States Shine Light on Unspent Funds

For state budgets, every dollar counts. But this is perhaps even more so the case at a time when state economies are still recovering from the Great Recession.

That’s why New Mexico State Auditor Tim Keller decided to take a closer look at state accounts when he was elected in 2014. 

In February, the New Mexico Office of the State Auditor released the second annual Fund Balance Report, which focuses on unspent funds in state government accounts that don’t automatically revert to the state’s general fund. 

“Every state has their annual budget process, but we wanted to look at everything else,” said Keller. “We wanted to shine a light on that, basically, to see how much (money) was there, what it was supposed to be used for, was it being used efficiently, etc.”

It was a process that, according to Keller, hadn’t been done in his state for about a decade. 

Other states have undertaken similar reviews, but typically with a more narrow scope. Texas has reviewed unspent dollars from its State Highway Fund, funded by gas taxes and vehicle registration fees, which in the past often were diverted to other government programs. Efforts by then-Gov. Rick Perry and House Speaker Joe Straus ended the practice in 2015, which was estimated to add $1.3 billion to the Highway Fund’s biennium budget, according to a 2015 Texas Department of Transportation Report.

Technological innovations also are making it easier to aggregate and share information about state government spending, and at a much more detailed level than ever before—from government contracts to vendors and suppliers. “In the last dozen years or so, data transparency and the use of technology have made it so much easier to find out information about spending at the state level,” said John Hicks, executive director of the National Association of State Budget Officers. “That was the black box for many years—how does it get spent? That has really improved over time with data transparency.”

In New Mexico, Keller took a look at unspent funds across all state agencies that didn’t automatically revert back to the general fund. And the results, he said, were somewhat surprising. 

“The dollars were much higher than anyone expected.” 

According to Keller, there were three types of fund balances, what he called “money on the sidelines,” in state accounts. The first was capital outright funds, which had accumulated $1 billion. The second type included business and enterprise funds such as insurance and loan funds, which totaled $1 billion in unspent funds. The final category included dedicated revenue funds, which are often based on a percentage of a tax and go automatically to a particular fund in the executive branch—bypassing the legislative budget process—which accounted for $500 million in unspent funds. He said the accumulated funds resulted for a variety of reasons, from partially-funded projects that were ultimately ended to requirements for matching funds that never materialized. The end result, however, is substantial.

“For New Mexico, our budget is only $6.5 billion, so this is a whole lot more than anyone expected,” Keller said.

The review also discovered funds that remained stagnant—with balances that had relatively no movement—over the course of the year. “We found some funds that literally had no use over the course of the year, to the tune of $100 million,” said Keller. “There’s no excuse not to use $100 million in a year, even if you’re waiting on matching or whatever.”

So, what should happen to those unspent funds?

“From the state auditor’s perspective, we just want dollars to be used as they were intended to be used,” said Keller. He said his office and others within the state hoped publishing the report would spur some conversations about ways to use state dollars more efficiently.

As a former state senator, Keller said the report his office produced would have been helpful to his legislative work to help identify funds that could be used more effectively and to also help examine how spending—particularly in capital outlays, which are automatically designated to legislative districts and have little oversight in the state—could be undertaken in a more efficient way. “That’s where the most progress has been made,” he said. “I think everyone agrees that that’s not an efficient way to allocate funds and it leads to the problem that we see now.” 

Beyond legislators, the public also has responded to the report’s findings.

“The public has been so surprised and overwhelmed by the amount of money that is sort of stuck in the system, because we have great needs in this state,” said Keller. “How can we have such need and yet this money doesn’t get to the economy?”

Sarita Nair of the New Mexico Government Accountability Office agreed. 

“One of the goals of this report is to give ordinary citizens the language to be able to ask questions about this money,” she said. “Besides policymakers deciding we need to change, we need public pressure. My observations from around the state have been that this dialog has started.”