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. To learn more, visit igpa.uillinois.edu © 2011 The Board of Trustees of the University of Illinois. Edited and designed by Kelsey McCoy, IGPA Communications and Marketing Specialist. ii 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. iii 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

Load more