The State Budget: Where’s The Flexibility?

Posted on May 20, 2011. Filed under: Uncategorized | Tags: , , , |

Budget flexibility. In today’s economy, it’s the crucial ingredient of fiscal stability.

Governor Malloy is certainly comfortable with flexible budgeting approaches; his threat of 4,742 layoffs essentially represented a “Plan B” fall-back option that would have been triggered if union concessions failed to materialize. Fortunately – or unfortunately, depending on your political leanings – the unions agreed on terms and the Governor proceeded with his “Plan A” proposal instead.

As politicians, reporters, and citizens pore over the details of Plan A, though, they are noticing that some of its projected savings are “harder” in nature and substance than others. The elimination of certain longevity payments, for instance? That certainly leads to “hard” savings. But medical insurance cost savings that are attributable to healthier lifestyles? Those are “soft” at best; after all, who knows whether they will ever materialize?

As all competent managers know, “getting the budget right” isn’t always as important as “knowing what to do if the budget proves to be wrong.” Management accountants develop flexible budgets to address such considerations; risk managers create contingency plans for the same reason.

We can certainly applaud the Governor for fulfilling his promise to balance the budget, even if he relies upon a collection of “soft savings” in order to do so. Nevertheless, we can also inquire – with a reasonable degree of professional skepticism – about what the Governor has in mind regarding Plan B if these soft savings never actually materialize.

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.

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