How red-ink states should make tough budget decisions

Jobs. Health care. Education. Public safety. Affordable housing. All of these and more are at stake as state legislatures tackle their 2011 sessions and 50 governors – 28 of them new – grapple with projected budget gaps of $82 billion next fiscal year, on top of the $400 billion already closed since the start of the Great Recession.

While some describe the country in terms of red states and blue states, the fact is that almost all are “red-ink states” facing painful choices for years to come. The way they respond will have as much or more impact on American communities as the federal budget decisions made by the White House and Congress.

Unfortunately, most states lack critical information needed to strategically address this challenge. Most do not even have a comprehensive list of the programs created over the years, let alone data that identify how well they are performing. This makes it difficult for policy makers to direct funds to those programs that produce the greatest benefits at the lowest cost. Too often, states resort to across-the-board cuts that hamstring effective programs while preserving low priority and ineffective ones.

Five steps for 'a better way' to budget

By applying the following principles, states can choose a better way that puts results first:

1. Develop comprehensive performance accountability systems that identify, measure, and report on all programs.

2. Prioritize programs that high-quality research has proven to be effective.

3. Apply techniques such as evaluations and cost-benefit analysis to direct funds towards programs that provide the highest return on taxpayer funds.

4. Consider budget decisions by looking at programs all together, since investments or cuts in one program can affect other costs.

5. Identify the long-term impact of budget choices and minimize cuts to programs that generate long-term savings.

Two examples, involving state policy choices on prisons and pre-kindergarten education, illustrate these principles.

Smart policy: A new approach to crime and punishment

Governors in ten states have made sentencing and corrections reforms top priorities in their “state of the state” addresses this year. States have quadrupled spending on corrections in the past 25 years, and with one in every 100 adults behind bars, corrections is the second-fastest growing state budget category behind Medicaid. But for all this spending, the states that have most dramatically increased their incarceration rates haven’t achieved the lowest crime rates.

Many are now drawing on the experience of Texas, which four years ago made a dramatic shift in the way it approaches crime and punishment. It looked at data showing that investing in residential treatment centers and probation programs yields a far better return on public safety dollars than spending another billion to build more prisons. Texas’ parole failures have dropped by more than 25 percent, which has helped to stop the revolving door and turn offenders into taxpayers.

Putting results first in public safety policy enables states to use research-based strategies that lead to less crime at far lower cost than expanding prison systems.

A high-yield investment – in pre-kindergarten

Similarly, 50 years of sound evidence proves that sustained investment in high-quality pre-kindergarten education helps reduce dropout rates and improve student performance. That, in turn, strengthens states' workforces and economies and reduces costs that result from low educational performance. Every dollar invested in high-quality pre-K saves taxpayers up to seven dollars by reducing the need for remedial and special education, welfare, and criminal justice services, according to a number of studies.

Subjecting such effective programs to across-the-board cuts would fly in the face of the best available data. In Pennsylvania and Alabama, a wide range of stakeholders, including many in the business community, have launched initiatives to increase, rather than reduce, state investment in early childhood programs.

All states will face tough budget decisions. But by putting results first, based on the facts, using analytical tools commonly used by business, analyzing program budgets as a package, and considering long-term impacts, states can ensure that all their citizens are getting the best possible services for their investment of tax dollars.

Susan K. Urahn is managing director for the Pew Center on the States.