What federal largess looks like from the perspective of a state-level budget official

Among the recent inductees to the National Academy of Public Administration, is a former state budget official. For how the federal government looks from a state point of view, the Federal Drive with Tom Temin spoke with that official, Shelby Kerns, who is now the Executive Director of the National Association of State Budget Officers.

Interview Transcript:  

Tom Temin And I want to go back to your experience as the budget chief for the state of Idaho, not a big state and far from Washington. And I always wonder, given the programs that states administer that the federal government ultimately funds and therefore state budgets kind of depend in part on what the federal government decides for you every year. What is it like relating to the federal government from the state level?   

Shelby Kerns That’s a great question. In my experience, the sort of the boots on the ground state employees and the federal program employees, they have great relationships. They’re always working toward common goals. People have to concentrate on the amount of funds that states receive from the federal government. And they think of that is as almost a gift. They forget that the federal government has programs and priorities that it’s implementing through state governments. So there’s a real partnership there that requires communication and working together to address issues. But at the same time, my experience, as you noted, was in a rural state where it could be sometimes difficult to explain some of the more unique challenges that we had, such as maybe when I was working at the Idaho Department of Labor, we would try to explain that we had areas without Internet service or cell service, how far people would need to travel for services and other barriers they faced. And of course similar issues exist in urban areas, but it can be difficult to explain some of those nuances.   

Tom Temin And of course, there’s the political level in the state of Idaho sometimes maybe doesn’t agree, you know, as a body politic with some federal policies. Does that ever get in the way of just operating from a budget standpoint, again, in relation to the feds?   

Shelby Kerns Sure, it definitely can. It can make it difficult to put a budget together sometimes if you have maybe a governor and a legislature who are looking at that differently. But from a program perspective, a lot of times that tension plays out in which priorities the state wants to carry out on behalf of the federal government. And of course, they can do things their own ways they can accept or decline federal funding. So we do see that play out a lot in all states.   

Tom Temin And the development of the state budget itself. My understanding is that states I don’t think any state can do deficit spending the way the federal government can, but it can float bonds, but not to cover current expenses. So maybe talk about some of the contrasts between the federal budget development, which starts with the agencies and then turns into chaos when it gets delivered to the White House and how the states operate, which is a June 1st fiscal year.   

Shelby Kerns We always say that if you’ve seen one state, you’ve seen one state, but in general, state agencies follow the same process as you see on the federal level. They submit funding requests and then governors develop budget proposals and legislatures pass budget appropriations, and then governors and executive branch agencies execute those budget appropriations. And the process sort of starts over. But as you noted, there are some really big differences. Typical state budget practices include that budget balance over a one or two year budget window on the regular budget adoption through a standard appropriation process. And there’s also proactive planning for contingencies, including through reserves and stress testing. And of course, on the federal level, you have those regular annual deficit spending and they have a ten year budget window, and most spending is outside of the regular annual appropriations process. And again, as you noted, that’s their primary contingency management tool. So we do wish the federal government understood the state budget process and its constraints better, then use that knowledge when developing rules and guidelines around federal funding. There are things like the need for state legislators to appropriate dollars and the limitations on the timing that those legislative sessions impose and those differing fiscal years. So those things are always a challenge. We do work closely with federal agencies on issues around that implementation, but a better understanding and taking those differing processes from the state and federal level into account upfront would certainly make things easier.   

Tom Temin We we’re speaking with Shelby Kerns. She’s executive director of the National Association of State Budget Officers and a new fellow of the National Academy of Public Administration. And looking at it from the association standpoint, where you’ve got all of the state members in your association, I imagine their concerns vary a lot. You know, California’s maybe one end of the spectrum. At the other end is a state like Idaho whose entire population is smaller than some counties in some of the bigger states.   

Shelby Kerns That’s true. But you’d be amazed at how when you get a group of budget directors together, how similar the concerns are. You know some of those top concerns that we talk about, of course, the economy and what shocks could cause a downturn that impacts everyone. Budget stress testing, that is something that all states look at and things like preparing for the end of these unprecedented levels of federal funding that states have seen since 2020. To states actively discuss and implement strategies for avoiding the fiscal cliff that impacts all states. They work on those things together.   

Tom Temin Yeah, And just to follow up on that idea, because the state legislatures themselves vary a lot. You know, in New Hampshire, at least, my experience there a long time ago was literally a 30 day legislative session. And it was almost like farmer citizen legislators that go up to Concord and, you know, do their business, and come home. Many of them went home each night to where they lived. And then again, you’ve got some of the states that are big with these long standing, huge legislatures with their gigantic staffs. And, you know, you look at the Albany State government complex, it’s like little Washington. Does that have any effect on the outlook of the way state budget officers think of things?   

Shelby Kerns Well, like I said, you see one state, you see one state, but there are commonalities and trying to put together the governor’s priorities, trying to pass those priorities, whether you’re doing it in a three month window or whether it’s a year round process with many iterations. There are more commonalities in that process and in the challenges you face than there are differences.   

Tom Temin So what are the top concerns then, collectively for NASBO members, and what’s your message to Washington, I guess to Capitol Hill mainly?   

Shelby Kerns The main things, as I noted, they are the state of the economy, avoiding the fiscal cliff as we move away from federal funding. We also have issues of employee recruitment and retention, both in budget offices and statewide. Those have been a top concern. But of course, they’re also watching what’s happening at the federal level very closely. Concerns about a federal government shutdown and also future federal appropriations are high on the list. And I think the message I hear mostly from states is they wish that the federal budget process would mirror the state budget process a little more with passing appropriation bills and getting back to regular order.   

Tom Temin And just a detail question. Some of the large states have actuarial obligations they will never be able to pay, mainly related to state employee benefits and pensions, whereas some of the smaller states or the more frugal states don’t have that issue. And at some point, those big states, Illinois, California, a lot of people worry they’re going to dump their state employee pension obligations on the federal government. Does that come up ever?   

Shelby Kerns We have a lot of discussions around pension obligations. You know, through the last few years, states have enjoyed robust tax collections and we’ve seen states make progress on making extra payments on their pension obligations. We’ve also seen many states take actions over the past, you know, maybe ten year window to provide greater certainty and really revamp how their pension systems work. So it’s always on people’s minds and something that they’re actively working to address.   

Tom Temin And finally, what will you do in connection with the National Academy? What’s your priority there? What projects will you plan to work on?   

Shelby Kerns I’m really excited about the work NAPA does around intergovernmental systems and just that wealth of experience and passion among NAPA fellows is really energizing. So helping bridge that knowledge gap and improve the way federal programs and funding are administered will be my focus. I’m really looking forward to it.  

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