Recently in Public Finance Category

There is not a public official alive that likes to be at the bottom of a 50-state ranking, especially on close-to-home issues such as education, poverty and economic development.  Even seemingly arcane rankings of readiness for the Year 2000 date field roll-over or maturity in delivering government services online can raise the ire of people associated with states in the back half of the pack.

What is worse is when there is really no honor in being in the top half of states on measures of open records laws; whistle blower laws; campaign finance laws; open meetings laws; and conflict of interest laws.  That is the story that quickly emerges in reviewing state standings on the newly released second edition BGA-Alper Integrity Index that gauges the relative strength of state laws on transparency, accountability and limits in government.  The index was created by a non-partisan waste-busting watchdog group -- the Better Government Association -- that has been holding public agencies to account since 1923.

The serial, templatized press releases for the top ranked states indicate that they are to be congratulated for their ranking, even though the best of them only merits a letter grade of "D" on the BGA assessment.  It is not a terrific report card, with many states performing well on one or more measures and sucking channel water on the others.  Here are the rankings in order (with imbedded links to the cookie cutter press releases on each state):

1. New Jersey
2. Rhode Island
3. Hawaii
4. Washington
5. Louisiana
6. Nebraska
7. Texas
8. Arkansas
9. Maryland
10. Colorado
11. Arizona
12. Illinois
13. West Virginia
14. Connecticut
15. Minnesota
16. Florida
17. Wisconsin
18. Kansas
19. California
20. Massachusetts
21. Oklahoma
22. Missouri
23. North Carolina
24. Michigan
25. Pennsylvania
26. Iowa
27. Georgia
28. Kentucky
29. Indiana
30. South Carolina
31. Ohio
32. Oregon
33. Maine
34. North Dakota
35. Nevada
36. New York
37. Utah
38. Virginia
39. Mississippi
40. Alaska
41. New Hampshire
42. New Mexico
43. Delaware
44. Idaho
45. Wyoming
46. Montana
47. Tennessee
48. Alabama
49. Vermont
50. South Dakota

According to the BGA rankings, South Dakota owes its last place finish to earning only a third of the available points -- ranking 49th in open records laws, 46th in both whistle blower and open meetings laws, 34th in campaign finance laws and 27th in conflict of interest laws.  BGA Executive Director Jay Stewart concludes, "If you look at the percentage score, South Dakota received 32%, the equivalent of a F letter grade, hardly a cause for celebration."

In defense of South Dakota particularly, and all states to a certain degree, the BGA index lacks context or more than a single dimension.  Sure it looks at five areas of law but it gives no consideration to how states of performing under those laws.  Clearly, BGA sees South Dakota's open records laws as the second weakest in the land but the state's Open SD portal is apparently much better than the underlying law, providing a single spot on the Internet where South Dakotans can see how their governments are spending money.

If there is to be a third edition of the BGA-Alper Integrity Index, it would be fascinating to see an assessment of how well - or how poorly - states are executing against the underlying laws.

Asian stock markets began the new week at 26 year lows and a sharply lower Dow futures market was a harbinger of more bad news domestically.  And some of that bad news came from a new report on state government revenues.

The Center on Budget and Policy Priorities surveyed 15 states and the news was universally downbeat.  Revenues for the quarter just ended were lower than in the same period in 2007 in the majority of surveyed states.  When adjusted for inflation, total revenue collections are below last year's levels in all but one of the 15 states covered in the survey.

The median state experienced a 5.5 percent decline in total tax revenue after adjustment for inflation. The sales tax story was even worse.  The report says, "Revenues are down in every one of those 15 states, with a median decline of 7.3 percent after adjustment for inflation."

The report says the numbers can be explained by the crisis in consumer confidence that is seen throughout the economy, and reflects the anxiety created by the loss of a half million jobs between September 2007 and September 2008.

The report's authors expect government service delivery to pay the price for the constitutional requirement on states to balance their budgets:

Many of the actions states take to balance their budgets will be harmful to families and to the economy.  State taxes pay for state aid to K-12 schools, support for public colleges and universities, health coverage for children, families, seniors and people with disabilities, public safety, and transportation.  States are enacting cuts in all these areas already.  They are also increasing taxes and fees.  Both spending cuts and revenue increases take money out of state economies, deepening the nation's economic problems.

State finances have not been this tight since 2002 when states slashed spending on health care insurance and education.  That could happen again this time around or, borrowing a page from Wall Street and the financial services sector, the federal government could step in with loans and a bail out package for political subdivisions.

The hardest hit states among the 15 in the CBPP survey -- when adjusted for inflation -- are: Washington (11.3%); Tennessee (9.5%); Idaho (9.1%) and Virginia (9.0%).  On a percentage basis, the country's largest states did moderately better -- with California experiencing a 6 percent decline and New York revenues off by a 1.3 percent.  

If you missed the live version of former U.S. Comptroller General David Walker "Fiscal Wake Up Tour," a new documentary that was the darling of the Sundance Festival captures the central message Walker would talk about to anyone who would listen: the US government is broke and broken.

The numbers tell at least some of the story: The federal government has dug itself a $53 trillion financial hole and keeps digging $2 trillion to $3 trillion deeper every year.  If those numbers have too many zeroes to feel relevant, it works out to $175,000 of debt for every American.

But the story is more than the numbers.  And that is where documentary director Patrick Creadon comes in.  Creadon, who you may remember from his charming 2006 film about puzzles and those who make and play them (Word Play), begins to unpack the puzzle of how we got here and what to do about it now.

In early reviews, it has been praised for doing for public finance what an Inconvenient Truth did for the environment.  But the live Fiscal Wake Up Tour from which the film draws was much less polemical than the Al Gore keynote presentations about climate change.  And it is worth noting that Creadon's work to date is more about compelling storytelling than the ideological screeds for which Michael Moore or D.A. Pennebaker are known.

That said, there is ideology and world view at work here, but in a more non-partisan way than you might expect. Groups as different as the Concord Coalition, Brookings Institution, Heritage Foundation and the Cato Institute were all on the tour and agreed that America's fiscal policies and practices were and are unsustainable.  Expect a largely unchallenged contention that entitlement programs are the problem.  Their death, not just reform, is central to ever climbing out of the super-sized fiscal hole.

And lest I bury my lede, I.O.U.S.A debuts on the big screen in a live event (tape delayed on the west coast) that includes an after-movie discussion with Warren Buffett, Alan Greenspan, Paul O'Neill, Robert Rubin and Paul Volcker.  It is scheduled for this Thursday in theatres across the country -- which can be found through the film's official website.

Overstock.com is suing and Amazon's Jeff Bezos calls the move unconstitutional. On Sunday, June 1, the state of New York ended the experiment that has kept the Internet a sales tax free zone for those online retailers that do not have a physical presence in the state.

As of yesterday, New Yorkers began paying a charge for state and local sales taxes for their online purchases, which amounts to about 8 percent in most parts of the state. It is a high stakes gambit for political subdivisions in the midst of a public sector revenue recession. The change is expected to be worth $50 million to state coffers and another $50 million for counties and some cities that levy local sales taxes. According to published reports, the total take could be as much as $146 million next year.

The change refreshes an old debate about a level competitive environment among online retailers and their brick and mortar counterparts on one hand, and the potential to thwart Internet innovation and development on the other. Clearly, policy makers in one state have decided the Internet is all grown up. Revenue hungry legislators and governors in the other 49 states will be hard pressed to resist the temptation for new money even if, as is the case in New York, officials argue the online sales tax collection scheme is only a more effective means of enforcing use tax payments for out of state purchases. A permanent change at the virtual check out is contingent on yet another trip to the physical courts.

It is just not easy building new data centers in Washington state, whether you are the world's dominant and hometown software company or the state government itself. Ground breaking on a new state data center was scheduled for this spring in Olympia, WA -- the first domino in a capitol campus renovation that includes an accompanying office complex to headquater the Department of Information Services (DIS), the Washington State Patrol and other state agencies, which would make room for a new Heritage Center near the Legislative building and Temple of Justice.

The Olympian (May 23, 2008) reports in a front page story above the fold that the first first domino won't budge just yet. The price tag on data center complex spiked $110 million from $260 Million to $370 Million, thanks to the rising costs of construction material plus the unforeseen need to mitigate the effects of increased traffic on the neighborhood. (The original $186 Million estimate for the Heritage Center has also bulged to $221 Million.)

What's more, State Treasurer Michael Murphy is concerned about the use of lease-purchase financing for the DIS complex, telling the Olympian, "This project will be the most expansive project on the capitol campus ... yet it is being financed in a way that makes it excempt form public works laws." The project marks DIS' debut as a general contractor, a role it sought in order to create a showcase for technologically advanced and sustainable workspaces.

In an unrelated development, DIS can commiserate with Microsoft and Yahoo, both of which have also suspended plans to build huge data centers in the state. The companies' multi-facility campuses signaled their commitment to enterprise-level utility computing. The viability of the SaaS-ready data centers required economical access to electricity, broadband access and a tax break. The town of Quincy, WA is prepared to make long term commitments to supplying cheap power thanks to the nearby Columbia River.

But the blog Data Center Knowledge reported that, earlier this year, "the state ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises.... Gov. Chris Gregoire requested an exemption in Senate Bill 6666, which would restore the exemption for data centers." The legislative session ended without action on the bill. Without the exemption, a 7.9 percent tax would be due on data center construction and equipment. Some things simply do not pencil out.

The June 2, 2008 edition of Newsweek updates the deepening public sector revenue recession and provides a useful point of comparison. Citing revised data from the Center on Budget and Policy Priorities, the magazine tallies $42 Billion deficit across 29 states for fiscal years 2008 and 2009 (projected). Compare that with the actual numbers from the bone crushing revenue recession that began in FY 2001 and crested in FY 2004. The big number, attributed to the National Association of State Budget Officers, totaled $84 Billion. NASBO's Scott Pattison worries "We haven't seen the worst yet," suggesting the current circumstance could come to rival the fiscal hardships at the beginning of the decade.  During the earlier troubles, there was a compelling argument about the use of digital technologies to permanently change the cost structure of service delivery because the fiscal problems are structural and merit a structural response.  It appears we have a second chance to get it right.