The Cost of Legislation: Expanding Michigan’s Fiscal Notes

Report 391, July 2015

Summary

Fiscal notes are estimates of the financial impacts of proposed and enacted legislation and administrative rules.  In Michigan, fiscal notes for bills are prepared by the Senate Fiscal Agency and the House Fiscal Agency, depending on the chamber in which the bill is under consideration.  The purpose of fiscal notes in Michigan is to provide a nonpartisan financial and legislative analysis of the true spending and revenue impacts of proposed and enacted bills by which policymakers can inform their decision-making. Nearly every state in the nation has an informal or formal fiscal notes process that is defined in legislation or legislative rules.

Fiscal notes nearly always contain quantitative and descriptive estimates of the legislative impacts to the state budget.  While they often discuss impacts to relevant local governments such as schools, cities, and townships, they almost never analyze impacts to businesses or individuals.  In cases where local government impacts are considered, the analysis rarely includes quantitative estimates of impacts and nearly never addresses whether a bill contains a mandate to local governments that would need to be funded based on Article IX, Section 29 of the Michigan Constitution.  These additions to fiscal notes would be helpful in informing policymakers of the true costs of bills to parties outside of state government.

Challenges in Expanding the Scope of Fiscal Notes
Several factors contribute to the limited scope of fiscal notes.  First, local government, business, and individual financial information is difficult to access.  For example, business and individual tax return data are subject to privacy laws and the fiscal agencies must work with Michigan’s Department of Treasury to gain access to these data.  Additionally, these data are difficult to assess because of inconsistencies in business fiscal years and tax filings.

Data access for local governments is also a challenge primarily due to the large number of local governments that vary in size, unit type, service demand, need, and provision.  A variety of financial data for all Michigan local governments are now easily accessible through a database sponsored by the Department of Treasury.  However, this great mass of data may still be insufficient to determine financial impacts for all proposed and enacted legislation affecting local governments.

Surveys provide one method of obtaining business and local government financial impact information.  With this strategy, the accuracy and reliability of the survey methodology are important to provide confidence that those questioned are representative of all relevant parties.  Additionally, it is difficult to control for responses that may be skewed intentionally or unintentionally toward the most desirable outcome for those surveyed rather than the actual result.

The speed of the legislative process is a second challenge to expanding the scope of fiscal notes.  Because Michigan employs a full-time legislature, bills are introduced year round and may move very quickly through the legislative process.  Fiscal analysts, therefore, may not have sufficient time to collect the necessary data and conduct a proper analysis for each iteration of the bill before it is considered by legislators.
Third, fiscal agency staff currently have a great deal of expertise in financial matters affecting state government, but limited expertise in those affecting local government, business, and individual financial matters.  For example, fiscal analysts would need knowledge of corporate accounting methods to analyze some business impacts.  In regards to local governments, fiscal agencies also lack expertise to  examine whether legislation imposes a Section 29 mandate.

Finally, by expanding the scope of fiscal notes, policymakers should ensure that fiscal agencies continue to maintain their current standards with regard to analyzing state budget impacts.

Recommendations to Expand  the Scope of Fiscal Notes
If policymakers wish to expand the scope of fiscal notes to aid decision-making, CRC recommends several policies:
Consider rules for timing.  These rules should allow enough time for fiscal analysts to conduct reasonable reviews of legislation while also not hindering the legislative process.  Many states have laws or rules of this nature.
Establish local government networks.  To understand how legislation would affect local governments, Michigan should establish a network of local governments to participate in voluntary information sharing for the purposes of preparing fiscal notes.
Formalize a process of working with the Department of Treasury.  This would ensure that both parties have the resources necessary to create and share business and individual tax data.
Expand content.  Commit to producing more fiscal notes for bills that affect local governments that include quantitative impact estimates, or when necessary, a high and low range of impacts, with explanations.  If fiscal notes wade into the issue of local mandates, ensure that their role is advisory, identifying the existence and costs of a local mandate regardless of whether it is a Section 29 mandate.
Increase staffing and resources as appropriate.  More staff and resources may be necessary to ensure that fiscal agency staff can provide expanded analysis and continue to sufficiently perform all the duties in which they are currently tasked.

In light of the trusted and respected nature of fiscal notes in Michigan, expanding their scope could provide additional critical information to inform policymaking at the state level.  While many states perform analyses of local governments, businesses, and individuals to a greater level of detail than is done currently in Michigan, these states almost exclusively employ part-time legislatures.  Therefore, while expanding the scope of fiscal notes would lead to more informed decision-making, the costs of doing so must also be considered.


623 Downloads

Related Post

Leave us a reply

*

*