and sten- ographers. Each even year, not later than October 1, the heads of spending agencies submit estimates of their requirements to the auditor, on blanks prepared by hmi, with statements and data necessary to explain fully the need and purpose of each request. These estimates are transmitted by the auditor to the bud- get board on the third Tuesday in November. The board there- upon examines such estimates, affording opportunity for expla- nations and public hearings whenever requested or upon its own initiative. If considered advisable, the board or anv mem- ber of it may visit and investigate any agency requesting an appropriation. Not later than the tenth day of the session, the budget board submits its estimates for a state budget to the legislature. Such estimates include the board's reasons for specific recommend- ations covering maintenance of the state government; the re- quirements for interest and sinking fund charges upon the basis of estimates furnished by the auditor ; an estimate of the state 's revenues ; and a statement of unexpended balances in appropri- ation accounts with recommendations for their disposition. "The South Dakota (budget) act is almost a literal copy of that of North Dakota, and the Vermont act, though differently worded, is based upon essentially the same principles. All three acts prcJvide for the formulation of a budget by a permanent body, known as a State Budget Board in the case of the two (16) Cleveland and Buck, p. 256. 74 Dakotas, and a Committee on Budget in the ease of Vermont, composed of the chairmen of the finance committees of the two houses, the Governor and certain administrative officials. These bodies have adequate power to secure from administrative ser- vices reports, financial statements and estimates in the form des- ired by them and to employ technical and other assistance needed by them for the performance of their work. ' ' It will be remarked that in all four of these cases the Gov- ernor is a member and the chairman of the board or committee. Though the principle of having the budget represent a financial and work program emanating from a responsible chief execu- tive is not carried into effect by these acts, opportunity never- theless is given to the governor through his position on this body to bring forward and press his own administrative and work program. The creation of these bodies is also of signifiance as representing the effort to bring the legislative and executive branches of the government into closer working relations with one another than has been the case in the past.^'^"^ Certain members of the budget board sit in the legislature and are always on hand to defend and explain their recommendations. Under the law the Vermont budget committee like the Wis- consin state board of public affairs can function as a permanent commission on economy and efficiency. It is also authorized to make provision for emergencies, all emergency grants being re- ported to the auditor and included in the budget for the next bi- ennial fiscal period. The provision for a single consolidated ap- propriation act makes it possible for officials of the Vermont government and the public generally to determine readily what appropriations have been made. 777. Maine There is nothing new or distinctive in the present budget law of Maine, which follows the informal procedure instituted by Governor Milliken in 1917. (17) Willoughby, pp. 180-181. 76 IV, North Carolina and Georgia Apart from its establishment of a budget commission the North Carolina budget law closely follows that of Virginia. However, North Carolina's budgetary procedure will not be detailed, since it has been largely nullified by an amendment of 1921 exempting current expenses of the legislative, execu- tive and judicial departments from budgetary control. And owing to its scant provisions, examination of the Georgia budg- get law is unnecessary and fruitless. y. New York Superimposed on New York's legislative budget system, es- tablished in 1916, is the board of estimate and control created in 1921 by an amendment to the state finance law. This board is made the central agency in the modified budget procedure. It is an ex-officio body consisting of the governor, chairman of til 8 finance committee of the senate, chairman of the ways and means committee of the assembly and the state comptroller. The governor is chairman but the board shall elect a tempor- ary chairman from among its other members to preside in his ab- sence. Deputies or assistants in their regular office force may rep- resent or act for the members of the board at any meeting. The board may also employ experts and other assistants who shall be exempt from the provisions of the civil service law *' because of the confidential character of their work." Annually, on or before a date to be fixed by the board of estimate and control, there shall be filed with the board and legislative budget committee by each state officer, board or com- mission, head of department and proper officer of each state institution, a statement in detail of all moneys for which an ap- propriation is desired at the ensuing session of the legislature, with the reasons therefor. On or before December 31, of each year, following its examination and investigation of appropriation requests, the board shall cause to be prepared and filed with the ibudget sec- retaries of the finance committee of the senate and the ways and means committee of the assembly a statement, addressed to the 76 legislature, of the total amount of appropriations desired by each state officer, board, commission, head of department or officer of a state institution; and a tabulated statement of all items of such desired appropriation which are affected by a revision adopted and recommended by the board, together with a statement of such revision, item by item, or of any compre- hensive readjustment of all appropriations for any office, de- partment or institution as a substitute for all or any of the items originally requested. With such statement, the board shall submit an estimate of the probable revenues of the state for the ensuing fiscal year. Before completing the annual bud- get, provided for in the legislative law, the finance committee of the senate and ways and means committee of the assembly shall examine and pass upon the recommendations of the board contained in such tabulated statement. The state finance law of 1916 is not repealed; so the three budget agencies constituted thereunder — the governor, the joint legislative budget committee and the comptroller — will to a degree parallel the functions of the board of estimate and con- trol. Members of the senate finance and assembly ways and means committees compose the joint legislative budget committee. In 1919 the senate finance committee had sixteen members and the assembly ways and means committee fifteen. The chairman of each committee appoints a clerk, a stenographer and an ac- countant to assist the committees which continue during recess of the legislature. The state spending agencies file their requests with the joint legislative budget committee and the board of estimate and con- trol; also with the state comptroller, by November 15. A consolidated tabulation of estimated expenditures and in- come, together with actual appropriations and expenditures dur- ing the preceding fiscal year, shall be transmitted by the comp- troller to the governor by December 15, and to the legislature on the opening day of the session. The comptroller also presents to the legislature by February 1, of each year a report of ex- penditures for the last six months of the current fiscal year. 77 The governor shall annually within one week after the con- vening of the legislature submit to the houses a statement of the total amount of appropriations desired by each state spend- ing agency, and may make recommendations thereon. He may also accompany this statement with an estimate of the probable revenues of the state. Budget requests are examined by sub-committees of the joint legislative budget committee; and its clerks are required to re- ceive and tabulate estimates and to compile other budget data for the chairmen. During the summer and fall of each year the budget clerks and chairmen of the finance committees visit all institutions and departments of the state. In practice the senate finance committee and the assembly ways and means committee act jointly in preparing an annual budget. It shall specify the unit of organization under whose control or supervision moneys appropriated shall be expended and the purpose for which appropriations are made. It shall contain a detailed estimate of the probable revenues of the state and an estimate of the amounts which it shall be necessary to raise by direct taxation. Not later than March 15, the legislative budget committee shall present to their respective houses with the budget a single bill providing the appropriations recommen- ded in the budget. The appropriation bill when reported, shall be referred to the committee on the whole of the senate and advanced to the order of second reading in the house, and shall thus remain live full legislative days, on each of which it shall be the special order of the day. These legislative sessions are open to the public. And at this time the h^ad of any spending agency may and, upon request by majority vote of either house, shall appear to answer questions pertaining to his appropriation. fc While the appropriation bill has this special legislative stat- us, it mky be amended by introducing additional items or by in- creasing, reducing or eliminating the items; but on third read- ing no amendment except to reduce or eliminate an item shall be in order only by unanimous consent. Scores of special appro- priation bills are introduced at this point. All grants of funds are highly and rigidly itemized. 78 Although responsibility for New York's state budget has been scattered in the past, the joint legislative budget com- mittee — or rather the chairmen and clerks — have controlled the formulation of the budget. Both houses pass the budget prac- tically as submitted to them by the chairmen of the joint com- mittee. The legislature is free to disregard the governor 's recom- mendations, leaving as his only recourse the constitutional right of veto. The chief value of the comptroller's work in prepar- ation of the budget is his estimate of the state's antici- pated revenues. He has, however, complete control over author- ization of expenditures and reclassification of appropriations. Establishment of the board of estimate and control will tend to unify responsibility for New York's state budget, but it will also strengthen the standing committee domination of the legis- lative and administrative branches of the state government in budget making and execution. Besides passing upon all appropriation requests, the board must estimate the state's revenues and approve schedules of positions and salaries before lump sum appropriations are available for personal service. These requirements impair the individual budget functions of .the comptroller who is a member of the board. And the governor's membership on the board will further weaken his recommendations to the legislature cov- ering annual appropriations. At any rate the governor and comptroller will be too busy to function most of the time; so the board will be dominated by the chairmen of the legislative finance committees, who in their dual capacity are also mem- bers of the joint legislative budget committee, which must pass on the recommendations of the board before completing the annual legislative budget. By domination of the board the legislature also gains sub- stantial control over the organization and operation of state administration. The board of estimate and control shall make studies to ascertain all instances of waste and duplication in each department and to determine what department, offices, institutions or functions may be discontinued or transferred in the interest of economy and public welfare. Where plans for improved methods of operation determined upon by the board 79 do not require legislation to put them into effect, the depart- ment affected must carry out the board's recommendations, except in the case of constitutional offices. Where legislation is necessary, the recommendation of the hoard is to be submitted to the legislature ; and if such plan is to be accomplished in whole or in part by the annual appropriation bill, the board shall re- vise estimates accordingly. Investigations of governmental or- ganization in other states may be made. The board is also made the purchasing and printing agency of the state. Legislative Budgei Systems With the establishment of the New York board of esti- mate and control, Arkansas becomes the only state operating by law under a legislative budget system. The budget law of Arkansas requires the biidget to be pre- pared by a special committee consisting of seven members of the house appointed by the speaker and five members of the senate appointed by the president. Although the law directs the state auditor to gather the biennial estimates and to com- pile them for this committee, the state comproller has recently discharged these functions. Not later than twenty days after its appointment, the budget committee shall prepare and introduce into the general assembly all appropriation bills for the necessary running ex- penses of the state government including all state intitutions. It shall make such recommendations by bill, or otherwise, for changes in the state revenue laws as may be deemed necessary to raise sufficient funds for the state's needs. Though lacking any legal budgetary procedure, Pennsyl- vania and Rhode Island in practice have a legislative budget system. In both states it is customary for legislative commit- tees to assemble whatever budget information is desired and to make recommendations to the legislature for appropriations. Summary of Budget Procedures Despite the varying provisions previously noted, it is pos- sible to generalize somewhat on budget procedure in the states. Nearly all of the states require the responsible heads of 80 state spending agencies to submit detailed written estimates of expenditures and revenues to the budget making authority on a fixed date, usually in November. Except in a few cases the budget laws or amendments do not specify the information to be included in the estimates, thus giving the budget-making authority a free hand in shaping the estimate forms to chang- ing conditions and the classified data desired for the budget statement and accompanying appropriation bills. As a rule the state auditor or state comptroller is required to prepare and file estimates of revenues with the budget-mak- ing authority. While practically all of the states require the budget-mak- ing authority to review the estimates, less than one-half of the states expressly empower this authority to revise the estimates in preparing the budgret. *'In most cases certain estimates are specifically excluded from the exercise of the power of revision on the part of the budget-making authority. Only in Mass* achusetts, Mississippi, New York, Tennessee and Vermont iy the budget-making authority given the power to revise all esti' mates. In Colorado, New Mexico, Oklahoma, South Carolina and Virginia the budget-making authority may revise all esti? mates except those of the legislature and the judiciary ; in Mary- land and West Virginia it may revise all estimates except those of the legislature, the judiciary, and the public schools ; in Min* nesota it may revise all except the estimates of the legislature^ the judiciary, the state university, and the state militia ; in Nev- ada and Utah all except estimates relating to the legislature^ public debt obligations, and fixed salaries; and in Wyoming ali except the legislative estimates. In Illinois and Nebraska the head of the finance department is given the power to approve, disapprove, or alter the estimates of the code departments be- fore submitting them to the governor for executive consideration and recommendations.''^^ Frequently lack of an adequate staff handicaps the budget- making authority, at its discretion or upon request, may hold most one-half of the states have made no specific provision for (18) Buck, A. E., Budget Making, Appleton, 1921, pp. 109-110. w 81 effective assistance in formulation of the budget. Notable ex- ceptions to this practice are found in Arizona, California, Col- orado, Florida, Idaho, Illinois, Indiana, Massachusetts, Nebraska, New Jersey, New York, Ohio, Oklahoma, Oregon, South Caro- lina, Tennessee, Utah, Virginia, Washington, Wisconsin and Wyoming.' But few of these states supply a staff agency foi field investigation of spending agencies. Under the law budget-making authority in seven states shall hold public hearings on the estimates in preparing the budget — Idaho, Maine, Oklahoma, South Carolina, Tennessee, Virginia and Wyoming. In twelve other states the budget- making authority in the review and revision of estimates. Al- such hearings — Colorado, Connecticut, Kansas, Maryland, New Jersey, Newi Mexico, Nevada, North Dakota, South Dakota, Utah, Vermont and West Virginia. Three-fourths of the states require the budget-making au- thority to submit a budget to the legislature at the beginning of the session or during the first month. The budget docu- ments of a majority of the states do not present a complete plan of proposed expenditures and means of financing them and are, therefore, little more than a compilation of estimates. In some cases the budget statement includes expenditure and revenue figures for the past, current and ensuing fiscal years, a balance sheet of state finances, and a debt statement. Most state budget laws merely authorize the budget-making author- ity to employ such classification of estimates as seems essential. Estimates of expenditures are variously classified by (1) func- tions, (2) organization units, (3) objects, (4) character and (5) funds, (2) and (3) being most generally used. Virginia and states having a similar budget procedure prescribe classi- fication of estimates by function, character and objects. Approximately a dozen of the states provide that the bud- get-making authority shall prepare an appropriation bill or bills embodying the expenditures proposed in the budget, and sub- mit such bill or bills to the legislature along with the budget. Pew states recognize the advantages of a single appropriation act, as do Massachusetts, New Jersey and Virginia. The pri- mary classification of appropriation items is by organization 82 units, coupled with a classification designating thei services, commodities and obligations lor which expenditures are to oe made. Legislative procedure on the budget is prescribed by law in only one-half of the states. In Alabama, Max'yland, West Virginia and Utah the legislature is without power to increase proposals of the budget-making authority. Pascsage of supple- mentary appropriation acts is narrowly restricted in Maryland, Massachusetts and Montana. Limits are also placed upon the enactment of special appropriation acts in Virginia and the states following its budgetary procedure. Connecticut and Maine are unique in having joint standing committees on ap- propriations. In New Jersey, New YorK, Virginia and Wis- consin the appropriation committees do act jointly in practice. Budget statutes seldom guarantee consideration of appropria- tion bills in the early days of the legislative session. Recognizing the essential dependence of an effective bud- get system upon an integrated state government, eight states — California, Idaho, Illinois, Massachusetts, Nebraska, New Jer- sey, Ohio and Washington — ^have effected substantial administra- tive consolidation in the interest of economy and efficiency. And eight other states — Connecticut, Louisiana, New York, Tennes- see, Texas, Vermont, West Virginia and Wisconsin — have cre- ated special boards or committees designed to introduce busi* ness methods in state administration and institutions. Chapter III OPERATION OP STATE BUDGET SYSTEMS Executive Budgets . In 1918 the Massachusetts Commission to Compile Inform- ation and Data for the Use of the Constitutional Convention summarized the operating results of budget laws in twenty- four states as follows :^ (1) Bulletins for the Massachusetts (Constitutional Convention, 1917- 1918, vol. I, 83. 83 (1) "The Legislature is provided with more complete infor- mation as to the needs and resources of the state; (2) 'log-roll- ing' has been reduced; (3) greater control over and responsibil- ity for expenditures is made possible; (4) improved accounting methods have accompanied the introduction of a budget system; and (5) the finances of the State in general are conducted on a more business-like basis." Contrasting with this broad endorsement is the critical appraisal of state budget systems by a competent observer writ- ing in the National Municipal Beview, 1921 :^ "A large majority of the states are no better off from the standpoint of financial planning and control than they were before they provided for the establishment of a budget system. "The many reasons why state budget systems are not work- ing more satisfactorily may be summed up in four phrases: (1) Inertia of state officials; (2) shifting of responsibility in budget planning; (3) political squabbles and deadlocks; and (4) obso- lete machinery and antiquated methods of state government. From first to last these stand in the order of increasing im- portance. "While some legal provisions are necessary for the establish- ment of a permanent budget system, the budget law is not every- thing. It does not work automatically; it is merely the legal authorization to use scientific planning in financing and con- ducting the work of the state government. Willingness and en- terprise on the part of the public officials and properly organ- ized governmental machinery are necessary to carry it into operation. Given; these conditions a state may have a satisfac- tory budget system without a budget law." It is possible to check these estimates of budget progress against evidence gathered from the individual states. , Maryland Ex-Governor Harrington believes the Maryland Budget amendment is working very well;^ (2) Buck, A. E., "State Budget Progress," National Municipal Re- view, November, 1921, p. 568. (3) Letter from Hon. Emerson C. Harrington, Cambridge, Novem- ber 10, 1921. 84 "The only criticism that I have of the budget bill is that there is not specifically in the budget bill law itself provisions giving the Governor sufiicient help in the preparation of the budget, but this is remedied in Maryland by the fact that the Governor has a contingent fund amply sufficient for all such purposes. The principal criticism, however, I make of the budget is not a defect in the budget law itself, but in the practical work under it. My experience was that the Finance Committees of the two bodies did not, nor did the members of the Legislature them- selves, give sufficient attention to the budget bill as a whole, or to the details thereof, but would content themselves in taking some little item here and there to which someone might make special objection, instead of taking up the budget bill as a whole from beginning to end of the departments and reviewing the action of the Governor and the needs of the departments as carefully as the Governor had himself, and eliminating whatever items in their judgment they believed needed correction. This, however, is not a question of a defect of the law but a defect of practical administration." The president of the Maryland senate declares -A "Maryland's Budget System has been a great success. The present system gives adequate financial information to the Leg- islature as the Executive submits a statement along with the budget. "Personally I am opposed to the restriction of the Legislature's power to increase items in the appropriation bill. In actual practice the way it works out the Governor is the appropriating power, the Legislature simply ratifies his budget, of course the General Assembly has the power to reduce but it rarely ever does. The EJxecutive sends down his budget and after much talk and looking over it is ratified because it is generally felt that any tampering with the budget itself will endanger the Governor's program, etc., etc. "The present system practically destroys the Legislative power of making appropriations. And again some provision should be made for the first year of the term of the Governor. He is in- augurated about one week after the General Assembly has con- vened and thirty days after is required to send in his budget and estimate of receipts etc. To a new man this is a gigantic task. "I am in favor of a non-partisan budget officer whose duty it shall be to have prepared at all times estimates of the receipts and disbursements of the State, whose term of office shall not (4) Letter from Hon. William L Norris, November 1, 1921. 85 expire at the end of each, administration but one year there- after, or in between the meeting of the General Assembly. His duty should be to submit to the Governor and the General As- sembly all data and information as to the financial affairs of the State. The Governor should then make up his budget and the General Assembly act on the same with the power to de- crease or increase as it may deem wise." ft A former speaker of the Maryland house of delegates re- ports :^ "When the budget is being prepared by the Executive he is largely guided by estimates furnished him by the heads of de- partments or institutions, as the case may be. After the Gov- ernor has gone into this matter and prepared his budget, it is then submitted to the Legislature, who have the authority to de- crease but not to increase the items in the appropriation bill. If the Legislature desires to (and it usually does), it holds hear- ings at which various parts of the budget submitted by the Gov- ernor are examined into, information being furnished as desired by the heads of the various departments. So you see that the Legislature may make such inquiries as they desire in order to fortify themselves upon the wisdom of passing on the various items contained in the budget. They can keep the Governor from being tooi extravagant, but, they are themselves barred to extravagance, in that they can not increase the executive's recom- mendation, each being a check upon the other. "As to the effect upon the total annual costs of said govern- ment, there is absolutely no doubt as to its worth, for it has saved the State of Maryland thousands and thousands of dollars of wasted money. The costs of maintaining our House of Re- presentatives since the budget law has been in effect has been from twenty to forty thousand dollars less per session than be- fore the budget law came into effect. This is true largely with other departments. Since we have the budget law in Maryland, even with high prices, we have succeeded in reducing state taxes a little. "As to the effect upon the actual administration of the State government, it is good. It is the difference between a man spending money without reckoning his income on the one hand, and on the other, of first reckoning his income and making the best disposition of his income to cover his needs. (5) Letter from Hon. M. B. Tydings, Havre de Grace, November 5, 1921. 86 "I am sure that the peop-le of Maryland generally regard it as wise and constructive legislation, and that they will not will- ingly go back to any other system for the appropriation of pub- lic moneys." To a prominent Baltimore banker the financial information made available by the Maryland budget to the legislature seems full and adequate.^ He continues: "The restriction of the legislative power to increase items is vital. You will probably realize that the form adopted by our Budget Commission was somewhat new. While the Legislature was prevented from increasing any item in the budget, it was permitted after the budget wus passed, to introduce bills provid- ing for items not in the budget and I believe for increased items, 'provided the bill carried with it a levy for the purpose on the general tax rate. This had the effect of bringing into broad day- light every item of expenditure not provided for in the budget and emphasized the fact in the tax-payers' minds, not only that it was an expenditure not approved of by the Governor, but the people of the whole State were being taxed for the purpose of the bill. The result has been, I believe, that practically no such bills have been passed by the Legislature. "It is impossible to measure the saving in cost of State gov- ernment. The direct saving has been very large but the indirect saving has been even greater. For years before the Budget Act became law, local bills were introduced for work throughout the counties of the State, such as a bridge in X county, an armory in Y county, etc., which resulted in log-rolling and the inclusion of a great many items of this character in the omnibus bill. "Unless such items now appear in the Governor's budget, the special act at once draws attention of the people of the State to the fact that a bridge in X county or an armory in Y county is going to be paid for by the taxpayers of every county of the State. These local bills, formerly so expensive to the State, are now dead letters." The general secretary of the Baltimore Merchants and Manufacturers Association testifies:'^ "The impresion here among those who have observed the oper- ation of the Budget System is that it has been a marked success. (6) Letter from B. Howell Griswold, Jr., October 31, 1921. (7) Letter from Secretary A. S. Goldsborough, November 10, 1921. 87 6f course, the matter has not been on the statute books suffici- ently long yet for it to demonstrate the measure of its value. The experience, so far, seems to be satisfying to those who have watched the workings of the law in the matter of providing for the Legislature an adequacy of financial information. No criti- cisms have been made of the law at this point. "There is a very definite feeling among all elements in our State that the budget system would lose 75% of its real service to the taxpayer* if it failed to carry the restriction which pre- vents the Legislature from increasing appropriations. That limitation, as a matter of fact, is one of the most efficacious points in the whole law. I am rather inclined to believe that the public would fight most strenuously against any change at this point. Our experience has been that this restriction has .been of value in the actual administration of departments, be- cause it has checked up any possibility of departments submitting one basis of estimates, and then, on the quiet, trying to find help in the Legislature to have the appropriation for such department increased. "We believe from our observation that the Budget System has been one of the most stimulating influences in causing the present governor to pay so much attention to the administrative machin- ery of the State. I believe that the workings of the Budget and the disclosures it made in the matter of administrative cost are the real explanation of the Governor's recent campaign to bring about the complete reorganization of our State Administrative System. As a matter of fact, his program of reorganization was made an issue in the election campaign just closed, and resulted in an overwhelming triumph of his policies. "We find it somewhat difficult to make a comparison in dol- lars and cents savings under the Budget System, because our system has come into vogue since the period of the high cost of everything, and, as a consequence, we have no like conditions without the budget to compare with the effect that the budget itself produced. There is a moral conviction, however, that but for the budget our general expenditures would have been heavier. The only lines of criticism that we hear directed against the budget is the fact that the construction and submission of a Budget Bill apparently so completely covers the fiancial situa- tion of the State that the legislature is pre-disposed to treat it in a perfunctory rather than in an investigatory way. This, however, is an indirect compliment to the Budget System, rather than a criticism, because it evidences the fact that the Legisla- ture considers the Budget so sound as well as comprehensive, that it would be senseless to engage in petty attacks. Everybody feels, however, that if there was any real weakness in the budget 88 appropriations that it would be very certain to evoke a violent outbreak on the part of discontented members of the Legislature." Certain defects in Maryland's finance organization have been revealed by an efficiency survey of the state administra- tion :^ "(1) There is no official of the state now recognized as being responsible to the Governor for the advice and assistance needed on all problems of finance and financial control. It is believed that adequate study of all problems of finance and the develop- ment of a system of financial administration meeting the re- quirements of centralized administration is almost impossible so long as the Governor is not assisted by a full time general financial official. "(2) There is no office responsible for control and enforce- ment of the budget and estimating system and for securing the information needed to compile the budget and review the esti- mates of departments. "(3) The independent accounting and auditing office under the Comptroller is not given the complete powers and authority to direct all work of review and audit needed to permit the de- velopment of its full influence and usefulness." Utah No comment is available upon the Utah budget law "Orig- inally modelled after that of Maryland but recently amended to provide a department of finance and budget as in Illinois. Nevada Resembling Maryland's practice except in freedom of the legislature to increase budget items, the Nevada budget law has found favor in certain quarters. Governor E. D. Boyle declares;^ "The result of the Budget in Nevada was the reduction of the state expenditures for the 1921-1922 biennium some 18 per cent below the expenditures for the preceding biennium. (8) Report in re The Organization and Administration of the State Government of Maryland, Pt. Ill, Griffenhagen and Associates, April, 1921, p. 59. (9) Letter from Governor E. D. Boyle, June 13, 1921. 89 "The only departure from executive budget practice here was provided in a plan whereby the Ways and Means Committees of the two Houses were present at the general budget hearings. These committees were asked to participate in the discussion, to counsel with the Governor and to treat the whole proposition of preparing the document as a cooperative enterprise. "I did this in the belief that better results would be obtained- thereby, and also because of the fact that the right of the legis- lature to initiate appropriations could not be questioned under the Nevada constitution." Counsel for the Southern Pacific Railroad thus character- izes the Nevada Budget System :^^ "It gives to legislative appropriations an intelligent direction and its immediate tendency is toward economy. It has operated here to put an end to the old system of log-rolling in appropria- tions. In addition to this it has uniformly required care in the expenditure of appropriations to each of the various departments of the government. It has operated to the advantage of the people in general through a reduction in taxation for state and county purposes — . I do not believe anyone in Nevada would think of returning to the old system." Virginia In Virginia the governor designated an advisory board of two senators and three representatives of the legislature to as- sist him in the preparation of the first budget. His purpose was (1) to establish a closer cooperation with the general as- sembly in the administration of the budget law; (2) to avail himself of the experience of men of long training in the legis- lature in the handling of appropriations, and (3) to provide an opportunity for representatives of each house of the general assembly to familiarize themselves thoroughly with the budget estimates. Prior to preparation of the estimates the governor also employed a trained economist, a statistician and experts from the Institute for Public Service of New York and the Detroit Bureau of Government Research to make administrative sur- veys of every major state department and institution involving 117 separate reports and 22 special studies. A scientific basis (10) Letter from Samuel W. Telford, Reno, September 15, 1921. 90 was thus laid for administrative reorganization and introduc- tion of business methods in state government. ^^ Despite the handicap of a decentralized state administra- tion, the Virginia budget system has achieved substantial suc- cess. A statement by the chairman of the committee on appro- priations of the Virginia house of delegates, 1920, reads r^^ "With the approval of Governor Davis of House Bill No. 318 on March 10, 1920, making appropriations for the next two years amounting to a total of $22,496,000, Virginia's first budget be- came a reality. While the appropriation bill as passed by the General Assembly exceeds the Governor's original budget recom- mendations by $352,000, it nevertheless is within the estimated revenues of the State for the next two years — according to the Auditor of Public Accounts — by $343,000. Never before in the history of the State has an appropriation bill been framed, con- sidered and passed with the same degree of intelligent interest, and with as much detailed information at the command of the individual members of the General Assembly, as was this first bill under our budget system. "Providing a clear increase of $1,000,000 for the public schools of the State payable direct out of the State treasury, instead of having to increase taxes to provide for our school needs — which means a saving to the taxpayers ot the Commonwealth for the next two years of the equivalent of a six cent increase in the general property tax; and carrying liberal increases in appro- priations for pensions, roads, agriculture, all the educational institutions, for the State hospitals, and for almost every de- partment of the State government, including increased salaries for nearly every State officer and employe, the budget makes ample provision for the efficient conduct of the State government for the next two years at a saving of more than $3,000,000 as compared with the estimates of the departments and institu- tions filed with the Governor in November. "As chairman of the appropriation committee of the House of Delegates, I am in full sympathy with the budget system, and am convinced that it will do more to place the State's affairs on a business basis than any other single piece of legislation that has ever been enacted in Virginia. I am thoroughly convinced, now that we have fully worked out the procedure under the budget (11) Commonwealth of Virginia, Budget, 1920-1922, XIII. (12) Statement of Honorable J. Sinclair Brown, Roanoke County, 1920. 91 system, that the appropriation act can be disposed of from two to three weeks earlier at the next session than was the case at this session." The secretary of the Roanoke Association of Commerce remarks, ''that for the first time in the history of the State, stock has been taken and we know exactly what it is costing to run each department. If the budget served no other purpose than that of an educational nature, we believe it would still be worth- while. ''13 South Carolina In a special report upon South Carolina's budget system, dated October 15, 1920, Griffenhagen and Associates, Ltd., ef- ficiency engineers and accountants of Chicago, found :^* "South Carolina is far in advance of most states in its ac- ceptance of the budget idea and the state of development to which it has been brought by its budget procedure." Governor Cooper in presenting the 1921 budget to the South Carolina legislature declared r^^ "While the budget system has been in operation only one year, the fiscal year 1920 has been closed with the result of an unusually satisfactory condition to the treasury. The 1921 bud- get does not contain a single request for a deficiency appropria- tion, whereas last year the Legislature was called upon to op- propriate for deficiencies in a sum exceeding one-fourth of a million dollars." The South Carolina budget law provides that the chairman of the house ways and means committee and of the senate fin- ance committee shall sit with the governor at the public hear- ings on the estimates; but the governor bears complete respon- sibility for the budget submitted to the legislature. Effective cooperation between the legislative leaders and the governor, together with the constant employment of experts to reconstruct (13) Letter from Secretary John Wood, June 13, 1921. (14) The South Carolina State Budget, 1921, p. 4. (15) Ibid. 92 the state's accounting methods, are making for steady improve- ment in South Carolina's budgetary system patterned after that of Virginia. * Oklahoma ' The Oklahoma budget law, copied from Virginia, has not worked well. Partisan wrangles in 1921 between a Democratic governor and the legislature with a Democratic senate and a Republican house created a deadlock on appropriations, temp- orarily broken to pass a few deficiency bills. ^^ A survey of Oklahoma's financial system, issued by the State University's Bureau of Municipal Research, summarizes existing defects in Oklahoma's budget procedure i^^ "To he truly effective the law should forbid the Legislature from considering, except by extraordinary vote, any appropria- tion that has not been submitted through the governor. This, however, would necessitate a constitutional amendment, since, as noted above, the Legislature, when not specifically restricted by the constitution, has power over all rightful subjects of leg- islation, and may also override the Governor's veto by a two- thirds vote. "Another stumbling block in the road to a true executive bud- get is the independence of the state administrative departments. Since they are not responsible to the Governor, but for the most part derive their authority from the same source as he — the Constitution and the people — they are to a large extent in- dependent of him in financial planning, and even were he given the final work in making financial plans, the carrying out of these plans would still be in the hands of independent officials. "Another defect of the present system is that under it the out-going Governor prepares the financial plans for the first two and one-half years of his successor's term. "Still another stumbling block in the road to a really respon- sible executive budget is the existing lack of provision for a 'showdown' in case of a deadlock between the Governor and the Legislature over the financial plans, as presented in the budget. (16) Buck, "State Budget Progress," p. 573. (17) Blachly, F. M, The Financial System of the State of Okla- homa, University of Oklahoma Bulletin, Studies in Government and Administration, No. 3, January, 1921, pp. 23-24. 93 "The Oklahoma System should be so amended as to provide for the submission by the Governor, in connection with his plans for expenditures, of copies of tentative bills for any changes in the revenue laws that he may deem essential to that plan, and for the consideration of these bills by the budget committee. "The preparation of the state budget this year has been serious- ly hampered by the failure of the last Legislature to provide the funds necessary for the employment of an adequate staff to assist the Governor in making the survey of state departments and institutions which is provided for by section 6 of the budget act. This defect is not inherent in the provisions of the act itself, but is entirely due to lack of proper financial support." Illinois In 1921 Governor Small of Illinois surrendered the initia- tive in state financial planning to the legislature. One month after taking office he submitted to the legislature the budget prepared by his predecessor, Grovemor Lowden, but refused to accept any responsibility for the recommendations contained therein. 1^ The result was that legislative appropriations in 1921 of $81,488,267 exceeded the budget estimates by four- teen million dollars, in contrast with appropriations in 1919 of $62,096,009, exceeding the estimates by less than nine million dollars. And the governor at the last minute negatively influ- enced the state's financial and work program by vetoing appro- priations totaling $6,900,492, as against $340,022 vetoed in 1919. According to the general secretary of the Illinois Chamber of Commerce,^^ *'The business men of Illinois look upon Governor Lowden 's administration as one of the most success- ful the state has ever enjoyed, due fundamentally to his organ- izing the state on a more business-like basis than it had ever been run before. **His installation of the budget system is one that has met with the heartiest approval of everyone We, here in Illin- ois, believe that the budget system is just as essential in run- ning a state as it is in running a business." * (18) Buck, "State Budget Progress," 572. (19) Letter from Secretary Harvey T. Hill, CHiicago, June 8, 1921. 94 Professor John A. Fairlie, formerly director of the Illinois Economy and Efficiency Commission, states i^o "The Illinois budget system has worked well within the limits of the administrative reorganization. This was most clearly dem- onstrated in 1919. The state expenditures for the two preceding years for the administrative code departments had been kept substantially within the appropriations, except for food and other supplies for the charitable and correctional institutions, where the general increase of prices could not be avoided. Expenditure for the elective offices not under the administrative code showed — even more than the usual excess over appropriations for the same two years. "Appropriations made in 1919 for the administrative code de- partments were in accordance with the Governor's budget; but appropriations for elective offices not covered by the code had, as usual, a considerable increase over the original budget esti- mates. "In the present year, the making of the budget was affected by the change of administration; and illustrates the difficulty in- volved in having a retiring official prepare a budget for his suc- cessor. The budget was prepared under Governor Lowden; and was submitted by the new Governor (Small) without recommen- dation, as he had not had time to go over it in detail in the month between his inaugration and the date set for presenting the budget. "The legislative appropriations made this year were largely in excess of the budget estimates, a considerable part of this again being for offices and institutions not covered by the administra- tive code. Probably a good part of this increase would have been made in any case, on account of the higher scale of prices. The Governor exercised his power of vetoing items more freely than before and thus reduced the appropriations materially." Nebraska Nebraska's budget practice generally follows that of Illinois but differs from it in certain respects. By a constitutional amendment of 1920 the governor of Nebraska shall present at the beginning of each legislative session a complete itemized budget covering all state activities for the ensuing biennium. No appropriations shall be made in excess of the recommenda- (20) Letter from Prof. John A. Fairlie, Urbana, August 10, 1921. 95 tions contained is such budget unless by a three-fifths vote of each house of the legislature, and such excess so approved by a three-fifths vote shall not be subject to executive veto. 21 Other deviations from Illinois' practice are:^^ (1) The out-going governor shall deliver the budget to the legislature previous to the close of his term, and the incoming governor shall have fifteen days in which to review such budget and may send to the legislature a supplementary budget message suggesting any changes which he deems wise; and (2) The governor shall submit to the legislature with his budget, copies of a tentative bill for all proposed appropriations of the budget clearly itemized and properly classified. Governor McKelvie reports that under the Nebraska admin- istrative code of 1919 ''each spending agency was required to submit periodical estimates of expenditures to the Department of Finance before expenditures were made. Thus, such a check was obtained over expenditures that we were able to run these departments without any deficiency whatever during the bien- nium, and a surplus of $188,000 remained unexpended. This is the first time in many years that all of these departments have been run without a deficiency. ''^ 3 MdssachiiseUs Owing to effective cooperation between the legislature and executive the Massachusetts budget system is being steadily improved and regarded with increasing favor. By mutual agreement in 1920, for the first time, the senate and house ways and means committees meeting jointly heard and revised the governor's budget. The joint committee found itself in a difficult position for the governor's revenue program not only contained some rather questionable recommendations but fell short of his expenditure program by $1,300,000. In order to guard against executive evasion of responsibility for the budget, the committee requested that he "submit to the (21) Constitution of Nebraska as amended 1919-1920, Article IV, sec. 7. (22) Nebraska Session Laws, H. R. No. 492, 1921. (23) Letter from Governor S. R. McKelvie, August 5, 1921. 96 General Assembly a supplementary budget containing a state- ment of 'all taxes, revenue, loans and other means by which the expenditures recommended in his original budget message shall be defrayed.' " The governor acceded to this request. Instead of recommending the misappropriation of capital funds he urged the legislature to increase the direct state tax from $12,000,000 to $14,000,000, dropped the indefinite special taxes, and sub- stituted additional levies on inheritance and corporate in- comes.^^ In practice the governor is now looked to for leadership in matters of appropriation, and harmonious relations with the legislature have prevailed to such an extent that most of the troublesome financial questions are settled before reaching the appropriation stage. Hence the governor has not exercised his constitutional right of vetoing items of appropriation.^^ Honorable Benjamin Loring Young, speaker of the house in 1921, authorizes the following statement of striking results already obtained under the Massachusetts budget system: "It has imposed upon the Governor financial responsibility and leadership. Before its adoption, the Governor had no control of appropriations except through the exercise of the veto power. He had no real authority to make a definite financial plan, for the fiscal year and submit it to the Legislature. All the vari- ous state departments submitted separate estimates to the Leg- islature, and there was no executive revision or study of these estimates. The entire burden of comparison, study and revision was thrown upon a legislative committee which had neither time, facilities nor expert knowledge for the task. Estimates were considered throughout the entire session and in 1915, 136 sep- arate appropriation bills were passed by the Legislature. It la. obvious that under such a system absolute fairness was almost: impossible to achieve. Furthermore, there was no real attempt by anybody to balance expenditures and revenues in advance Appropriations were made as seemed necessary. They were« added up at the end of the session. The total figure was com- pared with the estimated revenue of the state under existing law^. and the amount of the deficit levied on the cities and towns as a so-called state tax. This state tax is the historic method of (24) Gulick, L. H., State Service, July— August, 1920, p. 571. (25) Letter from Supervisor of State Administration, December 15, 1921. 97 finance for Massachusetts. Under the budget system, the whole plan is made in advance, all estimates must go through the office of the Supervisor of Administration which has an expert staff agency created to advise the Governor on budget matters. "The budget itself is filed in January by the Governor. It shows the requests of all the various departments and also the personal responsible recommendation of the Governor on every item together with the Governor's plan for the fi,nancing of all expenditures for the current year. This estimate does not in- sure perfection but it has at least brought order out of financial chaos. "The budget system makes unpopular the old pastime of 'pass- ing the buck'. Frequently, one reads in a Governor's message a beautiful plan for old age pensions and many other social im- provements without a word as to their cost. The same message usually closes with an appeal to the legislature for strict econ- omy and a reduction of state expenses. When every expenditure recommended by the Governor must be included in his budget, he is not likely to recommend any expenditure which can not be properly and wisely financed. "A reduction in the number of appropriation bills from 136 in 1915 to 2 in 1921 has meant a saving of time and money. The general appropriation bill of today gives one an accurate picture of the entire administration of the state. "The budget system will curtail although it may not entirely remove the greatest evil of American legislation; namely the *pork barrel'. Many persons regard that Legislator as most efficient who can get the largest sum out of the state treasury for local improvements — highways, harbors, buildings, every- thing that will ornament and enrich a particular locality. The Governor views expenditures from the point of view of the whole state, not the narrow aspect of one district. He is not likely to include such expenses in his budget. "Our budget law provides that special appropriation bills may be enacted by the Legislature after final action on the budget, but that 'such bills shall provide the specific means for defray- ing the appropriations therein contained.' The man who wants $100,000 for a public building at Bingeville Corners must tell the people exactly where the money is coming from because the Governor did not put it in the budget. This is calculated to take a large measure of the joy out of life. "The budget itself can not be said to reduce indebtedness, but it tends in that direction. It brings the glare of publicity upon state finance. In Massachusetts the net direct debt of the state which excludes the indebtedness for Metropolitan im- t8 provements in and near Boston was in 1917, $33,658,000. Mas- sacliunetls paid her soldiers a $100 bonus at a total expense of nearly $20,000,000. A considerable amount of this still shows in the debt column and yet today the net direct debt of the state is only $35,000,000. The budget has forced the adoption of a pay-as-you-go policy. "Lfet me suggest two essentials for the making of a budget system which will be really a success. The first relates to legislative procedure; the second, to financial control after ap- propriations are made. "I regard it as essential that all financial legislation be re- ferred to one committee which should be a joint committee for representing both branches of the state legislature. Absolute financial responsibility must be pinned on someone. In the executive branch, place it on the Governor because he is the chief civil officer of the state whose responsibility and leader ship should be increased until he becomes a real business man- ager of the state. In the Legislature, place the responsibility for study and authorizing the Governor's financial program on a committee of picked men. Once get a good budget system, and unwise appropriation of money becomes very difficult. Sup- plement your budget system with sound accounting. It is much harder to get the Legislature to appropriate money unwisely than it is to get a public official or department to spend that money unwisely or to allow the material and other supplies which may be bought with that money to be extravagantly or dishonestly used." Business men of Massachusetts freely endorse the state's executive budget system. The secretary of the Massachusetts State Chamber of Commerce writes i^? "Certainly it has seemed to every one that this year the budget which has been established for three years has com- menced to demonstrate its worth in a practical fashion. The results show that it provides an early and correct knowledge of what the state taxes must be for the forthcomng year. "This is quite a contrast to the old method of departmental appropriations under which information as to the amount of the state tax could only be ascertained by the Legislature toward the end of the Legislative session and so far as the public was concerned was not likely to be wholly understood until the ad- journment of the Legislature. (26) Letter from Secretary E. G. Stacy, Boston, June 6, 1921. 99 "A second very great advantage is that the Goyernor is en- abled to have before him many weeks prior to the opening of the General Ck)urt a related scheme of state financing for his study and approval which has been based upon very careful ex- amination and appropriation by each state department in Oc- tober covering its needs for the ensuing calendar year. This makes of the Governor a real chief executive in charge of all of the finances of the State. Furthermore, it provides the Legislature at the out-set of its session with a comprehensive analysis of the state's business affairs. "The result has been e^ideuced in the fact that the Legis- lature has steadily become more conservative and during the session which has just endeil affected remarkable economies and turned down practically all legislation involving new ap- propriations where the work could not be expected to be largely self-supporting from the fees. "It was anticipated that the state tax might have to be in- creased two million dollars but because of the Governor's econ- omy program and the intelligent interest which the public was able to take in the state's financial affairs the Legislature was able to reduce its appropriations and keep within the old state tax which is $14,000,000. "Another very marked influence of the state budget is the result it is having upon the practice formerly indulged in of voting special appropriations for local road work which al- ways savored of 'pork barrel' methods. During the recent ses- sion local road bills were all defeated and appropriations kept down accordingly." New Jersey The secretary of the New Jersey State Chamber of Com- merce finds that the state^^s executive budget has seven advan- tages over the previous legislative budget :^'^ . "(1)' More careful consideration of the requests by the various departments for their requirements for the coming year. "(2) An opportunity to compare the requirements of the various departments to get their relation to the whole question of appropriation. "(3) The necessity of the departments developing their en- tire program which has materially reduced the supplemental requests. (27) Letter from Secretary E. M. Barradale, Newark, June 9, 1921. 100 ; ' > ' > ' :>,' , , , , ) J J "(4) The time allotted for consideration of the budget by the Executive Department gives a better opportunity to in- vestigate the real needs of the Departments. "(5) The executive budget enables the Governor to have more control over the administrative departments. "(6) The Legislature gets through its Appropriations Com- mittee, a more comprehensive and understandable survey of the requirements. "(7) The amendment advancing the fiscal year from No- vember 1st to July 1st increases the time within the Gover- nor's term over which his budgetary activities run." Senator Arthur Whitney, who has been a member of the committee on appropriations since the installation of the exec- utive budget and acted as chairman of the committee for three years, makes the following comments upon New Jersey's exec- utive budget system :28 ''The New Jersey budget act went into effect in 1916 and has in five years proved its value in the efficient distribution of the state's funds. "The Governor may engage such assistance as he desires in the preparation of the budget, but a serious defect in the New Jersey statute is that there is no permanent budget bureau and no budget officer required by law. It would be possible for a Governor to have no records and to dismiss all persons who had been connected with the preparation of the budget, so that a Legislature forced to consider the items of the budget would have no data available for their information. There is no question that there should be a budget oflSicer, who would be at work all the year in collecting and filing data relating to the budget. Exact information is essential to budget making, and without a permanent budget bureau, with a budget officer at the head, such information is impossible. "The Jersey law should also provide for closer cooperation between the committee on appropriations and those who have been engaged in the preparation of the budget. It should per- mit the Governor, at his request, to appear before the commit- tee and personally defend the budget recommendations: it should require the filing of records of the proceedings of the Governor's hearings and of the committee on appropriations and should give the committee power to secure all data it may re- quire from the budget officer, and compel his presence, if re- quested any time. (28) Letter from Senator Arthur Whitney, December 20, 1921. 101 •'In ' d "budgfet which is of the executive type, every effort should be made to fix responsibility upon the executive. In New Jersey, the committee on appropriations may alter in any respect the recommendations of the budget, and when it re- ports out the annual appropriation bill, the Legislature may amend that bill in any manner it desires. The result of this is unfortunate. The Governor holds hearings, but items are frequently not . brought forward at those hearings because it is felt that he might not include them, or might cut down other items in the same department in order to include them. There is always the thought that they can be brought before the com- mittee on appropriations, or, failing that, pressure can be brought upon th« legislature to add them to the appropriation bill. "Many states have in their law the requirement that the ap- propriation bill shall be considered before any other items carrying appropriation, which, from one point of view is very wise. An appropriations committee can not intelligently ap- propriate the state's funds when bills are being constantly passed in the legislature requiring appropriations. It means that the work of the committee must be constantly revised, if any money at all is to be left in the state treasury. There is, however, one difficulty in considering the appropriation bill before other bills carrying appropriations; it means a succession of supple- mental appropriation bills, and consequent depletion of the treas- ury. It is a safer plan to have one appropriation bill than a number of bills, and that is the intent of the budget act. A step towards showing clearly the responsibility of the Governor, as distinguished from that of the Legislature, would be to re- quire the Governor to introduce, along with his budget and budget message (the requirements for which are well defined in the New Jersey statute), a Budget Bill, which should be in- troduced in the legislature on the opening day of the session and be referred to the committee on appropriations. The items of this bill, as reported by the committee, should constitute part one of the original appropriation bill, changed by omis- sions, decreased or increased as the committee may have seen fit, but no new items added; all new items should be in part two of the bill. This would keep all appropriations in one bill, yet would show distinctly what new items had been added by the legislature, either in committee or by enacted laws. For New Jersey, this would be a desirable change in the statute. "A difficulty in regard to fixing responsibility on the Governor is the fact that every three years the responsibility is shifted, because an out-going Governor prepares the budget for the in- 102 coming Governor. The effect of this is bad, first because the out- going Governor frequently may take little interest in a budget which he is to leave to his successor, and, secondly, because if the in-coming legislature and Governor are of a different political faith, they have little regard for the budget recommendations of the out-going Governor, and the responsibility is too divided for the people easily to fix it where it belongs." Kansas The Kansas budget act resembling that of New Jersey has not been effective in practice. In his message to the 1921 leg-, islatiire Governor Allen urged consideration of a budget com- mission composed of the governor, auditor and budget director, to revise departmental estimates not in a most artificial fashion as under the present budget law but with investigatory powers definitely established and defined by statute.^^ In explanation of the budget law's failure Governor Allen's secretary observes :^^ "Our budget law is not effective for the reason that it does not provide adequate budgetary machinery for making examina- tions into the needs of the various state institutions and depart- ments. Under it the head of each institution, department or board makes out the budget for hisi department and submits it to the governor. The governor, under a scientific budgetary system, should then be provided with sufficient working force to go into the merits of these various recommendations for the pur- pose of getting data for his own recommendations to the legis- Iture. "In the absence of this machinery, all that the governor can do is to take the word of the head of the department or institution as the best information obtainable as to its needs. ' "At the last session of the legislature Governor Allen sub- mitted the recommendations of all the departments to the legis- lature without change, merely saying to the legislature that they should give sympathetic attention to the various budgets pre- pared. In practice the Kansas budget law has not caused any different attitude toward appropriations than prevailed before the passage of this law." (29) Message of Governor H. J. Allen to Kansas Legislature, Janu- ary 11, 1921, p. 2. (30) Letter from E. D. George, December 7, 1921. 103 And the secretary of the Kansas state board of agriculture believes the state budget can not succeed without the aid of a director of finance or similar oificer devoted to a continuous study of the needs of state departments and institutions. ^^ On the whole, budgetary procedure has produced no marked advantages in the miscellaneous group of states under an execu- tive budget. « Arizona In Arizona the former executive budget secretary asserts :^^ "The budget submitted to the Legislature of 1921, while some- what amateurish, gave the finance committee of the two legis- lative houses the first real comparative figures which they had ever had, as a basis for appropriations. "Under our law the legislature was in no manner bound by the recommendations of the Governor and the budget was purely advisory in its function. Unlike the executive budget where the so-called Maryland Plan prevails the recommendations of the Governor could be increased or decreased at will, and the appropriation bill showed on final passage that the legislature had made full use of its privilege. Under such a law as we have in this State I fail to see any benefit derived from our first attempt at making the appropriations based on budget system." Colorado According to the budget and efficiency commissioner of Colorado, ''The operation of the Colorado Budget Law havS not been very successful. "^^ And Governor Shoup in his mes- sage to the legislature of 1921 said:^* "The experience of the budget department in its first two years strengthens my conviction that the recommendations o£ the head of that department, when approved by the Governor, should have more fotce and effect than at present. When changes of administration occur the budget for the ensuing biennial period (31) Letter from J. C. Mohler, June 10, 1921. (32) Letter from Ghas. W. Fairfield, State Auditor, June 15, 1921. (33) Letter from C. A. Lemmers, June 15, 1921. (34) Address of Gov. O. H. Shoup before Joint Session of the 23d General Assembly of Colorado, January 7, 1921, p. 6. 104 should be prepared by the outgoing Executive. It is not to be expected that a newly-elected Governor will have sufficient in- formation regarding the specific needs of State departments and institutions to formulate a financial plan at the outset of his term." Iowa A former leader of the Iowa House of Representatives affirms that the executive budget established in Iowa in 1915 has been almost valueless. ^^ ''It amounts to nothing more than a grouping of the askings of the various departments, and lacks all the essential fundamentals of a real budget system. I think no budget system will be adequate that does not func- tion through a continuing board or administrator. ' ' Governor Kendall of Iowa reviewing the budgets submitted to the legislature concludes :^^ *'I regret exceedingly to say that the recommendations con- tained in the budget have not been accepted as the basis for ap- propriations by the General Assembly. The amounts determined upon by the legislative committees for the support of the various activities of the State have been arrived at largely by sur- rendering to the demands of the different departments, precisely as was done before the budgetary system was established." Minnesota Budget practice in Minnesota is thus characterized by the director of the Bureau of Municipal Research, Minneapolis Civic and commerce Association:^^ "Although the governor is given legal authority and apparent responsibility for the budget, he is given no funds with which to provide himself with a staff that can furnish him with real information. The result is that all the Governors have done has been to transmit to the Legislature, in printed form, the de- partmental requests." (35) Letter from J. B. Weaver, Des Moines, July 7, 1921. (36) Letter from Gov. N. B. Kendall, December 17, 1921. (37) Letter from F. L. Olson, June 9, 1921. 105 In his inaugural message, Governor J. A. 0. Preus, January 5, 1921, urged the establishment of a permanent budgetary sec- retary appointed by the governor, subject to ratification by the house and senate.^^ New Mexico The Taxpayers' Association of New Mexico is dissatisfied with the state's executive budget system and fostered a constitu- tional budget amendment in 1921 which was rejected by popu- lar vote.^^ Under this amendment the governor would as- sume office one month earlier and the legislature would con- vene somewhat later than in the past, allowing the governor op- portunity to study the needs of the state. A budget bill would accompany the executive estimates; no special appropriations could be enacted before passage of the general appropriation bill, except upon the governor's recommendation; and the legisla- ture would again be powerless to increase appropriation items other than those for the Judicial Department. Ohio Prior to the establishment of a department of finance, Ohio's budget estimates were submitted to the governor, re- viewed and submitted by him to the legislature. In practice the estimates were prepared by a budget commissioner. This procedure has been critically appraised by the Ohio Institute for Public Efficiency, an advocate of an executive budget amendment to the state constitution :*^ "(1) No complete program of work or financial plan Is re- quired to be submitted by the Governor to the legislative body. Estimates of expenditures, with few written explanations are submitted in the name of the Governor. Recommendations for additional income needed are lacking. (38) Inaugural Message of Gov. J. A. O. Preus to the Legislature of Minnesota, January 5, 1921, p. 18. (39) Letter from Director of Taxpayers' Association of New Mexico, Santa Fe, August 16, 1921. (40) "A State Budget System for Ohio," p. 4. 106 "(2) Adequate financial reports are not available to show the financial condition of the state at different times or the cost of expense of operation, upkeep, or outlay for any specified period. "(3) Accounts are not kept in such a manner as to distin- guish the expense of operation from that of the upkeep of prop- erty or of either from the outlay for increasing the assets of the state. "(4) The estimates of expenditures which are submitted to the legislature are not digested in such a form as to be readily understood by the members of the legislature or by the citizens. "(5) The sessions of the finance committees of the House and Senate to which the budget is referred are usually be- hind closed doors. There is little or no chance for public par- ticipation or hearing. "(6) A considerable waste of time is involved, in the sepa- rate consideration of the budget by separate committees of the House and Senate. A joint finance committee could work more effectively. "(7) The present form of the appropriation bill is bulky and unsummarized. No totals appear. It is safe to say that few, if any, members of either house know how much money they are appropriating when they vote upon the appropriation bill." Administrative Budgets California The recent administrative reorganziation in California vir- tually regularizes the hitherto informal budget-making func- tions of the state board of control. On the preparation of a budget by this board the director of the research and service department of the Security Trust and Savings Bank of Los Angeles comments :^^ "While this budget was informal and in no way legally bind- ing upon the Legislature, in fact it was absolute both in its effect upon the Legislature and upon the officers of the state ad- ministrative agencies. This was so on account of the fact that the Governor politically so completely dominated the members of the law-making body and because the executive, under the California Constitution is given the power of item-veto over ap- propriation bills. Even if individual appropriations not appear- ing in the so-called budget were passed by the Legislature, they (41) Letter from J. R. Douglas, August 25, 1921. 107 could be eliminated by the Governor without endangering in any way the support of the general executive establishment. "While no actual abuse of this indirect means of the executive in California of controlling the fiscal policy and financial pro- gram can be pointed out, the scheme tended to set up an olig- archy in the State Board of Control and to cause considerable friction and exasperation among the heads of state departments of administration. It became the common practice of the Board of Control to require that department heads should pledge them- selves in advance to abide by the Board's action upon their esti- mates and to refrain from seeking independent provision of funds from the Legislature. If such guaranties were not forth- coming, little hope could be expected in the way of appropria- tions." In the state election of 1922 the Commonwealth Club of California will initiate and submit to the people a constitutional amendment establishing an executive budget system, permit- ing the legislature to increase items of the budget bill, but pro- hibiting legislative passage of special appropriation measures prior to adoption of the budget bill. Reviewing California's experience with an informal ad- ministrative budget board, the director of the California Tax- payers' Association believes the governor should be personally responsible for the budget, entrusting the ministerial work of its preparation to the subordinate agency or staff. "^^ Connecticut Comptroller Harvey P. Bissell of Connecticut thinks that supervision of appropriations by the state board of finance has many immeasurable advantages over former haphazard meth- ods.^2 West Virginia Relative to West Virginia's budget board the treasurer of the state board of control remarks :^^ (42) Letter from W. H. Fisher, Los Angeles, October 28, 1921. (43) Letter from Assistant Secretary, Connecticut Chamber of CJommerce, Hartford, June 24, 1921. (44) Letter from J. W. Barnes, July 18, 1921. 108 "This is the second year the budget commission has functioned, and all are agreed that it is a great improvement over the old method of log-rolling that obtained. "The legislative committees are very careful and all items must pass their minute inspection. "Under the present system the heads of the various state de- partments pass on their own budget and in this way, of course, some of the desirable things to be obtained are lost. "The arrangement of the Federal government providing the special budget commission in which no one is pecuniarily in- terested in the appropriations meets this objection." From a member of the West Virginia Senate there comes the following criticism of the state 's budget system i'*^ "Under our budget system the Board of Public Works made up of the State Officers compose the budget commission. They make up the estimates and submit a bill to the Legislature and the Legislature cannot increase the estimates but may make reductions. The system is not working satisfactorily and there was a strong sentiment at the last session to repeal it, and if it was not a part of the Constitution it would have been re- pealed. "In practice each department is inclined to pad its estimates and then secure its adoption by helping others get their padded estimates. It is my judgment that a successful budget .system must be in control of the Governor or of a Board that is not interested in any of the expenditures of public money." Montana The latest Montana budget contained no recommendations, because two of the three members of the budget-making author- ity (the State Board of Examiners) were retiring from office early in 1921.46 Tennessee There has been a very good budget law on the statute books of Tennessee since 1917, but no budget has yet been submitted to the legislature in compliance with its provisions.^" (45) Letter from Senator Harvey W. Harmer, Clarksburg, June 18, 1921. (46) Buck, "State Budget Progress," 571. (47) Ibid. 109 Michigan Under the heading, "Why Michigan's Budget Failed/' the Committee to Promote Reorganization of Michigan's State Government reported in 1920 on the work of the budget com- mission recently superseded ;^^ "Intelligent consideration of budget requests under the pres- ent system is practically impossible. Responsibility for fram- ing the budget is divided. The essential information is lacking. There is no one between budget periods who is directly charged with the • responsibility for studying the work and problems of the various institutions and state departments to determine the conditions under which they operate, the character and quality of the services they render, and to estimate the cost of doing the work or giving the service for which they are respon- sible. "Furthermore, so long as a budget is looked upon as a finan- cial program rather than a program of work and service to be rendered, intelligent control of appropriations is impossible. Every budget request should show costs in terms of services it is pro- posed to render to the state, rather than costs of supplies, ma- terial, equipment, etc. "Intelligent and effective budget procedure requires that in- formation be made available which enables the appropriating body to determine what services are most vital and essential to the state, and when a request for funds is refused, exactly what services are made impossible." This committee urges provision for a single budget com- missioner, appointed by and directly responsible to the gov- ernor, who shall be charged with the duty of securing for the governor information regarding the work being done by the various departments responsible to him. The budget commis- sioner should be furnished the means for studying conditions and needs of the various state departments and institutions to secure the information essential to intelligent consideration of budget requests made by them. (48) Summary of Report on the Analysis of Michigan's State Gov- ernment, January 1921, pp. 11-12, 15-16. 110 Administrative-Legislative Budgets Wisconsin In 1919 Governor Pliilipp of Wisconsin lauded the state's budget system in an address to the National Conference of State Purchasing Agents of the United States, at Madison. Particular advantages of Wisconsin's budgetary procedure cited were;^^ "In the first place a uniform system of accounting has been adopted by the state. Departments are required to keep their records under the same classifications as are used in the bud- get. In this way their records show whether they are expend- ing their appropriations for the purposes authorized by the legislature. "Not only are departments required to keep records of their expenditures but they are likewise required to furnish monthly reports to the office of the State Board of Public Affairs. These monthly reports consist of classified statements of the expen- ditures, copies of the pay rolls, detailed statements of traveling expense vouchers and any other bills which may have been in-' curred. These reports are checked, examined and entered on an appropriation record kept in the office of the State Board of ■ Public Affairs, so that the Board constantly knows for what purposes the funds are being expended and whether the legis- lative intent is being complied with. "The State Board of Public Affairs is required by law to conduct the annual audits for all departments. These audits afford another check upon the purposes for which the funds have been expended and enable the board to maintain a close scrutiny upon the fiscal affairs of all departments and activities. "The adoption ^f the budget system has made it necessary for all financial affairs of the state to be conducted in a manner which is open and above board. It no longer is possible for a department to get two or three appropriations for the same purpose. The purpose must be legitimate, for all Requests are now scrutinized so carefully and publicity given that it is next to impossible to slip any appropriations through which should not be passed. "The budget system has resulted in the elimination of a large (49) Budget and Budget Making, Address by Gov. E. L. Philipp of Wisconsin, at National Conference of State Purchasing Agents of the United States, Madison, August 27-28, 1919. Ill number of personal measures. Members of the Legislature are no longer interested in espousing the cause of this or that per- son in state sei'vice. "Departments themselves, as a rule, no longer initiate appro- priation measures nor concern themselves about the passage of the appropriation measures. In this way the lobbying which department heads and even employes formerly indulged in has been eliminated. "Under the budget system a department must pay for every- thing it receives out of its appropriation. The result is that today department heads are taking pains to see where the post- age goes, are watching to see what kind of materials are used by their employes, are trying to reduce the number of printed volumes to the number actually required, in fact, are exerting every precaution to conserve their appropriation, for under the law there is a penalty for the exceeding of an appropriation or the creation of any indebtedness in excess of existing appropria- tions. "The budget system tends to fix responsibility for the handling of public funds upon certain specific boards and officers. Through this fixing of responsibility greater economy and effici- ency has resulted in the affairs of state." Governor Blaine, in March 1921, sent a special financial message to the Wisconsin Legislature in which he criticised the existing administrative-legislative budget system :^^ "The deficits according to the budget estimates as corrected and the emergency appropriations made amount in the aggre- gate to over $1,400,000. From a review of the emergency ap- propriations made and the deficits created, . . . grave doubt well may exist in the minds of public men as to the efficiency and desirability of continuing a budget system along the lines provided in this state. "The tendency of our present system is to exceed appropria- tions, rather than to keep within them." The director of the Citizens' Bureau of Milwaukee makes this observation on the Wisconsin budget :^^ "The present year developed a number of weaknesses in the legislative budget system. There was quite a furore over the (50) Message of Gov. J. J. Blaine to Wisconsin Legislature, March 1, 1921, pp. 10-11. (ol) Letter from H. L. Henderson, September 2, 1921. 112 adoption of the state-wide wheel tax. The question arose whether the money was necessary and this need introduced the discus- sion oL the budget. Being a legislative budget, the administra- tion did not know and could not present a complete statement as to the needs of the various departments. The responsibility could not be located, and the entire situation thoroughly con- vinced us that a legislative budget was not as effective as an executive budget." North Dakota A former member of the North Dakota legislature sees a decided advantage in the state's present budget system -.^^ "It is a decided improvement upon the old system. Prior to the budget law, nothing was done toward ascertaining the needs of the various state institutions until the legislative assembly met and then it seemed to be a hit and miss proposition with reference to appropriations. "The budget board is in a position to go carefully over all requests and to take into consideration the general running ex- penses of the state, etc., and to make suggestions with refer- ence to the immediate appropriations and the proper tax levy. "During the session of the legislature, in which I had the honor to sit, there was no report issued more in demand than the report of the budget board." South Dakota The secretary of the Sioux Palls, South J3akota, Chamber of Commerce claims the state's budget system is a biLsiness-like way of administering public funds and sees no prospect of its abandonment.^^ Similarly, the chairman of the South Dakota tax commis- sion finds that the budget board has functioned advantageously in the interests of the state, during the few years of its existence. He reports little or no legislative change in the budget board's recommendations, except in the case of some minor details. And (52) Letter from Attorney J. F. O'Connor, Grand Forks, June 11, 1921. (53) Letter from Sec'y. Charles McCaffree, .Tune 23, 1921. 113 he finds the board committed to an efficiency survey of state administration and the institution of central purchasing for all state departments.^^ Maine In Maine the sfeite budget board during the last legislative session accomplished an approximate saving of 10 per cent in expenditures for the last two years and accounted also for a substantial part of the reduction in the state tax rate by over 4 per cent, according to the secretary of the Portland Chamber of Commerce.^^ Georgia Georgia has no budget system in the opinion of the state comptroller-general. The executive secretary to the governor of Georgia write :^® "The powers of this (budget) commission were so limited by the bill creating it that the state has benefited very little by the work of the commission, other than to furnish the various legislative committees information necessary for them to have before passing appropriations for the departments and institu- tions." In fact the Georgia budget commission recognizes its handicaps and has repeatedly recommended a constitutional amendment in- creasing its powers bj^ prohibiting legislative increase of budget recommendations, except by a two-thirds vote of the legislature's membership.^'' Neiv York While New York has just superimposed a board of estimate and control upon its legislative budget system, legislative com- (54) statement of Chairman H. L, Eveland, September, 1921. (55) Letter from E. H. McDonald, June 4, 1921. (56) Letter from Comptroller-general, December 12, 1921; letter from Atlanta Chamber of Commerce, June 23, 1921. (57) Report of Georgia Budget and Investigating Commission, 1919, p. 171. 114 mittee dominance of state finance remains untouched. There- fore, certain drastic criticisms of New York's legislative budget system by the New York IState Reconstruction Commission (1919) are here reproduced :^^ "One of the most serious defects in the present law is that it completely destroys responsibility of the Governor for as- sembling and reviewing the estimates of expenditures for several departments of the state government. "Since the passage of the Sage-Maier bill (establishing the legislative budget, 1913) there has been a notorious lack of co- operation between the Governor and the Legislature on financial matters. "The law has not and can not produce a genuine Dudget. Such a document must be prepared by officers who know the conditions of the administration for which provisions; are to be made. It must present a complete program of work reduced to a business basis, carefully reviewed by a responsible executive officer, and guaranteed to be an economical program; not a collection of padded demands upon the treasury made by officers who are forced to ask more than they hope to get in order to secure approximately enought to meet their bills. "The law places no limitation upon the introduction and pas- sage by the Legislature of numerous special appropriation bills. It has been the practice of the Legislature to put through a large number of such bills during the closing days of the ses- sion. As indicated above the Legislature of 1919 passed 83 special appropriation bills during the last ten days of the ses- sion. The total of the budget for 1919-1920 could not be ascer- tained until a month after the Legislature had adjourned when the Governor had finally acted upon all these bills. Such pro- cedure not only encourages 'log-rolling' and the passage of 'pork barrel' measures, but it makes impos3i!)le any compre- hensive budget plan. "The legislative treatment of appropriation measures is per- functory and uncritical. In fact, the Legislature has surrended Its functions so far as the main appropriation bill is concerned .into the hands of the Senate Finance Committee. The opposi- tion party's discussion of appropriation measures is casual and futile." The Reconstruction Commission and the New York State Association have proposed an executive budget amendment to (58) New York Reconstruction Commission's Report, 315-31 G. 115 the state constitution, embodying the Marjdand restriction on legislative increase of items in the budget bill, along the lines recommended by the New York constitutional convention in 1915. Legislative Budget Systems Comptroller Sims of Arkansas and the manager of the Little Rock Board of Commerce are authorities for the state- ment that the state's legislative budget system creates no ef- fective control over appropriations.^^ A preceding chapter has sketched appropriation methods in Pennsylvania where legislative committees are responsible for the state 's financial and work program. Summary of Operating Re stilts It is impossible to pass final judgment upon the operation of state budget systems, owing to their relative newness and the scant information available upon budgetary progress in some of the thirty states just considered. However, their ex- perience justifies tentative observations upon budgetary theory and practice, both of which are still in the evolutionary or ex- perimental stage. The estimates of budgetary results quoted at the begmning of this chapter complement rather than contradict each other. It is true that in a majority of the states the budget system has not materially improved the financial planning and control ex- isting before its establishment. But under most favorable con- ditions budgetary procedure has shown the benefits outlined by the Massachusetts Commission in 1918. And these are worth striving for by the tax payers of every state in the Union. To recapitulate the demonstrated advantages of a workable state budget system : (1) It creates constructive financial leadership, thus intro- ducing responsibility and order into the "buck passing" and chaos of state finances. (59) Letter from State Comptroller, September 12, 1921; letter from Secretary George Firmin, June 12, 1921. 116 (2) It affords the governor and legislature complete and comparative data on state finances, facilitating a careful bal- ancing of state expenditures against each other and available income. (3) It^ visualizes and popularizes state finances, enabling the citizen to take intelligent interest in the appropriation and expenditure of his taxes. (4) It reduces "log-rolling" and enforces consideration of the state's needs as a whole. (5> It stimulates administrative reorganization and gradual tightening of administrative methods. (6) It leads to improved accounting practices. (7) Through (5) and (6) it makes possible greater control over and responsibility for departmental expenditures. (8) It tends to keep down deficiencies, check expenditures, and make the state live within its income. From the budget experience of these thirty states it further appears that : (1) A constitutional budget amendment is desirable to give the budget system greater prestige and stability and to correct certain structural defects in state government that militate against real financial planning and control. (2) Reorganization of state administration to fix and cen- tralize responsibility, eliminate useless and duplicate functions and introduce approved business methods, is essential to most effective functioning of the budget system. (3) In practice the executive budget system shows the most immediate and substantial results. (4) No budget system can fully succeed without a permanent agency for continuous study and collection of budget informa- tion, as well as current operation analyses of state adminis- tration. (5) The budget-making authority should submit a bill or bills covering all appropriations and, if necessary, revenue bills to meet the expenditures proposed. (6) Complete legislative cooperation with the budget-making authority is a prerequisite to real budgetary control. This in- volves : (a) Revision of legislative procedure to insure joint con- sideration of the budget by the finance committees. (b) Some plan whereby the budget bill or bills can be given a preferred legislative status. Budget appropriations should have precedence over special appropriations, thus keep- 117 ing the former in the limelight, using them as a measure of supplementary and total expenditures, and insuring early and deliberate action upon the budget authority's recommenda- tions. (c) Where the governor has full power to reject or reduce items of appropriation bills, no restriction upon the legisla- ture's right to increase the budget recommendations seems necessary. • (7) The incoming governor must have access to the informa- tion used by his predecessor in preparing a budget for- submis- sion to the legislature; and, if desired, the incoming governor should be permitted to supplement the budget so submitted. 118 APPENDIX ' References to State Budget Laivs ^ncl Atnendments . ■ Alabama, S. L. 1919, nos. 31 and 130. -. Arizona, S. L. 1919, c. 61. Arkansas, S. L. 1913, c. 44 California, S. L. 1911, c. 349, amended by S. L. 1921, ,S. B. no. 879. Colorado, S. L. 1919, c. 12. Connecticut, S. L. 1915, c. 302, amended by S. L. 1919, c. 290 and c. 291. Delaware, S. L. 1921, c. 26 Florida, S. L. 1921, H. B. no. 69. Georgia, S. L. 1918, no. 327, p. 155. Idaho, S. L. 1919, c. 135, amended by S. L. 1921, S. B. no, 326. Illinois, S. L. 1917, Civil Administrative Code, p. 2. Indiana, S. L. 1921, S. B. no. 197. Iowa, S. L. 1915, code sees. 191a — 191b. Kansas, S. L. 1917, c. 312. Kentucky, S. L. 1918, c. 12. Louisiana, S. L. 1916, no. 140, Maine, S. L. 1919, c. 102. Maryland, amendment, art. Ill, sec. 52 of Constitution, 1916. Massachusetts, amendment, no. 16, Constitution, 19i8, supple- mented by S. L. 1918, c. 244 and S. L. 1919, c. 52. Michigan,* S. L. 1919, no. 98, amended by S. L. 1921, no. 2. Minnesota, S. L. 1915, c. 356. Mississippi, S. L. 1918, c. 225. Missouri, S. L. 1921, p. 171 (subject to referendum, 1922). Montana, S. L. 1919, c. 205, amended by S. L. 1921, H. B. no. 194. Nebraska, S. L. 1921, H. R. no. 492, repealing S. L. 1915, c. 229 and S. L. 1919, c. 190, Title II, art. 2. Nevada, S. L. 1921, c. 60, repealing S. L. 1919, c. 45. New Hampshire, S. L. 1919, c. 153. New Jersey, S. L. 1916, c. 15. New Mexico, S. L. 1919, c. 174, repealing S. L. 1917, c. 81 and c. 114. 119 New York, S. L. 1916, e. 130 (Leg. Law, sees. 26—32), amended by S. L. 1921, c. 336. North Carolina, S. L. 1919, c. 38, amended by Ex. Sens. L. 1920, c. 38, and S. L. 1921, c. 2. North Dakota, S. L. 1915, c. 61. Ohio, S. L. 1921, 11. B. 249, repealing S. L. 1913, S. B. no. 127. Oklahoma, S. L. 191^, c. 142. Oregon, S. L. 1921, c. 22, repealing S. L. 1913, c. 284. South Carolina, S. L. 1919, no. 130. South Dakota, S. L. 1917, c. 354, amended by S. L. 1919, c. 319, and by S. L. 1921, c. 374. Tennessee, S. L. 1917, c. 139. Texas, S. L. 1919, c. 167. Utah, S. L. 1917, c. 15, amended by S. L. 1921, c. 127. Vermont, S. L. 1915, no. 26, amended by S. L. 1917, no. 32 and S. L. 1919, no. 22. Virginia, S. L. 1918, c. 64, amended by S. L. 1922, H. B. no. 158. Washington, S. L. 1915, c. 126, amended by S. L. 1921, c. 7, Adm. . Code, sec. 6. West Virginia, amend, art. VI, sec. 51 of Constitution, 1918. Wisconsin. S. L. 1913, c. 728, amended by S. L. 1915, c. 606, and S. L. 1917, c. 2 and c. 300. Wyoming, S. L. 1919, c. 10. 120 M153064 THE UNIVERSITY OF CALIFORNIA LIBRARY