Transparency in State Budgets a Search for Best Practices

Transparency in State Budgets A Search for Best Practices

For a Budget Transparency Profile for each individual state, visit http://igpa.uillinois.edu/FiscalFutures

September 2011

Richard F. Dye Nancy W. Hudspeth David F. Merriman

The Institute of Government and Public Affairs (IGPA) is a public policy research organization based in all three University of Illinois campus cities. IGPA‟s mission is to improve public policy and government performance by: producing and distributing cutting-edge research and analysis, engaging the public in dialogue and education, and providing practical assistance in decision making to government and policymakers. The institute‟s work not only advances knowledge, but also provides real solutions for the state‟s most difficult challenges. IGPA plays an important role in assisting government to better serve the public good. IGPA provides access to top-quality University of Illinois research to improve decision-making at every level of government.

Executive Summary

Complicated, hidden, and inconsistent budget practices are not desirable, and greater transparency would facilitate more informed policy making. How does one go about measuring budget transparency? State budgets are often massive, complicated the findings and scores for each state in detailed documents that use idiosyncratic and sometimes tables. inconsistent accounting conventions. Moreover, budget information is not always presented in a timely Finally, we develop four original indicators of fiscal manner or an easily accessible form. Worse, transparency: the share of total spending that comes confusion follows transactions that can flow through from special—as opposed to General—funds; year-to- multiple funds or accounting treatments that change year variation in that share; the magnitude of net from one year to the next. transfers between General and special funds; and year- to-year variation in net transfers. Since General Funds It is easy to agree that complicated, hidden, and are more commonly reported, using special funds or inconsistent budget practices are not desirable and that transferring funds back and forth can cloud the budget greater transparency would facilitate more informed picture. Worse, year-to-year changes in special funds policy making, but how does one go about measuring or in fund transfers alter the frame of reference and budget transparency? This report looks at three thus confuse budget watchers. different ways. We find that our new indicators are correlated with a First, we review academic and professional studies of measure from the academic literature on budget government budget transparency. Most studies: (a) characteristics. This suggests that the more desirable identify desirable characteristics of the timing or budget and reporting practices a state adopts, the less content of budget information; (b) find measurable likely they are to employ accounting gimmicks like indicators of these; (c) compile an overall score for transferring dollars and moving expenditure items into each government studied; and (d) look for a statistical and out of the General Fund from one year to the next. association between budget transparency scores and cross-state differences in public outcomes—such as As a companion to the report, we have created a the size of the budget or how informed the electorate single-page Budget Transparency Profile for each is. We reconstruct one of the indexes with current U.S. state that: replicates a budget process, contents data and provide scores for each U.S. state. and disclosure checklist from the academic literature with recent data; presents the overall budget Second, several public interest organizations evaluate information access grades from four public-interest each U.S. state with regard to public access to organizations; and shows our four new special-fund budgetary information. We report on three groups and fund-transfer indicators of transparency. The that look at whether a state's budget and related state profiles, the full version of this report, and other information is accessible online, and one concerned information on the Fiscal Futures Project are available with the timely release of a key report. We reproduce at http://igpa.uillinois.edu/fiscalfutures.

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Table of Contents

I. Prologue: Budget transparency, fiscal discipline and informed policy making ...... 1 1 II. The concept of fiscal transparency ...... 2

III. Budget transparency research ...... 4 IV. Transparency Scorecards ...... 5 V. New indicators of budget transparency ...... 6 VI. The transparency measures compared ...... 8 VII. Conclusion ...... 10 References ...... 12 Appendix 1. Literature Review ...... 14 Appendix 2. State Budget Transparency Scores by Different Organizations ...... 22 Appendix 3. New Indicators based on the General Fund Share of Total Spending ...... 30

List of Tables

Table 1. Correlation Coefficients for Alternative Transparency Measures ...... 11 Table A1.1.Budget Transparency Indicators in Studies Comparing Nations ...... 16 Table A1.2.Transparency Indicators in Studies Comparing U.S. States ...... 21 Table A2.1.Good Jobs First—State Scores ...... 24 Table A2.2.Truth in Accounting—Timeliness of Release of Consolidated Annual Financial Report ...... 25 Table A2.3.U.S. PIRG—Transparency Scorecard ...... 26 Table A2.4. Sunshine Review—Grades and Indicators for State Transparency Websites ...... 27 Table A2.5. Alt-Lassen Index of State Budget Transparency ...... 28 Table A3.1. IGPA: Special Fund Share of Total Spending by State FY 1997-2009 ...... 31 Table A3.2. IGPA: Change in the Share of Special Funds and Transfers by State from 1997 to 2008 ...... 32

iv I. Prologue: Budget transparency, fiscal To do this we required current and historical data discipline and informed policy making that covered the full scope of state government activities, was consistently defined over time, and The severe downturn in revenues brought on by the could be easily mapped into current policy debates. recession of 2007-2009 provoked a fiscal crisis and Such data did not exist. There was a problem with exposed deep flaws in many states‟ fiscal plans. scope—most fiscal reporting and discussion in Around the country states face massive short-term Illinois focuses on the four General Funds, but there operating deficits, revenue systems incapable of are over 600 state funds. There were problems with supporting spending obligations and large unfunded inconsistent reporting over time—activities liabilities stemming from past commitments. With migrated from special to general funds across years a little reflection it is clear that the economic and subcategories of spending were moved from downturn heightened and quickened, but did not one fund or agency to another in different years. create, this fiscal upheaval. In retrospect, the After developing and vetting a set of criteria, we precarious fiscal situation of many states should not consolidated 380 of the state‟s funds into a single have been a surprise. Rapidly rising health care budget (Dye, Hudspeth and Merriman, 2011). In spending, unfunded pension and other post doing so, we increased the amount of government employment benefits, commitments to provide spending activity in the frame from $35 billion in services to a rapidly aging population, narrowing the General Funds to $60 billion in the consolidated business and sales tax bases and the proliferation of funds for fiscal year 2009. When we reported our tax expenditures were all well-known trends that initial results to our supporting organizations, they should have been causes for alarm even in the told us that having an inclusive, consistent and absence of a bursting economic bubble. Yet many consolidated budget for the state is an important states patched together year-to-year solutions that independent contribution of the project, quite seemed to maintain or even expand service levels separate from our creation of a budget projection with constant or decreasing taxes, and few seemed model. Transparency in state budgeting is very to heed the warnings or understand the risks. important to frontline users of budget information in their roles as advocates or analysts. Part of this may have been willful ignorance on the part of well-informed elected officials and interest We suspect that the problems we encountered in groups that wanted both high service levels and low Illinois hamper budget and policy discussion in taxes. Our experience has however taught us that many other states and can contribute to an even well-meaning, intelligent, educated and unrecognized structural imbalance between vigilant observers can be grossly misinformed about sustainable revenues and trends in service levels. the condition of their state‟s finances and potential We believe that a major impediment to fiscal pitfalls. State budgets are often massive, understanding how much trouble state governments complicated documents that use technical, are in is the lack of transparency in the way their idiosyncratic and sometimes inconsistent budgets are presented. Common practices include: terminology and accounting conventions. use of multiple funds, with some reported separately; inter-fund transfers; reclassification of Our own state of Illinois serves as an example. items from one year to the next; shifting the year in Several years ago we began the Fiscal Futures which expenditures or revenues are counted. Project to develop a budget projection model in Because revenues and spending are not reported in a order to increase awareness of longer term clear and consistent manner, those trying to structural problems facing the state and to provide a understand budgetary balances or changes in way of measuring the impact of current policy revenues and spending are easily confused and, choices on future budgets. The project had, and worse, obfuscation by those who wish to push has, the support of organizations representing a particular fiscal agendas is facilitated. Lack of broad range of interests—business-funded policy budgetary clarity also makes it harder to quantify groups, labor-funded groups, civic interest groups, and compare different policy solutions to state and special interest groups. As we began work on this project, we set out to use historical budget data budgetary problems. for the state in order to generate projections of future budget trends (see Dye and Hudspeth, 2010). 1 These issues led us to undertake a project on state promote accountability, sustainability, and fiscal transparency across states while continuing expenditure control. In 2001 the OECD defined our work on the Fiscal Futures Project in Illinois. budget transparency as “full disclosure of all We hope that our work on transparency can lead to relevant fiscal information in a timely and a better understanding of what can be done to make systematic manner” (OECD, cited in Bastida and state budgets more intelligible. We also want to Benito, 2007: 667). The key piece is a very know what is being done in different states. What thorough IMF report, “Transparency in Government are best practices and how might they be Operations,” by George Kopits and Jon Craig implemented in more states? Citizens, journalists, (1998). Also see OECD, “Best Practices for good-government groups, advocates for state Budgetary Transparency,” (2002). services, advocates for lower taxes, and even state legislators would all benefit from more transparency Since the IMF and OECD initiatives, transparency in state budgets. has become a very popular idea. In the public discourse, transparency is often used to refer to a Overview of this report. broad set of practices that might be called open government or ethics. For example, at the federal This report is divided into the following sections. level, the president has used the terms transparency Section II clarifies the concept of fiscal or budget and open government interchangeably. In January, transparency, using selections from the literature 2009, Barack Obama‟s first executive act as that illustrate the nuances of the concepts and the president was to sign the Memorandum on debate regarding its value. Section III presents a Transparency and Open Government. Later that brief overview of past research on budget year, the White House issued the Open Government transparency with an emphasis on transparency Directive, “requiring federal agencies to take indicators and measures. Section IV presents immediate, specific steps to achieve key milestones detailed information on the work of other authors in transparency, participation, and collaboration.” and advocates who have studied transparency. In

Section V we present our own measures of Kopits and Craig (1998) identify three dimensions transparency, which are based on the General Fund of government transparency: and non-general funds shares of total expenditures.

Section VI presents a brief comparison of the 1. At an aggregate level, provision of alternative measures of budget transparency. reliable information on the government‟s Finally, we present a detailed annotated fiscal policy intentions and forecasts. bibliography and data in several appendices.

2. Detailed data and information on II. The concept of fiscal transparency government operations, including the

publication of comprehensive budget Fiscal (or budget) transparency is a concept that documents that contain properly appears to have developed in the 1990s, and may classified accounts for the general have evolved from corporate transparency, which government and estimates of quasi-fiscal Bushman, Pieotroski, Smith, (2004) define as activities conducted outside the the“availability of firm-specific information to government. those outside publicly-traded firms.” In the business literature there are many books on 3. Behavioral aspects (ethics) including corporate accounting transparency. Interest in the conflict-of-interest rules, FOI topic coincided with the Enron scandal and an requirements, regulatory framework, upsurge in attention to corporate accounting issues open procurement and employment during the 1990s. practices, codes of conduct for tax

officials, public performance audits. In the late 1990s the International Monetary Fund

(IMF) and Organization for Economic Cooperation and Development (OECD) set out guidelines to encourage nations to increase fiscal transparency to

2 A. Clarification: Government transparency (1) Institutional transparency: Overall vs. budget or fiscal transparency structure & functions (clear demarcation of functions between Government transparency includes but is not public and private sectors; budget confined to fiscal transparency. According to Alt, process (disclosure of results of Lassen and Rose (2006: 30-31): “Broadly defined, audits, performance); tax treatment government transparency is the overall degree to (including explicit statutory basis for which citizens, the media, and financial markets can tax liabilities); financing operations observe the government‟s strategies, its actions, and (including the disclosure of interest the resulting outcomes…one important aspect of yield and maturity of government transparency [is] fiscal (or budget) transparency.” debt); and regulation (including estimates of regulatory costs). B. Definition: fiscal or budget transparency (2) Accounting transparency: coverage; A review of the literature helps clarify the meaning recording basis (include accruals); of fiscal transparency which Kopits and Craig valuation and recognition (including (1998: 1) define as: the measurement of government assets); and classification (including openness toward the public at large the disaggregation of expenditure on about government structure and an economic and functional basis). functions, fiscal policy intentions, public sector accounts, and projections. It (3) Transparency of indicators and involves ready access to reliable, projections: direct indicators comprehensive, timely, understandable, (including gross and net debt); and internationally comparable analytical indicators (including information on government structural or cyclically adjusted activities…so that the electorate and balance); short-to medium-term financial markets can accurately assess forecasts (including clear and the government‟s financial position and realistic macro-economic forecasts the true costs and benefits of government and parameters); and long-term activities, including their present and scenarios (including separate future economic and social implications. baseline scenario and adjustment scenarios). According to Benito and Bastida (2009: 404), C. Virtues of fiscal transparency Budget transparency has three essential elements: (1) the release of budget data The rationale for fiscal transparency is stated by a (systematic and timely release of all number of authors. Kopits and Craig (1998: 2) relevant fiscal information); (2) an observe that, “In general, countries characterized by effective role for the legislature a relatively high degree of fiscal transparency have (scrutinize budget reports, discussing exhibited greater fiscal discipline and…a more and holding government accountable); robust economic performance.” and (3) an effective role for civil society through the media and non- However, Heald (2003: 723, 726) warns that, governmental organizations (influencing budget policy, holding government Fiscal transparency can have substance accountable).” or can just be voguish incantation.…By international standards, UK fiscal Heald (2003) lists three dimensions of good practice transparency is high. Nevertheless, there regarding fiscal transparency: is a major gap between UK rhetoric and practice, indicating a divergence between nominal and effective 3 transparency. This is evidenced by: Panel 2 lists the budget disclosure criteria used in frequent changes in public expenditure one or more of the studies of budget transparency definitions; the non-publication of reviewed here. Criteria include: Once the budget is important analyses; the location of crafted, is the information disclosed to the public certain liabilities „off-balance sheet‟; and and the press on the Internet or in some other easily a lack of candor about tax accessible form? Is the public disclosure done in a policy….Transparency sounds like a timely manner? Does the government publish fiscal virtue, though its sudden elevation monthly or quarterly spending and borrowing to prime virtue should not necessarily be updates? taken at face value. 3. Budget document contents While generally supportive of fiscal transparency, Alt, Lassen and Rose, (2006:32) caution that, “`Too Even when budget documents are open to review in much‟ transparency can produce excessive a timely manner, the information contained in the „politicization‟ and reduce flexibility. If budget may not be sufficient to get a clear picture of information is revealed to third parties who use it the state‟s fiscal situation. Table A1.1, Panel 3 (for harmfully, increasing transparency can be national governments) and Table A1.2 (for state bad…transparency might lead politicians to keep governments) present a list of elements that promises when breaking them might be more different authors suggest should be contained in beneficial.” budget documents. These items include detailed revenue and expenditure categories, a D. Five aspects of fiscal transparency comprehensive scope, accounting for assets and liabilities, targets, projections, performance Based on our review of the literature (which is measures, earmarking, and a measure of structural covered in more detail in the next section of this balance. report), we identified five sub-areas or aspects of fiscal transparency: (1) the budget process or cycle; 4. Budget integrity, control, and (2) public disclosure and distribution of the budget; accountability (3) budget document contents; (4) budget integrity, control and accountability; and (5) budget Budget transparency indicators also include a forecasting and projections. number of accounting expectations: conformity to Generally Accepted Accounting Principles 1. Budget process or cycle (GAAP), disclosure of techniques and practices, and audits. The specific criteria suggested in the This relates to the clarity and openness of the literature are listed in Table A1.1, Panel 4 (national budget decision-making process and the underlying governments) and Table A1.2 (state governments). constitutional or statutory authority. Is there an open, democratic process in crafting the budget? Is, 5. Budget forecasting and projections for example, the budget crafted by legislators with input from voters? The specific budget process Those studying transparent budget practice also criteria used in the literature are listed in Appendix suggest that budgets should be accompanied by 1, Table A1.1, Panel 1 (for national government short-, medium- and long-term forecasts of both studies) and Table A1.2 (for state government revenues and expenditures. See tables A1.1, Panel studies). 5 and A1.2 for the specific criteria used in different studies. 2. Public disclosure and distribution of budget information III. Budget transparency research

Another important open-government aspect of The budget transparency concepts and criteria public budgeting is the dissemination of budget introduced in the last section were generated from information. Most advocates and popular analysts our own experience and from a review a number of of accessibility focus on these issues. Table A1.1, 4 articles and reports. Fiscal or budget transparency including the criteria and scores by state in is an inter-disciplinary topic. In our literature Appendix 2. Three of these organizations—Good review we found fiscal transparency studies in Jobs First, U.S. PIRG, and Sunshine Review—deal political science, public administration, public with the public disclosure aspect of transparency, in finance, accounting, and economics journals. particular the Internet availability of state budgetary Appendix 1 provides a more detailed review of and other information. One—Truth in some of the studies discussed briefly in this section Accounting—is concerned with the timeliness with (complete citations are given in the References which a key budget document is issued. (Appendix section). 2 also includes an Alt-Lassen index of transparency replicated with currently available information.) Following the IMF and OECD fiscal transparency initiatives in the late 1990s, numerous studies A. Good Jobs First attempted to measure the concept. Most have compared various countries with respect to a A 2007 study issued by Good Jobs First examined number of indicators associated with transparency, the online availability of three types of information: often using the best practices described by the IMF economic development subsidies, procurement or OECD. Many of the authors develop an index of contracts, and lobbying activities. Although this fiscal transparency, which is then used to see if study was not strictly about budget transparency we transparency correlates with some other factor, e.g., wondered whether scores on these closely related economic performance, fiscal balance, voting items would correlate with measures of budget behavior, or debt. In several studies, indicators of transparency. Each state was given an overall score budget practices are tallied to create a final score and a percentage score in each of the three areas. that is used to compare budget transparency across The states were ranked from highest to lowest based nations. For example, in an international on these scores and were also assigned a letter comparison of 41 countries, Benito and Bastida grade. Half of all states received overall grades of F created a composite index (or scorecard) using 41 and no state was awarded an A. Appendix 2, Table indicators based on the OECD best practices A2.1 gives the detailed scores for each state. (Bastida and Benito, 2007; Benito and Bastida, 2009). B. Truth in Accounting

James Alt and David Dreyer Lassen and their In 2009, the organization Truth in Accounting coauthors are the only academics that we identified looked at the balanced budget requirements and who have evaluated budget transparency in U.S. examined information contained in the states. Several of their papers use a composite Comprehensive Annual Financial Report (CAFR) in index of transparency developed from National each of the fifty states. The report describes and Association of State Budget Officers (NASBO) and evaluates each state‟s budget process and the National Conference of State Legislators (NCSL) contents of its budget documents. We report here data (see for example Alt, Lassen and Rose, 2006). only the one piece of information that is quantified The index is operationalized as a tally of the in a directly comparable measure provided for all number of specified factors or budget practices that states—the length of time it takes from the end of are present in a particular state. They generally find the state‟s fiscal year to public dissemination of the positive fiscal outcomes associated with greater CAFR. The benchmark dividing their “timely” and transparency. “tardy” ratings is 180 days. The results are shown in Appendix Table A2.2. Twenty-two states release their CAFRs more quickly than the 180-day IV. Transparency scorecards benchmark. Six states, ranging from 300 to 600 day Another type of information on state budget delays, are singled out for a “worst” rating. transparency is in the form of state-specific checklists. Several organizations have created C. U.S. PIRG scorecards for each state. We summarize their findings briefly here and present more detail, In 2010, U.S. PIRG (the national umbrella organization for the Public Interest Research 5 Groups in individual states) looked at whether a  The government often takes the role of state had a website specifically to provide online fiduciary and maintains what are effectively access to government spending data. U.S. PIRG trust funds for other entities awarded states points for each type of information  Federal government grants are often available on the website and combined the points restricted to a specific activity and thus are into an overall letter grade. The detailed results are accounted for separately for control shown in Table A2.3. Fourteen states earned an F purposes by having no appropriate website and another four  Some revenue sources are restricted by law states had a site but scored an F by having so little to a specific activity and are isolated for information posted. control

D. Sunshine Review But since the General Fund budget gets most of the attention in public discussions, special fund The organization Sunshine Review maintains a accounting can lead to confusion for those trying to website that scores each state on whether a number understand budgetary balances or make sense of of types of information are “available,” year-to-year changes in revenues or spending. “incomplete,” or “missing” and combines the Worse, greater use of special fund accounting can results into an overall letter grade. Sunshine facilitate obfuscation by those with a particular Review also provides a great deal of other useful political or fiscal agenda. Transfers of revenue, information about individual states including wiki- balances, or spending assignment back and forth like postings of links to articles about state budget between General to special funds within or across issues or to data sources. The Sunshine Review years provides opportunities for budget gimmickry grades range from A+ to C- and are presented in (see Block 2008 for the characterization of such Table A2.4. practices by the federal government as "gimmicks."). V. New indicators of budget transparency: General Fund share of total spending Dollars in special funds are restricted, but they do affect what happens to the dollars in the General As a supplement to the Alt-Lassen measure and the Fund. For example, if in one year the federal indexes from the four organizations shown above, government gave the state more money for we developed our own independent indicators of education and deposited earmarked dollars into transparency. From our experience in analyzing the special funds, that year‟s General Fund education state budget in Illinois we have learned that it is budget could be reduced and General Fund dollars important to pay attention to both special and previously intended for education could then be General Funds (Dye, Hudspeth and Merriman, used for other purposes. (This happened in Illinois 2011). General Fund revenues and expenditures are in FY 2010). Conversely, if the earmarked typically widely debated during budget processes revenues in the special funds declined, General and are usually explicitly appropriated during each Funds might be needed to fill the gap. budget cycle. In contrast, special funds typically hold designated revenue streams, and are often the The use of special funds can make the budget repository for earmarked revenues and picture less transparent. One study of special funds expenditures. Legislators often do not pay much refers to them as "Hidden Funds" (Minnesota attention or spend much time debating the sources Center for Public Finance Research, 2005). A and uses of special funds. The media often also perhaps even greater source of confusion for budget pays little attention to these funds and voters may watchers are year-to-year changes in the special be largely unaware of them. versus General Fund shares of the total budget. Also, within-year transfers from special to General There are important and defensible reasons for Funds can make the budget picture less transparent. using special funds as opposed to General Funds: From this logic and experience we have developed four measures of budget transparency. All are defined so that lower values are associated with

6 higher transparency and higher values represent less This measure of budget transparency—the share of transparency. the budget that is in special funds—needs to be interpreted with care. Since the General Fund share A. Special fund share of total spending gets more public scrutiny, a larger fraction of the total budget in special funds suggests that more is Our basic measure comes from the ratio of General hidden from view. Arguably, a higher special fund Fund Expenditures to General Expenditures (total of share can obscure the true fiscal condition of the all funds). We use data from the National state and increase the opportunity for budget Association of State Budget Officers‟ (NASBO) gimmickry by those who do the reporting. But Fiscal Survey for General Fund Expenditures in the there are a number of reasons for cross-state numerator and data from the U.S. Census Bureau‟s differences in the special funds share—different State Government Finances for General management and control decisions (some made Expenditures in the denominator. To make this a decades earlier), different reliance on earmarked measure of non-transparency, we subtract the taxes, or different eligibility for or reliance on General Fund share from total spending to get the programs funded by federal dollars. Federal dollars special or hidden-fund share of total spending. The are used for Medicaid, education, transportation, indicator of non-transparency is thus the ratio of and environment/natural resources and are a very non-General Fund spending (numerator) to total significant portion of states‟ expenditures from non- General Expenditures (denominator). general funds. For example, income-based eligibility rules will drive part of the difference States use multiple funds for budget accounting and across states, and this is certainly not an indicator of control purposes. Another NASBO publication, budget gimmickry. State Expenditure Report, classifies state expenditures by four broad types of funds: General B. Variation in the special fund share of Funds, Special Federal Funds, Special Bond Funds, total spending and Other Special Funds. The Census Bureau has With so many explanations of cross-state variation developed measures of spending that are broadly in the special funds share, an arguably better defined, consistently defined over time, consistently indicator of fiscal gimmickry—or of fiscal changes defined across states, and not based on the type of that are more apparent than real—is the year-to-year fund. The term “general” used by the Census has a change in a state‟s special funds share. For different meaning than the type of fund used for example, a transfer of responsibility for a particular accounting and control purposes. The Census expenditure from General to special funds could “General Expenditure” measure covers payments mask the fact that spending is being financed by for most types of government activities except for lower fund balances and not sustainable revenue enterpriseslike state liquor stores, state-owned sources. public utilities, or state pension or unemployment insurance trusts. We found that in Illinois, it is fairly common for expenditure items to migrate between special and Table A3.1 in Appendix 3 shows the special fund 1 General Funds, depending on the circumstances. share of total spending for each state in each fiscal For example, the state‟s contribution to the pension year from 1997 to 2009, and the first column of funds typically comes out of the General Funds. Table A3.2 shows the average ratio for each state However, when the state borrowed the money to over the entire period. The second column of Table make its pension payment in FY 2010, it deposited A3.2 ranks the states from low to high on this the borrowed dollars in a special fund—not the measure. There is variation across states and General Funds—and the payment was made from variation for each state over time. The ratio for the that special fund. Because the pension payment did vast majority of states in most years is in the range not come out of the General Funds in 2010 as it had of one-half to two-thirds, but one state— in 2009, it appeared that GF expenditures dropped Michigan—has a mean special fund share of over 15 percent between 2009 and 2010. Since reporting three-quarters, and seven others have more than two-thirds of total spending coming from special 1 funds. Illinois has four General Funds, while most states have just one. 7 concentrates only on the General Funds budget, this percent of total spending. Four states stand out with could have been seen as an actual spending cut, very large net transfer ratios: Massachusetts has net making the state‟s fiscal condition appear less transfers out the General Fund of seven percent; terrible to some. Alabama has net transfers in of seven percent; Illinois has net transfers out of thirteen percent; and Our measure of year-to-year variation in the special Wyoming has net transfers into the General Fund of funds share is the standard deviation of the ratio fifteen percent. Voters in these states should be over time. The third column in appendix table A3.2 particularly cautious of presentations that show just shows this for all fifty states and the forth column the General Fund budget. ranks the states from lowest (arguably most transparent) to highest (arguably least transparent). D. Variation in transfers between special The range is from a low of one percent in North and General Funds Dakota, to a median of three percent, to highs of eight and ten percent in Wyoming and Alaska Year-to-year changes in the transfers between respectively. The heavy reliance on extractive taxes special and General Funds is another source of in Wyoming and Alaska makes them outliers in confusion for budget watchers. The seventh column almost any statistical study of cross state finances, of Table A3.2 shows the standard deviation over so most problematic by this measure are South time of the net transfer ratio for each state and the Carolina, Vermont, Illinois and Missouri with final column ranks the states from lowest to highest standard deviations of the special funds share in the by this measure. For most states the year-to-year six percent range. Budget watchers in these states change in transfers is very small: twenty states have will have a hard time sorting out whether fiscal standard deviations of less than one percent and changes are real, or merely artifacts of reassignment another eighteen are below three percent. Ten from special to General Funds or vice versa. states (including Illinois) have variation in the three to six percent range, suggesting that these are states C.Transfers between special and General with a higher degree of budget obscurity. Alabama Funds and Wyoming are the outliers, with cross-year variation averaging a whopping thirteen and Another source of non-transparency in state budget eighteen percent respectively. reporting is transfers between special and General Funds. A measure of this is the difference in how VI. The transparency measures compared General Funds are defined in two different NASBO reports. NASBO‟s Fiscal Survey counts transfers How do the various transparency measures compare between General and special funds as part of or correlate? We compare three of the transparency measures from other groups to the four we have General Fund expenditures. This corresponds to 2 how General Fund budgets are usually presented. constructed. NASBO‟s State Expenditure Report assigns the A. Summary descriptions of the measures expenditure to the fund that makes the final payment. Because the State Expenditure Report (1) The Alt-Lassen index. Using more recent data, covers total spending by all types of funds— we have largely replicated an index of state budget General, federal, bond, and other—there would be transparency created by James Alt, David Dreyer double counting if transfers were assigned to one Lassen and various coauthors (see Appendix 1 and fund and then the final payment to another. Table A1.2 for the Alt-Lassen studies and Table A2.5 for our version and the list of budget practices The fifth column of Table A3.2 shows the mean included). A higher score on the Alt-Lassen index value of net transfers as a share of total spending for means that a state has a larger count of transparent each state. On the assumption that either large net transfers in or large net transfers out of the General Fund can lead to confusion and non-transparency, 2 We exclude Truth in Accounting's simple count of the the fifth column ranks states by the absolute value number of days to release of single budget document. We of this ratio. For the large majority of states net exclude the PIRG scorecard as too narrowly focused on transfers are quite small. Thirty-two states have whether information can be found on a "transparency website" and not whether the same information can easily be found on average net transfers in or out of less than one other state websites. 8 or desirable budget practices, so higher values B. Correlation among transparency measures represent greater transparency. Table 1 is a correlation matrix for these seven (2) The Sunshine Review scores each state on measures: While the correlations in Table 1 are in whether a number of types of information are general not strong (possibly due to the sample size available online and combines the results into an of only 50 states), the signs do appear to support the overall letter grade. We took the letter grades concepts of transparency as defined by the shown in Table A2.4 and translated them into indicators used. Recall that higher values of the numerical scores (from F=0 to A+=4.33). Higher three "scorecard" measures represent greater scores are explicitly interpreted as representing transparency, while the higher values of the four greater transparency. "share" variables all represent less transparency.

(3) Good Jobs First also scores each state for online  The three cells on the top left compare availability of information on economic transparency indicators (1 & 2; to 2 & 3), development subsidies, procurement contracts, and which should move together and thus be lobbying activities (see Appendix 2 and Table A2.1) positively correlated. . This seems more about general government transparency than budget transparency per se, but We did not find significant correlations between the may correlate with measures of budget transparency measures formulated by (1) Alt- transparency. Higher scores signify more Lassen, (2) Good Jobs First, or (3) Sunshine transparency. Review. It seems these are measuring quite different things. (4) The special fund share of total spending is shown in Table A3.1 year-by-year for each state  The six cells on the lower right compare and the multi-year average is in column (1) of Table non-transparency indicators (4, 5 & 6; to 5, A3.2. This is the portion of the state budget that is 6 & 7), which should also move together arguably more hidden from public view than the and be positively correlated. General Fund share, so higher values represent lower transparency. The highest correlation in Table 1 is the large positive relationship between the (6) Net Transfer (5) Year-to-year changes in the special fund share Share and its own volatility, (7) Variation in Net of total spending can confuse budget watchers. The Transfer Share. Both of these measures also have a variation of the special fund share for each state is noticeable correlation with (5) Variation in the shown in column (3) of Table A3.2. Our hypothesis Special Fund Share. It seems states that use one is that higher variation clouds the budget picture type of accounting device that may confuse budget and thus represents lower transparency. watchers also tend to use another.

(6) Transfers between special and General Funds On the other hand, the (4) Special Fund Share as a share of total spending are another contributor shows no correlation with any of the other three to non-transparency. On the assumption that both non-transparency measures. The overall level of large transfers into and large transfers out of the Special Fund Share varies across states for a General Fund can be confusing, this is measured as number of reasons that may have little to do with the absolute value of the net transfer share from transparency—historical choices, access to federal column (5) of Table A3.2. Larger values indicate funds for income-related or transportation-related less transparency. programs, or earmarking of petroleum or mineral (7) Likewise, year-to-year changes in the net revenues. It is year-to-year changes or within-year transfers share of total spending can obscure the transfers that are more problematic for budget picture. For this we use the variation in the transparency. net transfers to total spending ratio as shown in column (7) of Table A3.2. Higher variation represents lower transparency.

9  The twelve cells on the lower left compare a VII. Conclusion transparency indicator (1, 2 & 3) to a non- transparency indicator (4, 5, 6 & 7), which Although the concept of budget transparency is should move in opposite directions and thus widely endorsed by the general public and the term be negatively correlated. has been used extensively in political discourse, very few empirical studies have attempted to define There are sizable negative correlations between the and measure budget transparency. In addition, (1) Alt-Lassen Index and both the (6) Net Transfer almost all such studies have focused on national Share and (7) Variation in the Net Transfer Share. indicators. In this report we summarize academic This suggests, not surprisingly, that in states where and popular measures of transparency as applied to there is a longer list of good budget practices, there U.S. states, and propose four additional measures: is also lower use of accounting devices that can the share of total spending that comes from obscure the budget picture. special—as opposed to General—funds; year-to- year variation in that share; the magnitude of net The (3) Sunshine Review grades are inversely transfers between the General and special funds; correlated with the (4) Special Fund Share and the and year-to-year variation in net transfers. (7) Variation in Net Transfer Share, and to a lesser extent with the (6) Net Transfer Share. The states‟ We find that our indicators are moderately, scores on the (2) Good Jobs First criteria were not inversely correlated with the most thorough significantly correlated with any of the non- measure of state budget transparency to date, the transparency measures, other than a slight inverse Alt-Lassen Index (as replicated by the authors), correlation with the (4) Special Fund Share. suggesting that the more desirable budget and reporting practices a state adopts, the less likely Recall that both of the popular report cards measure they are to employ accounting gimmicks like whether a state‟s budget and other government transferring dollars and moving expenditure items information is accessible online, and they do not into and out of the General Fund from one year to measure the quality of the information disclosed or the next. the openness and accountability of the budget process. Certainly, online accessibility is not the Defining and measuring budget transparency is a only criterion by which a state‟s accountability and necessary first step toward achieving it, and budget budget transparency should be judged. However, transparency is very important if stakeholders are to we might infer that those states in which revenue make the difficult choices necessary to move state and spending activities are obscured by complex budgets toward sustainable practices. Yet there is transfers, numerous special funds, and year-to-year surprisingly little research into what transparency is changes in accounting practices would also be those and how it is to be achieved. Our proposed states most reluctant to share information online, or measures of transparency are an exploratory effort those that would have the most difficulty in to begin to address this gap. preparing information in an internet-accessible format. This may be why both of the report cards are slightly correlated with our (d) Special Fund Share indicator.

Table 1: Correlation Coefficients for Alternative Transparency Measures

(1) (2) (3) (4) (5) Var'n (6) (7) Var'n Alt- Good Jobs Sunshine Special Special Net Net Lassen First Review Fund Fund Transfer Transfer Index Score Grade Share Share Share Share

(1) Alt-Lassen Index 1.00

(2) Good Jobs First Score -0.04 1.00

(3) Sunshine Review Grade 0.09 0.11 1.00

(4) Special Fund Share -0.06 -0.24 -0.36 1.00

(5) Variation in Special Fund Share -0.16 -0.15 -0.07 -0.05 1.00

(6) Net Transfer Share (absolute value) -0.33 -0.03 -0.22 -0.03 0.44 1.00

(7) Variation in Net Transfer Share -0.36 -0.09 -0.33 0.10 0.42 0.80 1.00

See text for variable definitions. Note: Higher values of 1, 2 and 3 reflect higher transparency, while higher values of 4, 5, 6 and 7 reflect lower transparency.

11 References Block, Cheryl D. 2008. Budget Gimmicks. In Fiscal Challenges: An Interdisciplinary Alesina, Alberto F., Ricardo Hausmaann, Rudolph Approach to Budget Policy, eds. Elizabeth Hommes, and Ernesto Stein. 1999. Budget Garrett, Elizabeth A. Graddy, Howell E. Institutions and Fiscal Performance in Latin Jackson.: 39-67. Cambridge, New York, America. Journal of Development Melbourne, Madrid, Cape Town, Singapore, Economics 59(2): 253-273. Sao Paulo, Delhi.Cambridge University Press. Alt, James E. and David Dreyer Lassen. 2005. Bushman, Robert M., Joseph D. Piotroski, and The Political Budget Cycle is Where You Can‟t Abbie J. Smith. 2004. What Determines See It: Transparency and Fiscal Manipulation. Corporate Transparency? Journal of Economic Policy Research Unit Working Paper Accounting Research 42(2): 207-251. Series No.2005-03; ISSN 0908-7745. March 30. Dye, Richard F. and Nancy Hudspeth. 2010 (May). The Fiscal Futures Project: Progress Alt, James E. and David Dreyer Lassen. 2006a. Report and Initial Fiscal Transparency, Political Parties, and Debt Results.http://igpa.uillinois.edu/fiscalfutures. in OECD Countries. European Economic Review 50(2006): 1403-1439. Dye, Richard F., Nancy W. Hudspeth and David F. Merriman.2011 (July). Why Ignore Over Half Alt, James E. and David Dreyer Lassen. 2006b. of the Illinois State Budget Picture? Transparency, Political Polarization, and Consolidation of General and Special Fund Political Budget Cycles in OECD Countries. Reporting.http://igpa.uillinois.edu/fiscalfutures. American Journal of Political Science. 50(3): 530-550. Gavazza, Alessandro and Alessandro Lizzeri. 2009. Transparency and Economic Policy. The Alt, James E., David Dreyer Lassen and Shanna Review of Economic Studies 76(3): 1023-1048. Rose. 2006. The Causes of Fiscal Transparency: Evidence from the U.S. Heald, David. 2003. Fiscal Transparency: States.IMF Staff Papers 53(special issue) Concepts, Measurement and UK Practice. 30:57. Public Administration. 81(4): 723-759. Alt, James E., David Dreyer Lassen and David International Budget Partnership (IPB). 2010. Skilling. 2002. Fiscal Transparency, Open Budget Survey. Gubernatorial Approval, and the Scale of http://internationalbudget.org/what-we- Government: Evidence from the States. State do/open-budget-survey/ Also: Politics and Policy Quarterly 2(3) 230:250. http://internationalbudget.org/files/2010_Full_ Report-English.pdf Alt, James E. and Robert C. Lowry. 2010. Transparency and Accountability: Empirical International Monetary Fund (IMF). Results for U.S. States.Journal of Theoretical 2007. Code of Good Practices on Fiscal Politics 22(4): 379-406. Transparency. 2007. Anderson, Barry and James Sheppard. 2009. Fiscal http://www.imf.org/external/np/fad/trans/code. Futures, Institutional Budget Reforms, and htm. Their Effects: What Can Be Learned? OECD 2007. IMF Manual on Fiscal Transparency Journal on Budgeting 9(3): 7-118. http://www.imf.org/external/np/pp/2007/eng/05 Bastida, Franscisco and Bernardino Benito. 2007. 1507m.pdf Central Government Budget Practices and [no date]. Fiscal Transparency Questionnaire Transparency: An International Comparison. http://www.imf.org/external/np/fad/trans/questi Public Administration 85(3): 667-716. on/quest.pdf Benito, Bernardino and Francisco Bastida. 2009. Budget Transparency, Fiscal Performance, and Political Turnout: An International Approach. Public Administration Review, May/June.

12 1999. Code of Good Practices on Obama, Barack. 2009. Memorandum on Transparency in Monetary and Financial Transparency and Open Government. Policies: Declaration of Principles. 1999. http://www.whitehouse.gov/the_press_office/T http://www.imf.org/external/np/mae/mft/code/i ransparencyandOpenGovernment/. ndex.htm Office of Management and Budget, Peter S.Orszag, Kopits, George and Jon Craig. 1998. Transparency Director. 2009. Open Government Directive. in Government Operations. IMF Occasional http://www.whitehouse.gov/open/documents/o Paper No. 158. pen-government-directive. http://www.imf.org/external/pubs/ft/op/158/op1 Organisation for Economic Co-operation and 58.pdf Development (OECD). 2002. Best Lauth, Thomas P. and Mark D. Robbins. 2002. Practices for Budgetary Transparency The Georgia Lottery and State Appropriations (2002). for Education: Substitution or Additional http://www.oecd.org/dataoecd/33/13/190525 Funding? Public Budgeting and Finance Fall 8.pdf, and 89-100. http://internationalbudget.org/what-we- Marti, Caridad. 2006. Accrual Budgeting: do/open-budget-survey/research- Accounting Treatment of Key Public Sector resources/?fa=view&id=2483&hd=1 Items and Implications for Fiscal Policy. Public Budgeting and Finance.Summer. Prat, Andrea. 2005. The Wrong Kind of Minnesota Center for Public Finance Research. Transparency. The American Economic 2005. “Hidden” Funds: An Analysis of Special Review 95(3): 862-877 Fund Activity in Minnesota. Reviglio, Franco. 2001. Budgetary Transparency http://www.mntax.org/cpfr/HiddenFunds.php for Public Expenditure Control. IMF Working National Advisory Council on State and Local Paper no. 01/8. Budgeting. 1998. Recommended Budget http://www.imf.org/external/pubs/ft/wp/2001/w Practices: A Framework for Improved State p0108.pdf and Local Government Budgeting. Sunshine Government Finance Officers Review.StateChecklist.http://sunshinereview.or Association.http://www.gfoa.org/services/na g/core/state-budgets, last accessed January 15, cslb (best practice examples). 2011. National Association of State Budget Officers U.S. PIRG. 2010. Following the Money: How 50 (NASBO). [The “Alt-like” Index and the GF States Rate in Providing Online Access to Share index were created based on the Government Spending Data, following NASBO documents:] http://www.uspirg.org/home/reports/report- 2008. Budget Processes in the archives/tax--budget-policy/tax--budget-policy- Stateshttp://www.nasbo.org/LinkClick.aspx?fil -reports/following-the-money-how-the-50- eticket=AaAKTnjgucg%3d&tabid=38 states-rate-in-providing-online-access-to- government-spending-data Various years. Fiscal Survey of States [various years]http://www.nasbo.org/ Van Der Hoek, M. Peter. 2005. From Cash to Publications/FiscalSurvey/FiscalSurveyArchive Accrual Budgeting and Accounting in the s/tabid/106/Default.aspx Public Sector: The Dutch Experience, Public Budgeting and Finance. Spring Various years. State Expenditure Reports [various Von Hagen, Jurgen and Ian J. Harden. 1995. years]http://www.nasbo.org/Publications/State Budget Processes and Commitment to Fiscal ExpenditureReport/StateExpenditureReportArc Discipline. European Economic Review hives/tabid/107/Default.aspx 39(1995): 771-779.

Appendix 1: Literature Review There have been a number of academic and professional studies of government budget transparency. Some of the studies are broad in scope and look at a range of budgetary characteristics. The various studies have some or all of the following components: 1. Characteristics: Identify desirable (or undesirable) characteristics of the timing, content, form of presentation or dissemination of government budgeting. 2. Indicators: Look for measurable evidence of or make a qualitative evaluation of the presence or absence of key characteristics in the budgetary content or process of different governments. 3. Score or index: Combine a number of measurable indicators into a single score or index for each government studied. 4. Association: Use budget transparency scores or indicators as independent variables to explain cross- nation or cross-state differences in public outcomes—such as size of the budget, debt, fiscal balance, informed electorate, confidence in government, voter turnout. The key studies are: Alesina, Hausmann, Hommes, and Stein (1999) study transparency in 20 Latin American countries and conclude; “budget procedures and budget institutions have significant impact on fiscal outcomes.” These authors found that transparency was positively associated with fiscal discipline (surveyed the budget directors). The authors rated the countries an index of budgetary procedures ranging from hierarchical (strong executive control of budget; spending/debt limits on legislature) to collegial (opposite of hierarchical). Their definition of transparency is not extremely clear; it is related to the hierarchical system and its procedures and limits to spending and control. Alt and Lassen (2005) study transparency and political business cycles. Find a persistent pattern of electoral budget cycles in lower-transparency countries. Less so in higher-transparency countries. Measurement of transparency is cited to an unpublished manuscript; they used 10 indicators based on OECD best practices. Alt and Lassen (2006) find that higher transparency reduces incentives to accumulate debt. Alt, Lassen, Rose (2006) find that transparency has different effects depending whether it concerns spending or revenues. Construct a transparency index based on Alt, Lassen and Skilling (2002). Nine factors based on NASBO and NCSL data. The factors are: (1) Is budget reported on GAAP basis? (2) Multi-year forecasts prepared? (3) Frequency of budget cycle? (annual more transparent than multi-year); (4) Are revenue forecasts binding? (yes = more transparent); (5) Does legislative branch have or share responsibility for the revenue forecast? (yes = more transparent); (6) Are all appropriations included in a single bill? (yes = more transparent); (7) Does a non-partisan staff write appropriations bills? (yes = more transparent); (8) Is legislature prohibited from passing open-ended appropriations? (yes = more transparent); (9) Does budget require published performance measures? (yes = more transparent). Alt, Lassen, Skilling (2002) construct a transparency index of U.S. states (which is the same as Alt, Lassen and Rose, 2006). Finds that greater transparency leads to greater popularity and confidence in government which increases scale of government (spending). This appears to contradict other studies that suggest that transparency is associated with greater fiscal discipline although those studies looked at nations, not U.S. states. Political competition (independent variable) is positively associated with increased transparency (dependent variable); polarization is associated with decreased transparency. Lower levels of debt are associated with higher transparency. However, higher deficits and higher surpluses are also associated with higher transparency.

12 Alt and Lowry (2010) use a 9-factor transparency index, which is the same as in Alt, Lassen and Rose (2006). Findings: budget transparency does not have a direct effect on incumbent reelection. Increased transparency dampens the negative effect of tax increases on retention of incumbent governors, because voters are better able to understand the justification. Increased transparency leads to greater fiscal scale. Bastida and Benito (2007) analyzed to what extent a sample of 41 countries were meeting the OECD requirements of the best practices for budget transparency documentation. Found average fulfillment rate of 56.4%; transparency was correlated with economic development and negatively correlated with corruption. Benito and Bastida (2009) created a composite transparency index of 40 budget features based on OECD best practice budgetary standards for a sample of 41 countries (see previous page for OECD indicators; also the indicators/methodology are detailed in the appendix of the paper). The indicators were divided into 3 categories: Budget Reports; Specific Disclosures; Integrity, Control and Accountability. Authors found positive relationships between transparency and fiscal balance and between transparency and political turnout, but no significant relationship between transparency and debt. Gavazza and Lizzeri (2009): Theoretical model; does not construct a scale or measure transparency; separately models transparency of revenues and transparency of spending. Finds that transparency of spending is beneficial but transparency of revenues can be counterproductive because it leads to wasteful spending. Discusses fiscal churning which occurs because some taxpayers are also recipients of government subsidies/transfers. Heald (2003): Transparency in the UK: theory vs. practice; measurement issues. This is a skeptical article on the value of transparency initiatives—distinguishing between rhetoric and reality as applied to the UK. Discusses the notion that transparency improves government effectiveness, and how this could (or couldn‟t) be determined, if it does. Includes a table summarizing major arguments for/against transparency in previous literature; arguments and counter-arguments evolve positions on transparency in policy discourse. On most measures UK would be considered highly-transparent yet the paper cites numerous examples where this isn‟t exactly true or where transparency actually was harmful by forcing government to make fiscal/spending promises that weren‟t the best. Transparency can be an illusion as when the information disclosed is incomplete or misleading. International Budget Partnership (IPB) Open Budget Survey (2010) surveyed budget transparency in 94 countries using 123 questions on eight key budget documents (quality of info and availability of these documents): (1) Pre-budget statement; (2) Executive‟s budget proposal; (3) Enacted budget; (4) In-year reports; (5) Mid-year review; (6) Year-end report; (7) Audit report; and (8) Citizens‟ budget (accessible format). Responses to 92 of the 123 survey questions were scored and used to create an Open Budget Index which ranked the countries and measured change over time (2006, 2008, 2010). Findings include positive correlation between high incomes and transparency; democracy and transparency; lower transparency in countries dependent on natural resource extraction; and sharp increases in transparency since 2006 in very low-scoring countries. U.S. was ranked 7th with a score of 82 out of 100; South Africa was ranked 1st. The report does not include the actual survey instrument. Kopits and Craig (1998): This key study on the concept and importance of government transparency was written for the International Monetary Fund. It is discussed in the body of this report (pp. 3-4). Prat (2005) is atheoretical paper, not strictly about fiscal transparency.

13 Table A1.1. Budget Transparency Indicators in Studies Comparing Nations

Panels 1 & 2: Budget Process and Public Disclosure

Lassen(2006b)

OECD OECD (2002)

Alesina, Hausmann,

Alt and Lassen(2003)

Alt and Lassen(2006a)

Alt and

Kopitsand Craig (1998) Bastida and Benito (2007)

Hommes& Stein(1996, 1999)* BUDGET PROCESS / CYCLE No more than one supplemental budgetin FY X X X Deficit spending not allowed or constrained X Open legislative & administrative process X Legal requirement for approval of macro program to precede presentation of budget X Clear & simple statutes & implementation X Actively promotes understanding of budget process by citizens X X Open legislative debate & authorization X Borrowing constraints on government X PUBLIC DISCLOSURE / DISTRIBUTION Draft prospective budget submitted to legislature three months minimum prior to fiscal year X X Pre-budget report released at least one month prior to fiscal year X X Monthly reports show progress in implementing budget X X Monthly reports should be released within four weeks of end of each month X X Borrowing activity disclosed in monthly reports X X Year-end report released within 6 months of fiscal year end X X Pre-election report released immediately before election to foster more informed electorate X X X Special reports on fiscal outlook released prior to election X X Long-term report issued at least every 5 years or when major changes in revenue/expend programs X X Government regularly produces report on long term (10+ yr) outlook for public finances X X Government required to report contingent liabilities on regular basis X X Fiscal reports in these Best Practices publicly available, free of charge on Internet X X Public disclosure of results of performance & financial audits X Mid-year report should be released within six weeks of end of mid-year period X X *An index of budgetary procedures not transparency; only 3 of 10 indicators appear to be related to transparency. Other indicators are related to the form of government, whether the budget is created by executive or legislature.

16 Table A1.1. Budget Transparency Indicators in Studies Comparing Nations

Panel 3: Budget Document Contents

(1996,1999)*

OECD OECD (2002)

Alesina, Hausmann,

Alt and Lassen(2003)

Alt and Lassen(2006a)

Alt and Lassen(2006b)

Kopitsand Craig (1998) Bastida and Benito (2007)

Hommes& Stein BUDGET DOCUMENT CONTENTS Detailed public explanation of fiscal targets & priorities included in draft pre-budget X Comprehensive budget, encompassing all government revenue & expenditures X X X Budget includes detailed commentary on each revenue & expenditure program X X If authorized in permanent legislation, amounts should still be presented in budget form X X Expenditures presented in gross terms X X Breakdown of revenue categories X Earmarked revenue & user charges should be clearly accounted for separately. X X Expenditures should be classified by administrative unit or agency & also by economic & functional categories X X X Budget includes quasi-fiscal activities of state-owned enterprises & institutions X Clear demarcation of functions between public & private sectors X Delineation of state-owned enterprises from general government; & information on costs of such enterprises X Clear assignment of responsibilities & resources among national & subnational levels of government X Clear statement of rationale for & extent of extrabudgetary fund operations X Budget requires published performance measures Non-financial performance data, including targets, should be presented for expenditure programs X X X Non-financial performance data routinely included in budget documentation presented to legislature X X Liabilities outstanding X Total amount of contingent liabilities should be disclosed in budget & financial statements X X X X Overall balance, also current, primary, & operational balances X Structural or cyclically adjusted balance X Financial assets classified by major type; investments in enterprises listed individually; loans to other entities listed; historical default information; financial assets valued at market X X

17 Table A1.1. Budget Transparency Indicators in Studies Comparing Nations

Panel 3: Budget Document Contents (cont.)

OECD OECD (2002)

Alesina, Hausmann,

Alt and Lassen(2003)

Alt and Lassen(2006a)

Alt and Lassen(2006b)

Kopitsand Craig (1998) Bastida and Benito (2007)

Hommes& Stein(1996, 1999)* BUDGET DOCUMENT CONTENTS (cont.) Non-financial assets including real property & equipment disclosed X X Non-financial assets recognized under full accrual based accounting & budgeting X X Valuation of non-financial assets & depreciation disclosed with explanation of methods used X X X Gross & net government debt, accompanied by estimate of net worth X Breakdown of debt by type & maturity X Debt classified by currency denomination, maturity profile of debt, fixed or variable interest rate & whether callable X X Employee pension obligations & assets disclosed in budget & reports X X X Generational accounts X Government required to make regular actuarial estimates for social security programs X Key actuarial assumptions underlying calculation of employee pension obligations should be disclosed X X Estimates of net worth X Disclosure of terms & sources of government deficit financing X Specification of policy criteria as well as terms & conditions of government lending decisions X Taxatation on explicit statutory basis (not discretionary or negotiated) X Clear administrative procedures, information requirements, taxpayers' rights & obligations, & tax officials' code of conduct X Tax expenditures (estimated tax revenue cost of preferential treatments) X X X Estimated cost of key tax expenditures disclosed as supplementary information in budget X X X Discussion of tax expenditures included in budget commentary X X

18 Table A1.1. Budget Transparency Indicators in Studies Comparing Nations

Panel 4: Integrity, Control and Accountability

OECD OECD (2002)

and Lassen(2003)

Alesina, Hausmann,

Alt

Alt and Lassen(2006a)

Alt and Lassen(2006b)

Kopitsand Craig (1998) Bastida and Benito (2007)

Hommes& Stein(1996, 1999)* INTEGRITY, CONTROL & ACCOUNTABILITY Summary of relevant accounting policies accompanies all reports; disclose deviations from GAAP X X Budget reported using Generally Accepted Accounting Principles (GAAP); accrual accounting X X X X Supplementary cash-based reporting X Summary of relevant accounting policies accompanies reports; describe basis of accounting used X X Transparent execution & control (including procurement, contracting, & employment) X Independent review agency with wide investigative authority over government operations X Dynamic system of internal financial controls, including internal audit, in place X X Reports should contain statement of responsibility by officials responsible for producing report X X Year-end report should be audited by Supreme Audit Institution in accordance with GAAP X X Audit reports prepared by Supreme Audit Institution should be scrutinized by legislature X X In-year report (should be) audited X X X Year-end report should be audited by Supreme Audit Institution X X Estimates of regulatory costs X

19 Table A1.1. Budget Transparency Indicators in Studies Comparing Nations

Panel 5: Forecasting and Projections

Hausmann,

OECD OECD (2002)

Alesina,

Alt and Lassen(2003)

Alt and Lassen(2006a)

Alt and Lassen(2006b)

Kopitsand Craig (1998) Bastida and Benito (2007)

Hommes& Stein(1996, 1999)* FORECASTING & PROJECTIONS Multi-year expenditure forecasts included in budget Forecast includes medium-term perspective (2 year min); reconcile previous with actual X X X Required to include projection of expenditures beyond next FY in budget documents X X Required to include ex post comparison of actual to projected expenditure X X Required to reconcile previous forecasts with actual & explain X Short to medium term forecasts have separate baseline & policy forecasts X Clear & realistic underlying macroeconomic forecasts & parameters X Revenue forecasts binding Legislative branch has or shares responsibility for revenue forecasts Mid-year report provides comprehensive update on budget implementation, including updated forecast X X Mid-year report discloses economic assumptions underlying budget & review impact of changes, government decisions or changed circumstances X X Long-term report addresses budgetary implications of demographic change 10-40 years out X X X Long-term scenarios separate baseline & adjustments (esp. for old-age & health care programs) X Sustainability calculations show primary balance required to stabilize debt, with realistic growth & interest rates assumptions X Deviations from forecast of key economic assumptions underlying budget are key fiscal risk X X Key economic assumptions disclosed: GDP growth, unemployment, current account, inflation & interest rates X X Economic assumptions (should be) subject to independent review X X X Sensitivity analysis assesses impact key economic assumptions changes would have on budget X X X X X Clear & realistic range of underlying macroeconomic parameters & demographic trends X

20 Table A1.2. Transparency Indicators in Studies Comparing U.S. States

Alt Lassen Alt, and Lassen, Alt and Skilling Rose Lowry (2002) (2006) (2010) BUDGET PROCESS / CYCLE 1. Budget cycle is annual X X X 2. All appropriations in single bill X X X 3. Appropriations bills written by non-partisan staff X X X 4. Open-ended appropriations prohibited X X X 5. Executive branch does NOT have primary responsibility for revenue forecast X BUDGET DOCUMENT CONTENTS 6. Budget requires published performance measures X 7. Non-financial performance data, including targets, should be presented for expenditure programs X X INTEGRITY, CONTROL & ACCOUNTABILITY 8. Budget reported using Generally Accepted Accounting Principles (GAAP); accrual accounting X X X FORECASTING & PROJECTIONS 9. Multi-year expenditure forecasts included in budget X 10. Forecast includes medium-term perspective (2 year min); reconcile previous with actual X X 11. Revenue forecasts binding X X X 12. Legislative branch has or shares responsibility for revenue forecasts X X

21 Appendix 2: State Budget Transparency Scores by Different Organizations A number of groups are concerned with state budget transparency or related issues and several have issued scores or ranking for each state based on measures they have developed. Most of these sources evaluate online access to information. The quality or the validity of the information provided is not addressed. In addition, we construct an index that largely replicates that used by Alt, Lassen and various coauthors. Good Jobs First One of the earliest reports on state government transparency; their focus is on economic development subsidies, procurement contracts, and lobbying activities. The State of State Disclosure: An Evaluation of Online Public Information About Economic Development Subsidies, Procurement Contracts and Lobbying Activities (November 2007) http://www.goodjobsfirst.org/sites/default/files/docs/pdf/statedisclosure.pdf.

Truth In Accounting They equate transparency with timely release of the CAFR. Argue for reform of GAAP which shows surpluses and “seems biased toward governments.” The Truth About State Budgets: A Fifty State Study (February 2009) http://truthinaccounting.org/uploads/files/50%20State/Many%20State%20Annual%20Reports%20Are%20Publi shed%20Late.pdf

U.S. PIRG Scores were based on state transparency websites as of March 19, 2010. Some states may have info in other websites that were not specifically transparency websites and those were not evaluated unless they were linked to the main transparency website. States must have checkbook level information on their website. Aggregate expenditures by department or purpose do not count. http://www.uspirg.org/home/reports/report-archives/tax--budget-policy/tax--budget-policy--reports/following- the-money-how-the-50-states-rate-in-providing-online-access-to-government-spending-data Sunshine Review The organization maintains a website that scores each state on whether a number of types of information are: "X" = Present; "-" = Incomplete; or "Missing" = not available on website. The Transparency Checklist results are combined into an overall letter grade. http://sunshinereview.org/core/node/392 http://sunshinereview.org/index.php/Transparency_checklist An Alt-Lassen Index of State Budget Transparency Alt and Lassen, along with several different coauthors, contributed several of the studies on government budget transparency we examined, and they are the only authors who have compared transparency in U.S. states. In several of these studies they construct their own index of state budget transparency (Alt, Lassen and Skilling, 2002; Alt, Lassen, and Rose, 2006; and Alt and Lowry, 2010). In this section we replicate what we will call the “Alt-Lassen Index.”

22 The Alt-Lassen Index is a scorecard or tally of nine items that the authors determined would be positively related to transparency. Using data from the National Association of State Budget Officers (NASBO) and the National Conference of State Legislators (NCSL) they include the following indicators of budget transparency. Quoting from Alt and Lowry (2010: 402) the items are: 1. Budget is reported using generally accepted accounting principles (GAAP). 2. Multi-year expenditure forecasts are used. 3. Budget cycle is annual. 4. Revenue forecasts are binding. 5. Legislative branch has or shares responsibility for revenue forecasts. 6. All appropriations are included in a single bill. 7. Appropriation bills are written by non-partisan staff. 8. Open-ended appropriations are prohibited. 9. Budget requires published performance measures. We were able to replicate eight of these items with information from the NASBO Report, “Budget Processes in the States” (Summer 2008), but some of the wording of the criteria we used is slightly different. The only indicator which was not listed anywhere in our NASBO source is item 6, “all appropriations included in a single bill.” We assign a score of 1 for each for transparency indicator if the desired condition is present in the state, 0 if it is not. Each state could have a possible score of 0 to 8. The results and the final index or tally are shown in Table A2.5. Three states—Iowa, Michigan, and Rhode Island—were ranked first, with perfect scores of 8 out of 8. Three states—Delaware, New Jersey, and New York—were ranked second, with 7 out of 8. Thirteen states scored 6 of 8; thirteen states scored 5 of 8; and thirteen states scored 4 of 8. Four states—Alabama, Alaska, Idaho, and Wyoming—scored 3 out of 8. Arizona was ranked last with a score of 2 out of 8. A strong majority of states required performance measures, used multi-year forecasting, and required a legislative forecast. Only 16 states required GAAP reporting. For other indicators, states were more evenly divided—e.g., 27 states have an annual budget cycle.

23 Table A2.1: Good Jobs First—State Scores for Online Information on Economic Development Subsidies, Procurement Contracts, and Lobbying Activities

Overall Subsidies Contracts Lobbying Mean Rank Grade Score Rank Grade Score Rank Grade Score Rank Grade STATE Score (%) (%) (%) (%) Alabama 40% 49 F 0% * F 81% 29(tie) B- 39% 49(tie) F Alaska 51% 38(tie) F 0% * F 81% 29(tie) B- 72% 25(tie) C- Arizona 50% 40(tie) F 0% * F 93% 6 A- 56% 40(tie) F Arkansas 46% 44 F 0% * F 81% 29(tie) B- 56% 40(tie) F California 53% 32(tie) F 0% * F 76% 40(tie) C 83% 14(tie) B Colorado 56% 27 F 0% * F 67% 45(tie) D+ 100% 1(tie) A Connecticut 84% 1 B 67% 6(tie) D+ 95% 1(tie) A- 89% 10(tie) B+ Delaware 55% 28(tie) F 0% * F 86% 18(tie) B 78% 20(tie) C+ Florida 59% 25 F 0% * F 88% 17 B+ 89% 10(tie) B+ Georgia 58% 26 F 0% * F 86% 18(tie) B 89% 10(tie) B+ Hawaii 51% 38(tie) F 0% * F 81% 29(tie) B- 72% 25(tie) C- Idaho 53% 32(tie) F 0% * F 86% 18(tie) B 72% 25(tie) C- Illinois 76% 8 C 85% 1 B 71% 42(tie) C- 72% 25(tie) C- Indiana 83% 2 B 61% 10(tie) D- 95% 1(tie) A- 94% 6(tie) A- Iowa 72% 14(tie) C- 82% 2 B- 90% 7(tie) A- 44% 46(tie) F Kansas 52% 36(tie) F 0% * F 95% 1(tie) A- 61% 36(tie) D- Kentucky 62% 23(tie) D- 45% 23 F 57% 48(tie) F 83% 14(tie) B Louisiana 53% 32(tie) F 0% * F 81% 29(tie) B- 78% 20(tie) C+ Maine 70% 16(tie) C- 48% 22 F 90% 7(tie) A- 72% 25(tie) C- Maryland 72% 14(tie) C- 59% 13 F 62% 47 D- 94% 6(tie) A- Massachusetts 63% 22 D 0% * F 95% 1(tie) A- 94% 6(tie) A- Michigan 52% 36(tie) F 0% * F 67% 45(tie) D+ 89% 10(tie) B+ Minnesota 49% 42 F 79% 3 C+ 0% * F 67% 31(tie) D+ Mississippi 53% 32(tie) F 0% * F 76% 40(tie) C 83% 14(tie) B Missouri 79% 5 C+ 65% 8 D 90% 7(tie) A- 83% 14(tie) B Montana 77% 6(tie) C+ 58% 14(tie) F 90% 7(tie) A- 83% 14(tie) B Nebraska 82% 3 B- 56% 16 F 90% 7(tie) A- 100% 1(tie) A Nevada 61% 24 D- 52% 19(tie) F 81% 29(tie) B- 50% 42(tie) F New Hampshire 43% 47 F 0% * F 86% 18(tie) B 44% 46(tie) F New Jersey 73% 12(tie) C 61% 10(tie) D- 90% 7(tie) A- 67% 31(tie) D+ New Mexico 47% 43 F 0% * F 81% 29(tie) B- 61% 36(tie) D- New York 81% 4 B- 58% 14(tie) F 86% 18(tie) B 100% 1(tie) A North Carolina 75% 9(tie) C 67% 6(tie) D+ 81% 29(tie) B- 78% 20(tie) C+ North Dakota 64% 21 D 64% 9 D 83% 27(tie) B 44% 46(tie) F Ohio 75% 9(tie) C 69% 5 D+ 90% 7(tie) A- 67% 31(tie) D+ Oklahoma 54% 21 F 0% * F 90% 7(tie) A- 72% 25(tie) C- Oregon 44% 45(tie) F 0% * F 71% 42(tie) C- 61% 36(tie) D- Pennsylvania 73% 12(tie) C 70% 4 C- 81% 29(tie) B- 67% 31(tie) D+ Rhode Island 50% 40(tie) F 0% * F 57% 48(tie) F 94% 6(tie) A- South Dakota 65% 19(tie) D 55% 17(tie) F 90% 7(tie) A- 50% 42(tie) F Tennessee 55% 28(tie) F 0% * F 86% 18(tie) B 78% 20(tie) C+ Texas 75% 9(tie) C 55% 17(tie) F 86% 18(tie) B 83% 14(tie) B Utah 70% 16(tie) C- 52% 19(tie) F 90% 7(tie) A- 67% 31(tie) D+ Vermont 68% 18 D+ 61% 10(tie) D- 83% 27(tie) B 61% 36(tie) D- Virginia 55% 28(tie) F 0% * F 86% 18(tie) B 78% 20(tie) C+ Washington 65% 19(tie) D 0% * F 95% 1(tie) A- 100% 1(tie) A West Virginia 37% 50 F 0% * F 71% 42(tie) C- 39% 49(tie) F Wisconsin 77% 6(tie) C+ 52% 19(tie) F 79% 39 C+ 100% 1(tie) A Wyoming 33% 51 F 0% * F 48% 50 F 50% 42(tie) F Source: Good Jobs First (2007).

24 Table A2.2: Truth in Accounting—Timeliness of Release of Consolidated Annual Financial Report (Average number of days from end of fiscal year to release of CAFR, 2005-2007) Rating Days to CAFR Release Alabama Tardy 182 Alaska Timely 168 Arizona Worst 318 Arkansas Timely 175 California Tardy 279 Colorado Timely 172 Connecticut Worst 332 Delaware Tardy 196 Florida Tardy 226 Georgia Tardy 196 Hawaii Tardy 261 Idaho Timely 168 Illinois Worst 316 Indiana Tardy 182 Iowa Timely 171 Kansas Tardy 183 Kentucky Tardy 205 Louisiana Tardy 214 Maine Tardy 202 Maryland Timely 158 Massachusetts Timely 176 Michigan Timely 120 Minnesota Timely 156 Mississippi Tardy 207 Missouri Tardy 221 Montana Timely 172 Nebraska Timely 177 Nevada Timely 168 New Hampshire Tardy 232 New Jersey Tardy 212 New Mexico Worst 602 New York Tardy 205 North Carolina Timely 162 North Dakota Timely 180 Ohio Worst 295 Oklahoma Tardy 212 Oregon Timely 180 Pennsylvania Timely 175 Rhode Island Tardy 232 South Carolina Timely 145 South Dakota Worst 299 Tennessee Timely 169 Texas Tardy 181 Utah Timely 139 Vermont Tardy 193 Virginia Timely 167 Washington Timely 171 West Virginia Tardy 250 Wisconsin Timely 167 Wyoming Tardy 186 Source: Truth in Accounting (2009).

Table A2.3: U.S. PIRG—Transparency Scorecard

book

public public -

STATE -

Activity

Budgets

Agencies

Contract

Available

Economic

Search Search by Search by

Incentives

Contractor

Point Total

Information Information

Tax Subsidy

Quasi

Development

Check

Level Level Website

Overall Grade

PastContracts

Local /County ARRA Funding ARRA Alabama C 79 40 10 10 5 3 0 7 2 2 0 Alaska D 50 40 0 0 0 3 0 7 0 0 0 Arizona F 12 0 0 10 0 0 0 0 2 0 0 Arkansas F none none none none none none none none none none none California D 53 40 10 0 3 0 0 0 0 0 0 Colorado C 77 40 10 10 10 0 0 5 0 2 0 Connecticut F none none none none none none none none none none none Delaware C 69 40 10 10 0 0 0 7 0 2 0 Florida C 66 40 10 0 5 5 0 5 0 0 1 Georgia D 52 40 10 0 0 0 0 0 2 0 0 Hawaii C 79 40 10 10 5 5 0 9 0 0 0 Idaho F none none none none none none none none none none none Illinois B 82 40 10 10 0 0 10 10 2 0 0 Indiana F none none none none none none none none none none none Iowa F none none none none none none none none none none none Kansas C 74 40 10 10 0 5 0 7 2 0 0 Kentucky A 97 40 10 10 10 5 10 10 2 0 0 Louisiana C 67 40 10 10 5 0 0 0 0 2 0 Maine F none none none none none none none none none none none Maryland C 66 40 10 0 0 3 10 1 2 0 0 Massachusetts F none none none none none none none none none none none Michigan F none none none none none none none none none none none Minnesota B 82 40 10 10 0 5 10 5 0 2 0 Mississippi C 74 40 10 10 10 0 0 0 2 2 0 Missouri B 81 40 10 10 0 5 7 7 0 2 0 Montana F none none none none none none none none none none none Nebraska D 56 40 10 0 0 0 0 5 0 0 1 Nevada C 78 40 10 10 5 0 0 9 2 2 0 New Hampshire F none none none none none none none none none none none New Jersey F 25 0 10 10 0 5 0 0 0 0 0 New Mexico C 65 40 10 10 0 0 0 5 0 0 0 New York C 77 40 10 10 3 0 0 9 2 2 1 North Carolina C 74 40 10 10 3 0 0 9 2 0 0 North Dakota F none none none none none none none none none none none Ohio B 84 40 10 10 10 3 0 9 0 2 0 Oklahoma C 69 40 10 0 0 0 10 5 2 2 0 Oregon D 59 40 0 0 3 0 5 7 2 2 0 Pennsylvania B 81 40 10 10 10 0 0 9 2 0 0 Rhode Island C 71 40 10 10 0 5 0 5 0 0 1 South Carolina D 58 40 10 0 0 3 0 0 2 2 1 South Dakota F 25 0 10 0 5 0 0 5 2 2 1 Tennessee D 52 40 0 0 0 3 0 5 2 2 0 Texas B 82 40 10 10 0 5 5 7 2 2 1 Utah C 72 40 10 10 3 0 0 7 0 2 0 Vermont F none none none none none none none none none none none Virginia C 77 40 10 10 0 5 0 7 2 2 1 Washington F 22 0 0 10 5 5 0 0 2 0 0 West Virginia F none none none none none none none none none none none Wisconsin F none none none none none none none none none none none Source: U.S. PIRG (2010). See source for definitions and criteria.

Table A2.4: Sunshine Review—Grades and Indicators for State Transparency Websites

STATE

Taxes

Ethics

Grade Public

Audits

Budget

Elected Elected

Overall strative

Records

Admini

Officials Officials

Usability

Lobbying Contracts

Alabama B X X X X X X X - - X Alaska C X X X X - X - - missing X Arizona C X - X X missing X - X - X Arkansas B X X X X X X X missing - X California A+ X X X X X X X - X X Colorado A- X X X X X X X - X X Connecticut C X - X X X missing - - X X Delaware B- X X X X X X - - - X Florida C - - X X X X X - - X Georgia B- - X X X X X X missing - X Hawaii B - X X X X X X - X X Idaho B X X X X missing X X missing X X Illinois B X - X X X X X X - X Indiana A- X X X X X X X - X X Iowa C- missing - X X X X missing - - X Kansas B- X - X X X X X - - X Kentucky B- X - X X X X missing - X X Louisiana B- X missing X X X X X - - X Maine A- X X X X X X X - X X Maryland B X X X X X X X - - X Massachusetts A+ X X X X X X X X X X Michigan C X - X - X X X - - X Minnesota B- X X X X - X X - - X Mississippi B X X X X X X X - - X Missouri B- X X X - X X X - missing X Montana B- X X X X X X - - missing X Nebraska C X - X X missing X X - - X Nevada B X X X X X X X - missing X New Hampshire C X - X X missing X X missing missing X New Jersey A- X X X X X X X - X X New Mexico B X X X X missing X X - X X New York B X X X X X X X - - X North Carolina C- X - X X missing X missing missing missing X North Dakota B- X X X X missing X X - - X Ohio B X X X X X X X missing - X Oklahoma B X X X X X X X - - X Oregon A- X - X X X X X X X X Pennsylvania A- X X X X X X X - X X Rhode Island C X - X X X X - - missing X South Carolina B- X - X X X X X - - X South Dakota B- X X X X missing X X missing missing X Tennessee A- X X X X X X X - X X Texas B- - - X X X X X - X X Utah C X missing X X missing X X - - X Vermont B- X X X X missing X X - - X Virginia C X - X - missing X X - X X Washington A+ X X X X X X X X X X West Virginia B X X X X X X X - missing X Wisconsin A+ X X X X X X X X X X Wyoming C- X - X X missing X missing - missing X Source: www.sunshine.org. See source for definitions and criteria.

Table A2.5. Alt-Lassen Index of State Budget Transparency

- year year

STATE -

Staff

Non

Cycle TELs

GAAP GAAP

Budget

Annual

Binding

partisan

Revenue Revenue Forecast Revenue Forecast

Statutory

Measures

Const.or

Multi Legislative

Forecasting

Performance Score (tally)Score Alabama - - X A - - X - 3 Alaska - X - A - - - C 3 Arizona X - - B - - - C 2 Arkansas X X - B X - - C 4 California X - X A - - X C 5 Colorado X - X A - - - S,C 4 Connecticut X - X B - - X C 4 Delaware X - X A X X X C,S 7 Florida X - X A X X - C 6 Georgia X X X A X - - C 6 Hawaii X - X B X - X - 4 Idaho X - - A - - - C,S 3 Illinois X X X A - - - - 4 Indiana X - X B X X - - 4 Iowa X X X A X X X S 8 Kansas X - X AB - X X S 6 Kentucky X - X B X X X - 5 Louisiana - - X A X X X - 5 Maine X - X B X X X C 6 Maryland X - X A - X X S 6 Massachusetts X - X A X X - - 5 Michigan X X X A X X X S 8 Minnesota - - X B X X X C 5 Mississippi - X - A X - X - 4 Missouri X - X AB - X X S 6 Montana X X - B X X - C 5 Nebraska - - X B X X X - 4 Nevada X - X B X X X - 5 New Hampshire X - - B X X X S 5 New Jersey X X X A X X X - 7 New Mexico X X - A - X X S 6 New York X X X A X X X - 7 North Carolina X X X B X X - - 5 North Dakota X - - B X X X - 4 Ohio - X X B - X X S 5 Oklahoma X - X A X X - C 6 Oregon X - X B X X X S 6 Pennsylvania X - X A X X X - 6 Rhode Island X X X A X X X C,S 8 South Carolina X - X A - X X C,S 6 South Dakota X - X A X X - - 5 Tennessee X - - A - X - C 4 Texas X - - B X X - C,S 4 Utah - X X A X X - S 6 Vermont X - X A - X X - 5 Virginia X - X B X X - - 4 Washington X - X B X X - S 5 West Virginia X - X A X X X - 6 Wisconsin X - X B - X X - 4 Wyoming X X - B - - X - 3 Notes to table on next page

28 Notes to Table A2.5 Authors’ compilation based on work by James Alt and various co-authors (Alt, Lassen and Skilling, 2002; Alt, Lassen and Rose, 2006; and Alt and Lowry, 2010) using information from NASBO’s Budget Processes in the States 2008 and Fiscal Survey of States (various years). See Appendix 2 and Table A2.2. The components are: Performance Measures: Alt’s criterion is “budget requires published performance measures.” NASBO equivalent is “budget document content has numerical supporting data.” GAAP Budget: Alt’s criterion is “budget reported using Generally Accepted Accounting Principles (GAAP).” NASBO reports this. Multi-Year Forecasting: Alt’s criteria is “multi-year expenditure forecasts included in budget.” NASBO reports this. Annual Cycle: Alt’s criterion is “budget cycle is annual.” NASBO reports this, shown here as “A” for annual or “B” for biennial. Annual is scored 1, biennial is scored 0. Binding Revenue Forecasts: Alt’s criterion is “revenue forecasts are binding.” NASBO equivalent is “revision to revenue forecast is binding.” Legislative Revenue Forecast: Alt’s criterion is “legislative branch has or shares responsible for revenue forecasts.” NASBO reports this. Non-Partisan Staff: Alt’s criterion is “appropriations bills are written by non-partisan staff.” NASBO equivalent is “budget agency personnel appointed through civil service.” Constitutional or Statutory TELs: Alt’s related criterion is “open-ended appropriations are prohibited.” NASBO substitute is “tax and expenditure limitations are constitutional or statutory.” Scored 1 if either constitutional (C) or statutory (S) limits exist. (Alt had a ninth criterion, “all appropriations are in a single bill,” for which we were unable to find an equivalent from NASBO.) Score (tally): One point for each “yes” to a criterion.

29 Appendix 3: New Indicators based on the General Fund Share of Total Spending Our own experience in analyzing state budgets in Illinois led us to the realization that a the General Fund budget provides an incomplete picture of the state’s fiscal condition (Dye, Hudspeth and Merriman, 2011). This lead us to develop four additional measures of budgetary transparency. All are based on the portions of spending in the total budget that are in the General Fund versus the special funds. The name and rationale for each of four measures are as follows and the notes at the end of this appendix explicitly define each.

A. Special fund share of total spending. The companion measure is the share of total state spending that is reported in the General Fund. A publication of the National Association of State Budget Officers (NASBO, Fiscal Survey) reports General Fund spending and the Census Bureau (State Government Finances) provides an annual series of total state spending that combines both special and General Funds. The difference between total spending from all funds (Census) and General Fund spending is special fund spending. The ratio of special fund spending to total spending is the special fund share. The special fund share of total spending for each state in each fiscal year from 1997 to 2009 is shown in Table A3.1. A summary measure, the average over the entire period is shown in the first column of Table A3.2. The second column of table shows the ranking of states on this average share.

B. Variation in the special fund share of total spending. Year-to-year changes in the assignment of different components of spending from special to General Funds or vice versa can contribute to non-transparency. This is measured as the standard deviation of the special fund share of total spending over the thirteen year period. The variation is shown in the third column of Table A3.2 and the ranking of states from lowest variation to highest is indicated in the fourth column.

C. Transfers between special and General Funds as a share of total spending. Within year transfers between special and General Funds can contribute to non-transparency. The General Fund expenditure measure in the NASBO’s Fiscal Survey includes transfers from or to other state funds, while General Fund expenditure in NASBO’s State Expenditure Report does not, so the difference is net inter-fund transfers. The average value of net transfers as a share of all-fund spending for each state is shown in the fifth column of Table A3.2. On the assumption that large net transfers in or out can contribute to non-transparency, the state rankings in column six are based on the absolute value of the net transfer share of total spending.

D. Variation in transfers between special and General Funds. Year to year changes in transfers are another source of confusion for budget watchers. This is measured as the standard deviation of the net transfer share of total spending over the thirteen year period. This is shown in the seventh column of Table A3.2 and the state rankings are shown in the final column.

30 Table A3.1. IGPA: Special Fund Share of Total Spending by State FY 1997-2009 STATE 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Alabama 0.617 0.624 0.630 0.638 0.654 0.670 0.678 0.689 0.683 0.652 0.614 0.612 0.669 Alaska 0.531 0.549 0.588 0.621 0.646 0.643 0.649 0.661 0.571 0.569 0.336 0.403 0.421 Arizona 0.572 0.568 0.552 0.600 0.590 0.621 0.656 0.667 0.651 0.623 0.600 0.636 0.685 Arkansas 0.622 0.624 0.641 0.646 0.669 0.701 0.707 0.698 0.713 0.712 0.705 0.697 0.695 California 0.523 0.504 0.519 0.505 0.464 0.515 0.553 0.554 0.550 0.522 0.489 0.507 0.569 Colorado 0.517 0.519 0.501 0.520 0.513 0.548 0.600 0.622 0.609 0.620 0.608 0.614 0.645 Connecticut 0.220 0.225 0.209 0.265 0.258 0.335 0.322 0.240 0.211 0.181 0.188 0.186 0.213 Delaware 0.430 0.407 0.414 0.426 0.385 0.420 0.439 0.480 0.491 0.472 0.456 0.478 0.503 Florida 0.554 0.534 0.548 0.563 0.569 0.595 0.591 0.604 0.612 0.617 0.571 0.599 0.642 Georgia 0.460 0.383 0.397 0.403 0.400 0.506 0.453 0.485 0.465 0.431 0.492 0.463 0.483 Hawaii 0.412 0.389 0.425 0.464 0.452 0.453 0.445 0.458 0.451 0.422 0.400 0.435 0.465 Idaho 0.572 0.571 0.573 0.584 0.587 0.572 0.595 0.610 0.615 0.608 0.581 0.590 0.618 Illinois 0.409 0.388 0.374 0.374 0.391 0.467 0.502 0.488 0.538 0.497 0.498 0.500 0.528 Indiana 0.511 0.515 0.513 0.533 0.541 0.527 0.516 0.522 0.519 0.521 0.538 0.552 0.549 Iowa 0.534 0.518 0.526 0.547 0.564 0.599 0.613 0.625 0.631 0.627 0.611 0.603 0.633 Kansas 0.485 0.460 0.453 0.479 0.529 0.536 0.580 0.573 0.562 0.551 0.532 0.553 0.572 Kentucky 0.514 0.515 0.509 0.539 0.550 0.568 0.574 0.589 0.564 0.564 0.579 0.577 0.602 Louisiana 0.544 0.570 0.578 0.607 0.566 0.590 0.604 0.625 0.621 0.632 0.622 0.679 0.661 Maine 0.553 0.545 0.509 0.522 0.493 0.548 0.583 0.604 0.595 0.603 0.584 0.579 0.618 Maryland 0.473 0.460 0.451 0.478 0.468 0.471 0.525 0.540 0.530 0.520 0.499 0.524 0.524 Massachusetts 0.252 0.313 0.289 0.223 0.249 0.199 0.195 0.321 0.307 0.290 0.267 0.182 0.331 Michigan 0.745 0.746 0.732 0.754 0.769 0.792 0.804 0.812 0.811 0.807 0.813 0.802 0.833 Minnesota 0.431 0.387 0.404 0.453 0.422 0.457 0.453 0.464 0.449 0.434 0.434 0.438 0.466 Mississippi 0.644 0.656 0.658 0.650 0.659 0.688 0.714 0.720 0.721 0.704 0.741 0.693 0.710 Missouri 0.505 0.536 0.540 0.536 0.549 0.591 0.667 0.658 0.656 0.672 0.650 0.658 0.660 Montana 0.645 0.647 0.667 0.668 0.648 0.642 0.672 0.689 0.678 0.658 0.653 0.619 0.657 Nebraska 0.589 0.577 0.550 0.577 0.576 0.582 0.597 0.612 0.606 0.604 0.579 0.595 0.611 Nevada 0.695 0.688 0.692 0.701 0.687 0.700 0.696 0.684 0.616 0.679 0.620 0.631 0.617 New Hampshire 0.707 0.698 0.698 0.735 0.727 0.719 0.726 0.738 0.737 0.744 0.746 0.731 0.748 New Jersey 0.312 0.355 0.300 0.309 0.317 0.332 0.324 0.324 0.337 0.353 0.326 0.293 0.371 New Mexico 0.541 0.559 0.570 0.575 0.544 0.561 0.583 0.558 0.592 0.559 0.563 0.583 0.610 New York 0.530 0.535 0.536 0.539 0.555 0.573 0.631 0.611 0.618 0.597 0.587 0.584 0.592 North Carolina 0.500 0.496 0.473 0.491 0.534 0.535 0.545 0.555 0.558 0.541 0.530 0.509 0.535 North Dakota 0.692 0.687 0.692 0.699 0.693 0.694 0.703 0.699 0.714 0.713 0.706 0.682 0.696 Ohio 0.466 0.465 0.459 0.468 0.458 0.489 0.492 0.488 0.498 0.528 0.534 0.516 0.514 Oklahoma 0.532 0.517 0.518 0.503 0.593 0.611 0.650 0.628 0.637 0.625 0.605 0.625 0.640 Oregon 0.627 0.605 0.645 0.631 0.613 0.613 0.726 0.624 0.710 0.633 0.662 0.614 0.699 Pennsylvania 0.509 0.514 0.523 0.540 0.564 0.567 0.577 0.546 0.580 0.556 0.550 0.554 0.581 Rhode Island 0.475 0.454 0.454 0.440 0.456 0.453 0.465 0.492 0.484 0.477 0.455 0.453 0.497 South Carolina 0.585 0.586 0.626 0.637 0.648 0.697 0.718 0.729 0.735 0.715 0.686 0.689 0.749 South Dakota 0.672 0.669 0.651 0.654 0.678 0.667 0.668 0.675 0.669 0.667 0.666 0.654 0.691 Tennessee 0.587 0.581 0.579 0.583 0.591 0.593 0.592 0.603 0.594 0.596 0.581 0.551 0.582 Texas* 0.439 0.438 0.449 0.495 0.502 0.514 0.541 0.566 0.586 0.578 0.553 0.553 0.568 Utah 0.526 0.561 0.550 0.577 0.556 0.592 0.615 0.634 0.607 0.587 0.570 0.554 0.641 Vermont 0.609 0.593 0.664 0.721 0.725 0.735 0.753 0.751 0.753 0.746 0.752 0.745 0.772 Virginia 0.540 0.562 0.518 0.501 0.498 0.529 0.539 0.551 0.537 0.521 0.467 0.524 0.579 Washington 0.515 0.526 0.523 0.534 0.541 0.554 0.564 0.576 0.567 0.531 0.558 0.571 0.600 West Virginia 0.597 0.591 0.589 0.593 0.629 0.627 0.633 0.647 0.613 0.613 0.602 0.611 0.617 Wisconsin 0.428 0.429 0.453 0.449 0.489 0.513 0.536 0.565 0.529 0.529 0.511 0.517 0.578 Wyoming 0.734 0.730 0.762 0.770 0.690 0.723 0.727 0.858 0.636 0.652 0.551 0.603 0.647 50-State Avg. 0.534 0.543 0.523 0.546 0.549 0.569 0.586 0.594 0.586 0.577 0.560 0.582 0.594

*Texas General Fund Expenditure reported for biennial budget year 1997-1999 apportioned to FY 1998 and FY 1999. For definition of special fund share of total spending and sources, see notes after Table A3.2.

31 Table A3.2. IGPA: Change in the Share of Special Funds and Transfers by State from 1997 to 2008

STATE Special Fund/Total Exp. Variation in SF/Total GF Transfers/Total. Exp. Variation in GF Trans. Mean State Standard State Mean Abs. State Standard State Ratio (1) Rank (2) Dev’n(3) Rank (4) Ratio (5) Rank (6) Dev’n(7) Rank (8) Alabama 0.648 39 0.028 19 0.068 48 0.134 49 Alaska 0.553 21 0.105 50 -0.022 42 0.044 45 Arizona 0.617 37 0.041 36 0.005 26 0.018 31 Arkansas 0.679 44 0.034 28 -0.003 20 0.003 7 California 0.521 13 0.029 21 0.001 11 0.003 10 Colorado 0.572 25 0.052 42 -0.034 46 0.052 47 Connecticut 0.235 1 0.049 39 -0.001 8 0.016 29 Delaware 0.446 6 0.036 31 -0.001 12 0.004 13 Florida 0.585 28 0.031 23 -0.005 24 0.002 6 Georgia 0.448 7 0.041 35 -0.025 44 0.033 40 Hawaii 0.436 4 0.025 15 -0.006 27 0.019 33 Idaho 0.59 32 0.017 6 0.000 6 0.001 5 Illinois 0.458 8 0.061 47 -0.127 49 0.032 39 Indiana 0.527 16 0.014 4 -0.017 39 0.045 46 Iowa 0.587 30 0.043 37 -0.002 18 0.011 23 Kansas 0.528 17 0.044 38 0.000 1 0.000 2 Kentucky 0.557 22 0.030 22 -0.007 29 0.010 22 Louisiana 0.608 35 0.038 32 -0.005 25 0.027 38 Maine 0.564 23 0.039 33 -0.003 21 0.005 16 Maryland 0.497 11 0.031 24 -0.014 37 0.040 43 Massachusetts 0.263 2 0.051 41 -0.068 47 0.058 48 Michigan 0.786 50 0.033 26 0.001 14 0.004 11 Minnesota 0.438 5 0.023 13 0.013 33 0.011 24 Mississippi 0.689 45 0.032 25 -0.014 38 0.016 28 Missouri 0.606 34 0.064 48 -0.010 32 0.023 36 Montana 0.657 40 0.018 10 -0.006 28 0.009 20 Nebraska 0.589 31 0.018 8 0.000 5 0.001 3 Nevada 0.67 42 0.034 30 -0.014 36 0.044 44 New Hampshire 0.727 49 0.017 5 0.002 15 0.005 15 New Jersey 0.327 3 0.023 12 0.000 3 0.004 14 New Mexico 0.569 24 0.019 11 -0.008 31 0.015 26 New York 0.576 26 0.034 27 -0.013 35 0.018 32 North Carolina 0.523 15 0.026 17 0.001 13 0.003 8 North Dakota 0.698 46 0.009 1 -0.001 9 0.004 12 Ohio 0.49 10 0.027 18 0.000 4 0.007 17 Oklahoma 0.591 33 0.054 44 -0.013 34 0.020 34 Oregon 0.646 38 0.041 34 -0.002 16 0.017 30 Pennsylvania 0.551 19 0.024 14 -0.001 7 0.001 4 Rhode Island 0.466 9 0.017 7 -0.008 30 0.016 27 South Carolina 0.677 43 0.055 45 0.003 23 0.009 21 South Dakota 0.668 41 0.011 2 -0.003 19 0.008 18 Tennessee 0.586 29 0.013 3 0.018 40 0.008 19 Texas 0.522 14 0.053 43 -0.002 17 0.027 37 Utah 0.582 27 0.034 29 -0.003 22 0.012 25 Vermont 0.717 48 0.058 46 -0.022 41 0.037 42 Virginia 0.528 18 0.029 20 -0.027 45 0.021 35 Washington 0.551 20 0.025 16 0.000 2 0.000 1 West Virginia 0.613 36 0.018 9 -0.025 43 0.036 41 Wisconsin 0.502 12 0.049 40 -0.001 10 0.003 9 Wyoming 0.699 46 0.081 49 0.146 50 0.185 50

Variable definitions and sources on next page.

Notes to Tables A3.1 and A3.2

Variable definition for Table A3.1: General Fund Share of Total Spending = General Fund Expenditure (from NASBO, Fiscal Survey) divided by General Expenditure (from Census, State Government Finances) Special Fund Share of Total Spending = 1 – (General Fund Share of Total Spending)

Variable definitions for Table A3.2: (1) Mean General Fund Share of Total Spending = Average of above over 13 fiscal years (2) State Rank for (1) from lowest (arguably most transparent) to highest (least transparent) (3) Standard Deviation around (1) across years (4) State Rank for (3) from lowest (arguably most transparent) to highest (least transparent) (5) Mean over 13 fiscal year period of General Fund Transfers Share of Total Spending = [General Fund Expenditure (from NASBO, Fiscal Survey) minus General Fund Expenditure (from NASBO, State Expenditure Report)] divided by General Expenditure (from Census, State Government Finances) The General Fund expenditure measure in the Fiscal Survey includes transfers from or to other state funds, while General Fund expenditure in the State Expenditure Report does not. Positive values indicate net transfers out of the General Fund, negative values indicate net transfers in. (6) State Rank for the absolute value of (5) from lowest (most transparent) to highest (least transparent). The choice of absolute values for this ranking assumes that either large net transfers in or large net transfers out can confuse budget watchers. (7) Standard Deviation around (5) across years (8) State Rank for (7) from lowest (arguably most transparent) to highest (least transparent)