Rod St. Aubyn: Appropriations, Fiscal Notes, And The End

As we come close to the end of the legislative session, legislators are busy working on conference committees trying to resolve the differences between house and senate versions of bills that have survived the session.In the meantime, the Appropriations Committees are busy trying to finalize the bills that have some fiscal impact to the state.

As has been mentioned before by John Dorso, state agencies have been accused of inflating fiscal notes for bills that they do not like. As a result many of these bills do not survive and become examples of “death by fiscal note.” Fiscal Notes are documents that agencies complete to show the fiscal impact to that state agency and the county/local subdivisions. These Fiscal Notes along with direct appropriations become important to the Appropriations Committees to build the state’s budget.

However these fiscal notes and direct appropriations can be somewhat misleading for the general public.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]As we near the end of the legislative session, I think it is important for the general public to be aware that agency appropriations may not be reflective of the future biennial costs for those agencies due to delayed implementation…[/mks_pullquote]

One compromise that is often seen as a result of conference committees is the delay of implementation for some program. It is common to start a program for the second year of the biennium to reduce the cost for that program for the next biennium. However, this becomes an additional fiscal impact for the following biennium when the appropriation would need to be doubled for the two year period in the future.

This is not always a bad thing. Sometimes, it takes time to get some popular program set up so a full two year funding is not needed. This does put additional challenges for budget analysts in compiling future budgets if the state does not experience positive economic growth.

These Fiscal Notes can be misleading. As I indicated, they project estimated impact for the state, county or local governments. They do not reflect the additional costs that may be passed on to the general public or private businesses.

For example, a health insurance mandate that would apply to NDPERS and other private insurance would only reflect the additional costs to state and local governments. One health insurance mandate heard recently would not impact NDPERS until the 2017-19 biennium because it would apply to most health insurance after the bill goes into effect on renewals after the bill goes into effect, August 1, 2015. For NDPERS, that renewal period would be July 1, 2017 – over two years away.

However for most private health insurance the added benefit would go into effect beginning on renewals after August 1, 2015. Those costs are not reflected in these Fiscal Notes because they do not impact the state’s budget. The same goes for bills impacting workers compensation (WSI) and other entities which provide goods and services for the general public. Additional costs for these programs are calculated to establish premium rates in the future for that agency or fees for goods and services by other state entities.

On the flip side of these Fiscal Notes, they may not reflect possible positive impacts. As an example, the Fiscal Note for a reduction of some tax shows the negative impact on revenues, but typically does not account for economic growth that may be experienced by the tax cut. That economic growth is difficult to project in true quantifiable numbers.

As we near the end of the legislative session, I think it is important for the general public to be aware that agency appropriations may not be reflective of the future biennial costs for those agencies due to delayed implementation and that cost increases may not only be reflected for state agencies. They may also impact the consumers in addition to the taxes that they pay.