Usually the state budget has a precise number for how much spending it authorizes from federal funds. The budget for the fiscal year that starts in October does not. And this has raised some controversy about the topline number for how much spending the budget authorizes. But this wouldn’t even be a controversy in most states. That’s because lawmakers and journalists in other states don’t bother to include federal funding when presenting state budgets.
For instance, a recent report from Senate Republicans in Arizona covers an $18.29 billion budget that does not include federal funds, a figure that is reiterated by reporters.
Pennsylvania lawmakers and journalists pay attention to $50.8 billion in general fund spending, but they ignore the $80 billion in spending from non-general state and federal funds. The state also has separate authorizations for road funding, which are not included in annual budget stories.
North Carolina lawmakers and journalists point to their $34 billion budget, but that is for “net appropriations,” which represents only state funds and does not include federal funds, which they call “receipts.”
Of all the states, it seems 35 exclude federal funding when presenting the total amount of spending their budgets authorize. Only 10 states, Michigan included, include federal funds. Some of those states have unique approaches, such as Alaska, which has four different budget bills, all passed at different times.
Reports from both lawmakers and reporters are often unclear about the state budget and what is included. While we looked further for verification, our classification might be a little off.
Lawmakers get to set the standards for reporting budgets, apparently guided by custom and past practice.
Whether to include federal funds or not is an interesting question because the numbers will mean different things. If someone cares about how much money lawmakers are authorizing, budgetary numbers ought to include federal money. If someone cares about how much money is spent from the state’s taxes and fees, then the budget number shouldn’t include federal funds.
Federal funding is an odd thing. Turning it down doesn’t mean that the state’s taxpayers get a refund. Accepting federal funds is an “accept or pass” proposition. The potential recipients, such as state employees and health care organizations, would like lawmakers to take the money.
The question of whether to accept federal funding is different from state funding, where saying no to spending on a given purpose means the money be used for either other spending priorities or to reduce taxes.
In other words, passing on federal money gets the state nothing. But abstaining from spending all the state money available frees up cash that can be used to reduce state tax burdens.
This is why the Mackinac Center, as well as state reports, focuses on state funding. We exclude federal funding and the small amounts of local and private funding that appear in the state budget.
The new state budget authorizes $50.3 billion in state funds, up from the $48.4 billion authorized by the budget approved last year.
This is different from General Fund revenue. Most of the state’s taxes are earmarked for special uses — some by the Michigan Constitution, some by state laws. Fuel taxes, for instance, must be spent on transportation, according to the state constitution. The six-mill property tax levied by the state goes to the School Aid Fund, but lawmakers could change that allocation with as many votes as it takes pass any other law. These are state funds that can accomplish lawmakers’ fiscal policies, and they ought not be neglected in an assessment of state fiscal policy, which is why they are in our standard.
It’s like that in other states, too. Colorado also uses total funding and separates general fund spending from oddly named “cash funds,” which are restricted to specific purposes.
Most lawmakers and journalists in Michigan use the total spending for the topline numbers. That is fine. Total spending is a useful measure if people want to know how much money flows through state government. It is a less useful measure if the question is how much the state government has grown. State funds reflect the resources lawmakers raise from taxpayers and the spending priorities they choose to pursue. That is why most states focus on state-funded spending when presenting their budgets.
Michigan’s state-funds budget deserves more attention. It is the measure that best captures state lawmakers taxing and spending decisions.
