The Effects of Uncertainty on Local Government Budgeting: A comparative analysis of two Kentucky counties' responses to budgetary uncertainty
Year of Publication
Martin School of Public Policy and Administration
Congress must pass twelve separate appropriations spending bills by October 1st to enact the annual federal budget. Since 1974, Congress has only passed the federal budget by the beginning of the fiscal year four times (Draper and Pitsvada 1984). Continuing resolutions are utilized to help fill the gap until Congress and the President can agree upon a budget, but they often come with delays in funding of federal programs. Because the appropriations process also funds many state and local revenue sources, any delays or cuts caused by a continuing resolution can have significant effects on their budgeting processes as well.
To determine the impact of spending decisions made at the federal level on the local budgetary process, I have prepared a comparative case analysis of two similar federal programs in two Kentucky counties. I chose to study the Impact Aid program administered through the Department of Education and the Payment in lieu of taxes (PILT) program administered through the Department of the Interior, as they both compensate local governments impacted by the presence of federal land within the county. Federal land cannot be taxed, and thus these local governments lose out on tax revenue that is essential to funding public services for their citizens.
To localize this study I analyzed the two aforementioned programs’ importance to the two Kentucky counties that receive the greatest levels of funding, Hardin County and McCreary County. Studying Impact Aid in Hardin County and PILT funding in McCreary county gave the best insight into the significance of these programs and how the federal appropriations process impacts the amount and timing of this funding to the counties.
Through analysis of local budgets and interviews with key budget officials, I was able to determine how the federal budgetary process impacted Impact Aid and PILT funding in the Kentucky counties. Continuing resolutions cause uncertainty as Impact Aid is distributed in multiple payments to the Hardin County School District, whereas PILT funding has fallen victim to sequester and cuts that often come with non-mandatory spending programs. The inconsistency in the time and the amount of the funding makes it difficult for the county to plan and budget.
Ultimately, I found that Impact Aid and PILT funding constitute a small percentage of revenue for the respective local budgets, but in combination with other federal transfers, make a large difference at the margin. Uncertainty from continuing resolutions and delays in the federal budgetary process can cause local governments to alter contingency funds, prioritize their expenditures and/or think about increasing local taxes in order to compensate for the inconsistency in transfer amounts and timing.
Powell, Alyshia, "The Effects of Uncertainty on Local Government Budgeting: A comparative analysis of two Kentucky counties' responses to budgetary uncertainty" (2016). MPA/MPP/MPFM Capstone Projects. 260.