After reviewing the 2011 budget actions in the various states, State Budget Solutions has developed four New Year's resolutions for Governors and state legislators. If they make and stick to these resolutions, policy changes will be implemented and states will eliminate their budget deficits and improve the economic conditions in their state.

Those in charge of state budgets certainly need to make some changes, because the status quo isn't working well. The National Governors' Association is projecting that states will face more than a $40 billion budget shortfall in fiscal year 2013. States don't expect their budgets to return to prerecession levels until 2014 or 2015. Thus, action to reduce spending now is essential.

Financial reality is not negotiable and does not go away when legislators "kick the can" down the road to the next budget by using gimmicks to balance the budget. Further, the coming reduction in federal funds and the projected increase in Medicaid spending will put additional financial pressures on the states. State Budget Solutions recommends the following New Year's Resolutions for Governor and State Legislators.

The first resolution state lawmakers should make is the implementation Reality Based Budgeting, which is also known as outcome performance based budgeting. The budget process in nearly every state is broken. It relies on a few key legislators to write a budget using historical rates of agency funding. Instead, priorities and performance should drive budget allocations. Crafting a sustainable budget should involved all legislators who take four key steps at the state of every session. Lawmakers should start by asking, "What must the state accomplish?" Then they must identify how the efficacy and efficiency of services will be evaluated. The third step is that they must determine how much money the state actually has. Finally, What is the most effective and efficient way to deliver essential services given the forecasted revenue?

Second, lawmakers and governors need to resolve to stop using budget gimmicks to "balance" state budgets. Recent gimmicks include: not making the required annual contribution to pensions; sweeping money from dedicated accounts and using it to "balance" the budget; delaying payments until the next fiscal year; borrowing funds to balance the budget; accelerating revenue projections; inflating revenue projections; moving items off budget, etc. These tactics merely delay the "day of reckoning" and make it much more difficult in the following year to balance the budget.

New Year's resolutions often work best when there is a clearly defined goal in mind. Budget resolutions are no different. All legislators should be involved in the budget process by giving all the standing committees a budget target at the start of the session and have the committees hold hearing on what agencies have actually accomplished using outcome measures.

Fourth, state legislators should resolve to post budgets on-line for 72 hours before a vote is taken. Budgeting should be a transparent process. All legislators and the public should have the opportunity to examine the budget before a vote is taken.

State governments are in trouble because governors and legislators tax too much, spend too much, bestow unsustainable salaries and benefits on government employees and disregard sound budgeting principles in favor of budget gimmicks, federal "stimulus' funds, costly borrowing, and other short-term fixes.

Over the past few years few states have seriously addressed state spending and "reset government spending" to meet the new financial realities. Only a real transformation in the size and scope of government, through spending restraint and downsizing government, will restore economic growth and job creation. I hope that this time next year we will all be congratulating governors and legislators on keeping their resolutions.