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Budgeting by Priorities: Balancing Stability with Economic Responsiveness

PFM, Vol. 17 No. 1, (2017)

This article investigates how the budget priorities of Arkansas state government departments vary with changes in economic conditions. The Arkansas Revenue Stabilization Act (ARSA) of 1945 established a formalized method of state budgeting by priorities. State funds are allocated, meaning the funds are legally made available, according to priority levels established each year by the Governor and the General Assembly. Those allocated funds are later distributed, meaning released for spending, according to priority levels as funds become available. In this study, we ask the research question: Are departmental budget priori-ties driven by stability or are they responsive to economic condition? Incrementalism suggests that incremental annual changes in the budget are based on the previous year’s budget, they take place across-the-board, and that there lacks an in depth consideration of priori-ties. However, ARSA requires explicit prioritization within each department. Perceptions of economic conditions are likely to play into this prioritization. We hypothesize that the higher priority items will follow a more incremental pattern of mostly being based on the previous year’s budget in favor of stability. We also hypothesize that the economy has a greater impact on the lower priority items in favor of economic responsiveness. Our findings suggest that incrementalism is a persistent influence across priority levels. However, there is rational consideration during an economic downturn that results in a decline in funding for lower priority budget items.

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