Q&A with David Schumacher

Office of Financial Management Director David Schumacher discusses best practices for making fiscal decisions while managing an unprecedented crisis.

At AWC’s Mayors Exchange in January, you talked about a few critical decisions the state Legislature made early in 2020 to address the pandemic. Can you explain what happened?

At the end of last session, which was a supplemental short session, both the House and the Senate passed their budgets, and as they were going to negotiate the [final] budget, we started to hear about the virus as maybe being a serious problem. So their first response was they added less to the supplemental [budget] than they had been planning on doing to leave a little bit more money in reserve just in case things got bad. The second thing they did was they gave OFM $200 million to address the pandemic, which was very helpful in those early days to pay for testing and the crisis things that hit us much quicker than anybody would have imagined.

In the end, the governor ended up vetoing some $450 million from that four-year budget. Why was that decision made, and what was cut?

It takes 20 days from when the budget passes until you sign or veto it. In those intervening 20 days, it became apparent that things were much worse than we thought, so we discussed things we might veto and things we didn’t want to veto. It wasn’t taking anything away from people, just things we felt we couldn’t afford because we needed to have that $450 million to plug holes in future budgets.

Did you apply any lessons learned from previous downturns to manage the state’s fiscal response to the pandemic?

I have been through a few of these crises, but they’re all different. At first you don’t really know how bad it’s going to get. So the early actions that we took—like stopping pay raises, installing furloughs—were just to try to save money until we figured out where we were. In previous recessions, the problem is if you’re optimistic, then you have to keep cutting the budget every few months to get back in balance. If you’re too pessimistic, you overreact and do things you shouldn’t have done. Knowing those two things, we tried to save money without cutting services from people, because cutting services from people in the middle of a pandemic is a last resort.

Now that the dust has settled a little bit on 2020, how bad was the overall damage?

In June the forecast was way down, but in September and November those forecasts were up quite a bit, not up from where we started, but the hole that was projected ended up being much shallower than we thought it would be. The fact that we had reserves built up before this, and taking administrative action with the vetoes and furloughs and things like that, allowed us to balance the budget without slashing the current biennium budget at all. So in the short term, we were able to weather this without any serious adverse effects.

One important tool in making that happen was a state government hiring freeze. Pluses and minuses?

Not hiring new people is one of the easiest ways of saving money that you can do A hiring freeze for some agencies that were understaffed puts them at a serious disadvantage, and it also puts the citizens who rely on those services at a disadvantage.

What about furloughs?

The furloughs we did are behind us, but with our unions for the next biennium, we negotiated another round of once-a- month furloughs for most state employees. We are hopeful that we can find enough money either in the good revenue forecast or in federal congressional support that we don't have to do nearly as many of the furloughs going forward.

Why are they part of the budget calculus?

This summer, because Congress passed the Shared Work Act, people who took furlough days were able to get unemployment insurance, so for most people who took furlough days in the summer of 2020, it saved money for the state budget, which is why we did it. But the employees didn’t necessarily feel the pain of that. That’s not necessarily the case going forward, which is why we’re hoping to avoid that.

Your advice to local decisionmakers when it comes to budgeting during a crisis?

Don’t overreact—but that doesn’t mean don’t have a plan. When things looked really bad, we asked all the agencies to plan for a 15 percent cut, options so that if it got as bad as it looked, we would be able to react. Be ready in the bad situations, do the easy stuff first, and be prepared to do harder stuff. And by easy, I mean relatively. Not giving raises is not something anybody likes, but it is certainly better than laying people off.