/*7J8£- HJ 2053.N7J82 UniVerei,y Ubrafy Jleto |9orfe ittatt College of Agriculture Kt Cornell ^mbersitp Stftata. J?. $. Hibrarp The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924014005098 THE FISCAL BUDGET AND THE PUBLIC WELFARE THE NEW YORK STATE BUDGET By W. H. JORDAN THE FISCAL BUDGET AND THE PUBLIC WELFARE THE NEW YORK STATE BUDGET . A recent review of a book dealing with budgetary reform contains the optimistic assertion that ' 'public opinion is crystallizing with gratifying rapidity as to' this conviction that the will of the people cannot be intelligently formu- lated or expressed unless the people have an adequate means of knowing currently how government affairs are being conducted, their present condition and the future programme." It is devoutly to be hoped that this utterance is truly indicative of increasing attention on the part of the people to the details of our national and state fiscal policies. The term "budget" now occurs very frequently in public discussions and there are indications that fiscal reform may soon become a live political issue. What^ meant by the term budget as applied to public finance? It means an abandonment of the lump sum method of appropriating public moneys with no detailed understanding as to how the funds are to be used and with no adequate means of determining whether such funds have been diverted from their intended legitimate purposes. We cannot reasonably doubt that there is need for reform in the fiscal policies of the nation and states. Through incompetence and dishonesty, public funds are undoubtedly in some measure diverted from their intended uses or are wastefully expended. Whatever may be the fact, the tax payers in most states are very inadequately informed as to public expenditures. The rejnedy very generally suggested for these undesirable conditions is the budgetary method of handling fiscal affairs. If asked to define this method or to state how it would accomplish greater economy and efficiency in the expenditure of public moneys, very few persons could give an intelligent answer. The demand for a budget is at present scarcely more than a, blind protest against what is believed to be a common and wide-spread waste of the people's money. The danger is that this unformulated, increasing public demand, utilized as a means of gaining political advantage, will lead to the adoption of budgetary methods that are crude in plan and unsatisfactory in operation. It will be greatly unfortunate, however, if increasing attention is not given to our fiscal policies for they are vitally related to public welfare. One writer has aptly characterized the financial budget as the "Essence of Government.'' It is, or should be, an expression of an intelligent community purpose. Con- gressional and state appropriations determine the kind and extent of public service in education, sanitation, care of unfortunates, public improvements and of every other community effort, and the conditions imposed upon their expenditure have a direct relation to the economy with which governmental activities are maintained and to the quality of service rendered. Indeed, broadly speaking, a fiscal budget has a determinative relation to the organiza- tion and efficiency of government. Besides all this, there is involved the rela- tion of the budget to the burden of taxation necessary to the maintenance of an essential governmental program. If, theji, these generalizations are sound, it is clear that the creation of a budget is in fact vastly more than an analysis of taxable resources or a Study of increasing or decreasing expenditures. It is the intelligent formulation, or should be, of what has been styled a "socio- political-economic program." Little progress toward such a result is accomplished in the clash of contend- ing parties or candidates in pre-election or legislative debate. Taxation and expenditure have been prominent in the political discussions of the past, generally with scant enlightenment of the public mind and resulting in few suggestions giving promise of intelligent reform of our fiscal methods. We have heard "whole batteries of political buncombe unloosed in the name of Economy." Up to the very recent times, at least, it has been customary for a party or a candidate to curry favor with the people by condemning the large appropriations of a previous national or state administration, but it would be difficult to recall an instance where these political animadversions have pre- sented a clear analysis of the nature of the alleged extravagances or a well considered means of preventing waste. It is quite noticeable, too, that success- ful candidates for political honors have seldom, if ever, redeemed pre-election promises by effectively urging fiscal reform. That is perhaps explained by a statement made in the English Parliament quoted by a recent writer that "if you want to raise a cheer in the House of Commons, make a general panegyric on economy. If you want to invite a sure defeat, propose a particu- lar saving." As a matter of fact, the expenditures authorized by our various political administrations have in each instance generally been larger than the previous one, in many instances necessarily so. The problem of wisely adapting taxation and expenditure to the resources and real needs of the people is clearly one that will not be solved through spasmodicefforts at reform under the spur of public criticism, but can be suc- cessfully dealt with only through the continuous, studious attention of impar- tial minds competent to analyze social and economic questions. Fiscal reform has not been entirely ignored either in public discussion or legislative action. While the national government has not advanced very far in adopting a satisfactory budget policy, a few states, acting in the name of reform, have made radical changes in the administration of their fiscal affairs. New York is a notable example of an attempt of this kind. For the fifth time the legislature of this state has left in the hands of its administrative officials a highly segregated budget of the most extreme type. It is a matter for sur- prise to note in a recent issue of a prominent journal the statement that in the reconstruction of the financial fabric of the state, "the first step is the introduction of the budget system." The state has had for four years a cast- iron budget plan under which public funds are appropriated to narrow specified purposes. It is very doubtful, however, whether the plan in force promotes 4 public welfare or economy of expenditure. The real question now before the people of the state is not whether a fiscal policy shall be adopted adequate to the maintenance of efficiency and economy in the use of public funds. It is conceded that this should be done. The real problem is the form of budget that will most fully accomplish the desired ends. The officials of the state have had four years' experience with the present form of budget which should form a sufficient basis for judgment as to its practi- cal operation. Before considering the merits or demerits of the present system, it is well to point out certain specifications by which the operation of any form of budget should be judged. A budget, whether national or state, should reflect public needs, and only public needs. This requires that the information upon which departmental and institutional appropriatibns are based should be obtained from adminis- trative officials who understand in detail what is demanded and upon whom will rest the responsibility of handling the funds. The formulation of a budget from the point of view of decreasing or increasing former appropriations may be utterly irrational. The advice of the accountant may often wisely be disregarded. The budget should be sufficiently flexible in its provisions to meet the demands of the various state departments and institutions or else be differen- tiated to meet the requirements of dissimilar state agencies having an utterly unlike function. To apply the same fiscal system in all its details to a prison and to a university or college may be as absurd, in fact, as would be the prac- tice of prescribing the same medical treatment for typhoid fever and pneu- monia. A budget should be sufficiently flexible to meet unforeseen demands without undue embarrassment. In view of the frequent changes in the requirements for personal service and in the cost of supplies and other maintenance items, an inflexible budget closely segregated for specific purposes may become a serious administrative handicap. This is fully realized by officials who have had to deal with such a situation. The fiscal system should give full play to the judgment of administrative officials. To seriously limit administrative autonomy is to render officials irresponsible. More than this, such limitation suppresses rather than encourages the initiative, only through the exercise of which public service may be improved. A close analysis of the provisions and limitations of the budgetary system now in force in the State of New York shows that with a single exception it lamentably fails to meet these specifications. The method by which the finan- cial committees of our legislature secure the information upon which to base their budgetary recommendations is the one feature that is above serious criticism. The officials responsible for the management of state departments and institutions are given full and extended hearings on the recommendations which they have previously presented at the request of these committees, at which times the items of the budget proposals are discussed in great detail. The administrative point of view is given the most courteous and careful consideration, but it remains true never-the-less that the final determination of salaries and the segregation of the total amount of money appropriated 5 into items for specific purposes rests with the legislative committees. Heads of state departments and institutions realize that these committees do not always adequately recognize in their conclusions special conditions and needs which can only be understood through intimate experience. The budget of the State of New York, so far as it applies to departmental and institutional activities, is formulated in inflexible terms. The salary for appointive positions, with the exception of the wages paid common laborers, is fixed, and may not be exceeded. No salary contingent fund is provided, and a transfer may not be made from one salary item to another. This proves to be a most serious handicap, especially in the management of research and educational institutions. These institutions must meet competition from other states in the appointment and retention of members of their staffs. It is peculiarly true of the State College of Agriculture and the Experiment Stations that this competition is keen. With fixed salaries, administrative heads are helpless to defend their institutions against the inroads of similar institutions and the inducements offered by commercial interests, and they are at the present time losing men who sometines could be profitably retained by a readjustment of salary expenditures without increasing the total salary appropriation. The chief function of a Dean of a College of Agriculture or the Director of an Experiment Station is the selection and retention of his associates and under the conditions .prevailing in the 'State of New York his autonomy in the exercise of this function is often disastrously limited. The result of this is already seen in a lowering of the standard of service in agricul- tural education and research in New York. If the present budgetary policy as applied to personal service is allowed to continue, efficiency in scientific investigation and in education, so far as these efforts are supported by public funds, will almost certainly fall below the standards maintained by privately endowed institutions. This inflexible budget is applied to all state agencies alike, ignoring their greatly varying functions and the great differences in the extent to which their operations may be standardized. Institutions whose problems and expendi- tures may not be intelligently scheduled months in advance are hedged about by the same fiscal regulations as departments whose work is clearly clerical and the activities of which may be quite definitely stabilized. The funds provided for the maintenance and operation of our State depart- ments and institutions is segregated in inflexible terms under something like sixteen heads. These divisions include "Fuel, Light, Power and Water," "Printing," "Equipment," "Supplies," "Traveling Expenses," "Communica- tion," "General Plant Service," "Repairs" and so on. The price of coal may materially change ; railroad fares and hotel expenses may be greatly increased ; higher freight and express rates may be established; postage may be changed from two cents to three cents; the wages of industrial labor involved in making certain repairs may be materially raised ; and yet upon administrative officials is placed the perplexing and often exasperating burden of carrying on the activi- ties under their charge with a fixed, highly segregated budget, adopted months in advance of the current fiscal year, which takes no account of all these variations in expense. The question may be asked, — Do not these officials recommend the items of the budget? They certainly do, but their recommendations, based upon past experience, which is a treacherous guide, are called for on the first of Octo- ber for a fiscal year beginning on the first of the next July, and no man has the prophetic vision which enables him to foresee the maintenance expenses which may be necessary in the way of repairs, some of which are accidental in their origin, or the industrial changes which greatly increase the cost of operating institutions of all kinds. It is rational to ask for these detailed recommenda- tions, but it is irrational to adopt them in an inflexible form. It is a serious question whether a careful analysis of past and present expenditures would not show the present fiscal plan to be wasteful rather than economical. If, then, the budgetary system now in force in New York is unsatisfactory, what method of financing the State can be adopted that will accomplish the desired control of public funds? Without question, the people have a right to detailed information as to how their contributions to the State Treasury are expended. It cannot reasonably be denied that the budgetary policy now in operation has some commendable features. The present method of obtain- ing information about needed appropriations and the submission of budget proposals in detail are essential features of an efficient fiscal system. The figures so obtained should be co-ordinated and adjusted to the financial resources of the State and then published in available form for legislative use and public enlightenment. But if a reasonable autonomy of administrative officials is to be maintained, if the boards and other officials of the State are to be in certain particulars some- thing more than rubber stamps, if a flexibility is to be given to the use of funds that will permit responsible officials to exercise their judgment under unfore- seen and varying conditions, if real needs rather than the confines of a rigid fiscal structure are to determine expenditures — ,then legislative appropriations should be made in lump sums or in broadly segregated items. Judgment as to the proper and legitimate use of funds should then be based upon a compari- son of the detailed budget proposals with the actual expenditures. An explana- tion might well be demanded concerning a wide departure from the depart- mental and institutional requests. Probably the addition of a. liberal con- tingent fund provision or the permission after adequate explanation to transfer from one budget item to another would render the present plan much more workable. Under either method, with proper accounting and severe auditing the people of the State might feel assurance that the expenditure of their money is sufficiently safe-guarded. W. H. Jordan. New York Agricultural Experiment Station. Geneva, N. Y. August i st, 19 19.