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January 2014 - Volume 20, Number 1

   

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Pursuing Fiscal Self-Reliance: One State’s Actions
Interview with Utah State Representative Ken Ivory

by Leonard Gilroy,

Director of Government Reform Reason Foundation

 

The recent partial shutdown of the federal government sent a strong warning that fiscal pressures in Washington, D.C., can have major ripple effects at lower levels of government, given the significant levels of intergovernmental transfers of funds. One state that is increasingly recognizing this relationship is Utah, where over a quarter of total state revenues are derived from federal funding sources.

 

The Utah state legislature in 2011 and 2012 passed a package of bills known collectively as the “Financial Ready Utah” initiative — aimed at quantifying the amount of federal funding used by state agencies and making contingency plans in the event of a major cutback.

 

Utah State Representative Ken Ivory has been a leader in the pursuit of fiscal self-reliance in Utah and was a primary sponsor of the “Financial Ready Utah” bills. Reason Foundation Director of Government Reform Leonard Gilroy interviewed Representative Ivory on the rationale behind the Financial Ready Utah bills. The following is an edited excerpt.

 

Gilroy: Can you describe the thinking behind the Financial Ready Utah initiative?

 

Utah State Representative Ken Ivory: I was concerned we didn’t seem to know exactly how much federal funding came into Utah. I heard a variety of guesses, but as we really started to look at the numbers, we discovered that as much as 45 percent of our total revenue comes from a federal government that is broke. So, nearly 45 percent of Utah’s revenue comes from a federal government that is fiscally reckless.

 

So, we began looking at how to attain a level of economic self-reliance, and given increasing federal uncertainty, how do we assess the immediacy, severity, and probability of the risk of a reduction in the amount or value of federal funds — what do we do at the state level? Also, how can we foster community preparation for the fiscal earthquake that is, in all likelihood, more probable than the physical disasters that we spend millions of dollars preparing for?

 

Gilroy: Once you knew the scale of federal funds, what actions did that prompt?

Ivory: The legislation started with the “Federal Receipts Reporting Requirements” (2011 House Bill 138). This bill required all agencies to disclose total federal receipts, what percentage of their budget that represented, and then what their contingency plan would be if there was a reduction in federal funds of 5 percent or 25 percent.

 

This was 2011 — pre-downgrade, before the first debt ceiling meltdown, before the Budget Control Act. Seven months after the passage of HB 138, there was the looming shutdown, the downgrade of the U.S. credit rating, the debt ceiling meltdown, and sequestration — serious cuts of the federal funds flowing to states.

 

Credit rating agencies also began revisiting state credit ratings because of this dependency. The ratings agencies said that Utah was the only state taking such a proactive approach, so they weren’t even going to review Utah for downgrade.

 

HB 138 started the ball rolling. Under this bill, we are now receiving reporting from all of our agencies regarding what their percentage of federal funds is and what they would do in the event of a reduction of federal funds. But we realized that we needed a more comprehensive plan.

 

During the 2012 legislative session, working with our Utah Association of CPAs and chambers of commerce, we put together a package of about seven different bills that came to be known as ‘Financial Ready Utah.’ Business groups, school districts, and cities began passing resolutions of support encouraging state and national leaders to take action to control our own destiny because of the very definite sense that this flow of federal funds, comprising the single largest revenue line item in Utah’s budget, is unsustainable.

 

The package of bills passed with overwhelming support.

 

The first was a resolution that outlined the problem. The second bill formed the Federal Funds Review Commission, made up of legislators, governor’s staff, and private members. We are starting to look at how we assess the immediacy, severity, and probability of a reduction in the amount or value of federal funds and what that impact would be. How do we at the state level undertake this fiscal disaster preparedness?

 

Other bills require the governor in his budget to account for the risk of a reduction in the amount or value of federal funds, and for the legislature to do the same thing and to have our legislative fiscal analyst advise us on the probability and risk of a reduction in federal funds.

 

Gilroy: Now that agencies are actively accounting for federal funds, what sort of reaction have you seen from them? Have they been resistant or are they surprised?

 

Ivory: As we’ve seen things unfold — we now have three years of reporting from agencies — they’re seeing that this is an exercise that we really needed to go through. With our federal funds commission, now we’re looking at how we take all of that information and stitch it together into a comprehensive plan. So that’s step one, and now we’re figuring out how to take on this huge exercise of enterprise risk management at a state government level.

 

Gilroy: Do you see more Financial Ready Utah initiatives coming in the future?

 

Ivory: This is a big exercise. The name “Financial Ready Utah” comes from a natural disaster preparedness initiative called “Be Ready Utah.” We look at this as the financial disaster preparedness. Our Utah Association of CPAs formed a 501c(3) entity called Financial Ready Utah to work with their members throughout the state and work with our disaster preparedness teams to tackle these issues.

 

How do you broaden your tax base? Do emergency reductions in spending? Deliver services? When you’re talking about a potential hole of $5 to 6 billion in a state budget of $13 billion. This is a great example of a bottom-up effort to drive policy, because people, businesses, and organizations understand that we can’t pretend to print and borrow our way to prosperity. They understand that at some point this ends badly, as it has throughout all history.

 

States and cities are realizing that we’re in a very serious time. To think that as a nation we’re perpetually pretending that we can print prosperity — it simply defies reality. We’ve got to prepare, because no matter what happens at the federal level, we still have to educate children, we still have to take care of sick and poor people, we have to take care of roads and public safety.

 

Take the shutdown of the national parks. There was no communication from the federal level, no coordination as to how we could mitigate the damage the shutdown caused. Because of vindictive and arbitrary actions by the federal government, we had families completely out of work, businesses shut down, entire industries threatened. We’ve offended travelers from all over the world; turning them away at national parks. The ramifications of that are likely to go on for years.

 

We hadn’t even considered such vindictive political risk, but now that’s a reality that we are going to have to plan for. It was a very serious wake-up call that our Legislature must act to protect our citizens — this is happening right now.

 

Ken Ivory (R-UT, District 47) was elected to the Utah House of Representatives in November of 2010.

 

This is an edited excerpt of a longer interview originally published November 23, 2013, by Reason Foundation as part of its Innovators in Action series, available at <http://reason.org/news/show/utah-fiscal-self-reliance>. Reprinted with permission, Reason Foundation.

 

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