The Budget & Accounting Act
1959

INTRODUCTION:

One of the most significant achievements of the Rosellini administration (1957-1965) was the passage of the Budget and Accounting Act of 1959. This website will explore the genesis of the Act through document collections and an interview with Warren Bishop, Governor Rosellini’s chief of staff and first budget director and acknowledged “Father of the Budget and Accounting Act.”

Payton Smith, Albert Rosellini’s biographer, describes the Act:

“The importance of the new act to state government and the governor’s office cannot be overstated... For the first time, a governor could exert executive leadership over the programs and policies of the various agencies. Working through the budget office, a governor could allocate funds where problems existed—such as at mental institutions and juvenile facilities. In addition to allocation, it provided a critical tool by which both governors and legislatures could monitor performance of state government…Rosellini’s and Bishop’s reforms were fully accepted as a method of enabling an administration to be accountable to the taxpayers and legislature. Whereas such reform was long overdue and was, perhaps, inevitable, the fact remains that it was controversial at the time and many predicted it would not win legislative approval. Indeed, without Rosellini’s personal involvement, it would not have passed the senate in 1959. Because of his extensive legislative experience, Rosellini knew that efficient and accountable state government could not exist without budget reform, and he made it the first priority of his government.” Pages 113-114

Payton Smith, Rosellini: Immigrant’s Son and Progressive Governor, University of Washington Press, Seattle, 1997

Prior to the passage of the Budget and Accounting Act, state officials had grappled with the archaic and outmoded patchwork of systems that regulated or tracked government expenditures and sources of revenue. Earlier attempts to put the state on a sound financial basis by other governors could not keep pace with the expansion of services and responsibilities which characterized the postwar state. In 1952, Governor Langlie appointed a stellar Committee on State Government Organization, chaired by Harold Shefelman, to examine ways to modernize state government. Senator Albert Rosellini was a member of the Committee. Although their report documented the many weaknesses in the existing administration and pointed the way to reform, substantive action was postponed until new leadership emerged when Rosellini was inaugurated as governor in 1957.

The postwar era also saw an influx of pragmatic, activist legislators who transformed the culture of the Legislature as an institution and branch of government. Old ways of doing the business of the state gave way to a new openness and a willingness to employ new techniques. The advent of computer technology—at that stage still based on key-punch systems—enabled government to gather and use data in unprecedented ways. The stage was set for the overhaul of the state budget. Governor Rosellini charged his chief of staff, Warren Bishop, with the task.

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INTERVIEW WITH WARREN BISHOP:

Warren Bishop was a doctoral student of public administration at the University of Washington and a member of the staff of the Bureau of Governmental Research and Services, also housed at the University. He was deeply involved in both studying better methods of administration and consulting with local governments when he was invited to apply to work with Governor-elect Albert Rosellini. The new governor was looking for someone who shared his ideas of reform and who could bring a professional approach to the executive branch. Bishop arrived in Olympia in 1956 as an executive assistant but was soon recognized as the Chief of Staff and State Budget Director. He served with Governor Rosellini for two gubernatorial terms, and then went on to appointments at Washington State University and as a member or chair of many state government task forces, commissions and committees. Bishop’s long service in Washington has truly helped bring modern methods of administration to state government.

Warren Bishop gave two interviews with the Oral History Program, on May 5, 2006 and June 14, 2006, documenting the early years of his longtime career with the state of Washington and the creation of the Budget and Accounting Act. The interviews were edited to appear here as one document.

Please see the link “Complete Interview Text” to download the integrated manuscript, or the text can be accessed by sections:

PART ONE: Family Background, World War II Military Experience, Early Teaching Career in Washington State, Marriage

PART TWO: Graduate School at University of Washington, Impact of Canwell Hearings on Campus Life, Work with the Bureau of Governmental Research and Services, Edmonds City Council

PART THREE: Joining the Rosellini Administration, Building a New Team, Issues in State Government

PART FOUR: The Budget and Accounting Act, the Creation of the Central Budget Agency, Court Case

PART FIVE: Warren Bishop’s Resume of Career with State Government

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“WASHINGTON’S NEW FISCAL MANAGEMENT SYSTEM”

For another description of the Budget and Accounting Act, please view “Washington’s New Fiscal Management System,” the text of a speech given by Warren Bishop in 1961 explaining the background and significance of the Act.

"Washington’s New Fiscal Management System: A Perspective on the New System"

By Warren A. Bishop, Budget Director, State of Washington and Leon Cooper, Vice President, John A. Donaho and Associates

In 1907, Governor Albert Mead stated in a message to the Legislature: “Methods of handling state public funds should be devised to insure a systematic and effective check on every state official who performs the duty of collecting monies. Under the present system no check is kept on collections made by any officer other than the count kept by the officer charged with the duty of receiving such funds. Large amounts accumulate and occasionally a balance exists in excess of the amount of the bond required of the officer or exceeding the collateral covering such deposits. Such a system is fraught with danger to the security of the public funds.”

Statements echoing the same concern over allied deficiencies in the state’s fiscal affairs have been made repeatedly over the years. In a report published in the early 40’s, the supervisor of the budget office pointed out that “there is no financial office of the State that has available current information or records regarding the revenues or expenditures of state agencies. Information is readily available on funds established in the state treasury, but too often there is a tendency on the part of the custodians of local or other revolving or trust funds to consider such funds as ‘our money’ and there is reluctance to disclose to others not directly concerned with administering such funds, any information relative thereto.” A report issued by another State fiscal office during the same period emphasized that “the lack of complete current information in some central accounting office…circumvents the efforts of those officials responsible for the planning, management and control of State finances.”

Two successive “little Hoover Commissions,” set up in the early 50’s, decried what were viewed as grave deficiencies in the State’s organization for fiscal management. Piecemeal solutions were adopted at that time to remedy certain elements of the problem. The State will be faced, however, with a series of fundamental inconsistencies in its pattern of fiscal control. An enumeration of the major problem areas included these:

• Responsibility for the development and supervision of State accounting methods was divided between the Budget Officer and the State Auditor; yet neither could exercise responsibility for accounting or exerting other fiscal control over so-called ‘local’ funds biennial disbursements from which exceeded one-half billion dollars;

• Among the controlled, or ’pre-audit’ agencies (signifying those subject to central pre-audit in the Budget Office for each proposed disbursement under the Pre-audit Law), cumbersome and inefficient procedures were the dominant characteristic of the requisition—purchase order—payment cycle in relations with vendors; in some agencies, five and six voucher reviews later made, first, by the Budget Office and, second, by the State Auditor; these and other equally proliferated procedural ‘back stops’ hopefully were devised over the years to remedy the lack of any overall system for fiscal control;

• Some agencies, deeming it essential for purposes of effective internal management, developed comprehensive accounting and reporting systems reflecting currently the status of funds, obligations, expenditures, anticipated cash demand and the like; yet no effectively integrated system of accounting was developed, relating the agency’s internal managerial needs with those requirements prescribed by the Budget Office; in consequence, two accounting systems in the agencies concerned ran in tandem fashion without significant correspondence; other agencies kept nothing more than informal memorandum records with the frequent result that requisitions were submitted by those agencies to the Budget Office until they were notified that their funds had been exhausted for the quarter or the biennium;

• An unwise mixture of authority was vested in the Office of State Auditor; the office approved disbursements (through pre-audit) covering vouchers presented to the office for approval; the office disbursed funds (under the warrant system), directing the State Treasurer to pay for, or redeem, warrants which the State Auditor had issued; the office finally approved (by post-audit) the actions which initially had been authorized under pre-audit;

• State accounting regulations, provided for expenditure objects (some 370 primary and secondary expenditure categories were prescribed), but ignored the revenue side completely; single-entry bookkeeping, with its concomitant lack of self-balancing features in financial record-keeping, was the State’s official accounting policy; State Treasury funds were maintained on the cash basis, but the several hundred funds maintained outside the State Treasury were maintained on whatever basis suited the fancies of the fiscal personnel concerned;

• To the consternation of those trying to inform themselves of developments in the State’s fiscal affairs, one State fiscal office in recent years had consistently reported the General Fund to be in a surplus condition, but another office reporting on the same periods stated that the General Fund was incurring a serious operation deficit.

Action Taken

Armed with these and other facts, the 1957 and 1959 Legislatures enacted two significant pieces of legislation. The 1957 legislation furnished a special appropriation to the Governor and directed him to provide for “the establishment of and installation of a modern uniform system of accounting for all State agencies, together with the development and adoption of a related program-type budget.” And growing out of action taken under the first enactment, the 1959 Legislature adopted the Budget and Accounting Act. A brief review of the events that occurred during the two-year period intervening between passage of the two laws may be of interest.

After intensive examination of the experience records of a number of consulting firms, the State appointed a firm which had had experience in similar installations in other State governments. The Governor also decided to appoint a bipartisan committee to supervise and guide the work of the consultants; a member of the committee, the Governor’s Assistant, kept the Governor informed of developments in the installation. Periodically, the Governor, the committee and the consultants met together to discuss special problem areas, questions of timing and strategy to resolve these problems and priorities in the installation’s objectives. At all times during the course of the installation, and in the deliberations which attended the work, it was explicitly recognized that it was the technique of budget formulation, budget execution, accounting and report which was under study—and not the political factors or policies which would (and indeed, should) control decisions that were to be made later under the program budget.

The consulting firm centered their efforts in working with agency representatives in definition and refinement of two interrelated sets of requirements:

1. Among the State’s 100 plus agencies, what were the authorities and objectives of each? What were they in business to accomplish? How were they organized to achieve these objectives? What was the content of each agency’s program or programs? What workload under each program were they experiencing? Anticipating? Were they agency workload measures currently in use, or proposed, valid and meaningful indicators of agency program effort? What type of budget format best suited the agency’s requirements? What type of appropriation structure? (It should be emphasized that the consultants viewed their role as one best played by raising such questions with agency representatives as would cause these individuals to appraise their agencies in terms of programs and performance. By this means they would better understand the purposes of the installation; there would be fewer false starts in completing the budget request forms that would go out later.)

2. A comprehensive survey was undertaken of accounting and reporting practices employed in twenty-five agencies, selected as being representative of such practices throughout the State service. The purpose of the survey, of course, was to determine the State’s overall accounting and reporting needs, with special regard to the new program basis for budget formulation and execution—both at the level of central fiscal management and control, in Olympia, and for operating agencies, wherever located. In conjunction with the accounting survey of these agencies, an evaluation also was made of machine-accounting methods (including key driven, punch card tabulating equipment and electronic computers.) Here, the guiding purpose was to determine under what circumstances maximum value could be gained for the State’s investment in this equipment (and it might be emphasized, by no means parenthetically—although this would take more space than we have to discuss this subject—how best to overcome the disadvantages and limiting effects stemming from an ill-ordered machine procurement program.)

Following completion of the survey and analysis of program budget requirements, based on approximately a year’s study, certain major conclusions could be emphatically and factually stated and proposals framed for the new system. An agency was selected to serve as a “pilot plant,” in which the major elements of the proposed systems were installed for purposes of determining the feasibility and usefulness of the new system. The system visualized and the system then in effect is summarized in Chart A.

1959 Fiscal Legislation

The 1959 legislative session, truly was a major turning point in the State’s fiscal history. Several critically important factors combined to force decisions in State fiscal affairs: the General Fund deficit had grown to alarming proportions, from $30 million during the 1955-57 biennium to an amount estimated to be in excess of $100 million for the 1959-61 biennium should the Legislature fail to enact needed revenue legislation; the Governor was compelled to propose appropriation expenditures from the General Fund which would exceed $835 million for the ensuing biennium, the highest in the State’s history, a situation brought about by the fact that the citizens of the State have long demanded a level of State service which has placed Washington, among the States, in the forefront in terms of per capita expenditures for welfare, education and other functional areas; and, finally, there was the Archaic fiscal system which had been pieced together to deal with problems of another era, one hardly suited to meet the State’s pressing needs today for a responsible, responsive system.

The administration transmitted to the Legislature, shortly after it convened, several key documents: the new budget document based on program and performance, for all agencies, demonstrating both operating and capital expenditure needs (and in connection with the latter, establishing a capital improvement program covering three biennia, with orderly means proposed for its financing;) appropriation measures generally fixing clear responsibility upon the Governor to see that the Legislature’s authorizations to spend were carried out consistent with the terms of those authorizations and the Budget and Accounting Bill. Each of these documents was of signal importance in enabling the Legislature to chart the State’s new course in fiscal management. The major features of the budget document and of the appropriation measures were made explicit in the proposed Budget and Accounting Act. That Act had the following principle purposes:

1. The Governor would be required to submit a balanced budget under which revenues would be specifically provided to meet proposed appropriation expenditures.

2. Provision was made for orderly liquidation of the General Fund deficit.

3. The budget document would be a comprehensive statement of all receipts and all expenditures.

4. A capital improvement program and capital budget would be established.

5. Authority would be assigned to the Governor to ensure that the budget plan of expenditures, as enacted by the Legislature and signed into law by the Governor, is effectively carried out. Allotment requests of agencies could not be altered in the case of elective officials or for the institutions of higher education. No agency would be permitted, however to spend more than was appropriated. The Governor was authorized to reduce allotments if revenue collections fell below revenue estimates.

6. Responsibility was to be clearly assigned for all concerned in the State’s fiscal operations; with the head of each agency for conducting his activities under the terms and conditions laid down in the budget, as further defined in the allotment schedules; with the Budget Director, as the Governor’s agent in fiscal matters, to see that all proposed expenditures accord with the allotment schedules and, further, that agency accounting records and reports fully and correctly reflect necessary information to enable the Governor to take action at any time to reduce expenditure authorizations; with the State Treasurer to serve as the State’s chief disburser and as custodian of State funds; and, with the State Auditor for securing an independent, timely post audit of all State financial transactions.

7. The act was to amend or repeal a series of vague or contradictory statutes which had had the effect of obscuring vital questions in the State’s pattern of fiscal management.

8. Elimination of outmoded and inefficient accounting and reporting practices would be authorized under the proposed legislation; a complete accounting and reporting system would be established to support the new program budget.

9. The Act would furnish the statutory means needed for securing more efficient use of the State’s vast array of punch card and computer equipment; an orderly plan for machine procurement and use would be instituted, entailing application of clearly defined machine standards.

10. Finally, the Act would provide, a flexible legal base for keeping the State’s budget and accounting systems ever adaptable to changing needs and conditions; regulations would be issues pursuant to the Act which would serve as the comprehensive regulatory framework within which all elements of the new system would operate.

Vigorous debate in both legislative houses attended consideration of the measure. The Act was finally passed, however, without significant amendment.*

* Following enactment, the Auditor initiated court action challenging the constitutionality of the new act on grounds that it unlawfully divests his office of pre-audit responsibilities. The lower court held against the Auditor. The Supreme Court currently is considering the Auditor’s appeal from this judgment.

Developments Since 1959 Legislative Session

A new agency, in the office of the Governor, was established by passage of the Budget and Accounting Act: this is the Central Budget Agency. The organization of the new agency is shown in Chart B.

State operations under the new system can be best explained by discussing the responsibilities of the Central Budget Agency. First, it is the Governor’s principal staff arm in fiscal and management affairs, with general responsibility for developing:

• The State’s basis for orderly budget planning and budget administration;

• Accounting standards, and for taking action to ensure that all agencies comply with these standards;

• Complete financial and work reporting systems reflecting agency program activity and performance;

• Through the budget, accounting and reporting processes, securing efficient, economical management of the State Government, and establishing the vital link between budgeting and administration;

• Better organization and methods within and among agencies

• Additionally, the Central Budget Agency staff will serve as the Governor’s agents in:

• Carrying out his policies;

• Advising him of problems and issues in agency management and proposing solutions therefore;

• Representing his interest in day-to-day, efficient conduct of State operation;

• Informing the Legislature and the public regarding significant developments in the State’s fiscal affairs.

Some significant achievements may be noted during the Budget agency’s relatively short period of existence: a budget and accounting manual has been issued stating policies, standards and regulations covering the new fiscal system; intensive training sessions have been held with agency staff to ensure uniform understanding and applications of these policies, standards and regulations; the forms control program has resulted, at this stage, in the elimination of many of the poorly-designed forms which had been issued under the “standard.” Statewide forms program previously in effect, with resultant savings in time and materials costs; a smoothly-functioning payroll system is in effect, greatly minimizing the disadvantages previously experienced under the State’s “anticipated payroll, including incorrect payroll data and costly supplemental payrolls; under the accelerated vendor-payment system, State agencies are in a better position to take discounts typically offered by vendors in return for prompt payment, again representing a “significant savings to the State (and making only passing reference to the improved relations with vendors which accrue form such an effort.)

Standard accounts have been prescribed for all classes of receipts and expenditures, ensuring correct and complete accounting for these data; the basis for proper execution of the budget plan in being assured through cultivation of close working relationships between the Budget Agency staff and agency representatives in full recognition of the fact that effective budgetary and management controls are not so much imposed upon the agencies as they are generated by responsible intelligent management needs within the agencies; close liaison is being maintained with the State’s purchasing and personnel agencies to assure that procurement and personnel actions are effectively related to authorizations under the budget and allotment systems.

Other accomplishments could be added to the list. “In the works”—a general ledger system has been under development for some months and will soon be distributed for use in all agencies and for all funds; the Central Budget Agency’s summary and financial control reporting system will be operative in the near future, again applying to all agencies and all funds. Efficient operation of these elements of the new fiscal system will result in current, pertinent financial information covering such things as: fund revenues, estimated and actual; fund expenditures on the accrual basis, estimated and actual; agency appropriation and allotment balances; agency obligations; agency program expenditures, estimated and actual; agency program revenues, estimated and actual. Under the reporting system, agency heads, the Governor and other officials concerned will be able to take timely, intelligent action in the light of current facts and trends and on the basis of reasonable projection of these trends.

Conclusion

Eric L. Kohler, an eminent practitioner in both governmental and commercial accounting, has outlined* what he conceives to be the major elements of a model overall plan for State fiscal management; these are embodied in “A Declaration of Policy by the Governor of the State of Zenith” (in which Zenith’s Governor defines for this Utopian jurisdiction the responsibilities of each State agency, the department of finance, the public, and the Legislature.) The preamble—and as well, the specific guidelines proposed in the responsibility sections that follow—of this policy declaration fairly well reflects, we think, the guiding purposes and objectives of Washington’s new system for fiscal management.

• In “Accounting Practices in State Agencies,” The Journal of Accountancy, August 1959, pp. 52-60

“A Declaration of Policy by the Governor of the State of Zenith”

“As Governor of this state, I declare it to be the determination of this administration to re-examine, and, where possible, to improve the state’s budgetary, accounting, and reporting practices. Not only must the management of the State’s activities be above reproach, but the fullest possible use must be made at all times of modern, professionally tested and approved methods of collecting revenues, keeping expenditures within the purposes and limitations established by the legislature, and conducting every aspect of the state’s operations with businesslike efficiency and economy. Moreover, today’s management is dynamic: once established, it can be kept alive only by a continuing search for better methods, the prompt elimination of outmoded and unproductive practices, and an unremitting enthusiasm for elevating the public service. This will require both the vigorous support of and participation by the elective and appointive heads of our agencies and the interest, attention, recommendations, and continued watchfulness on the part of professional and other citizen groups.”

Of course, it cannot be claimed that Washington (unlike the State of Zenith) has found all of the answers to all of the vexing problems of state fiscal management. Much remains to be accomplished before the State may be regarded as the cynosure of all eyes. But at least: clear and constructive goals have been set; the right questions are being considered; significant gains have already been scored; and built-in improvements—in the form of adequate procedures and competent staff resources—will be available to deal with and to resolve emerging problems before they become crises.

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