from the Chicago Fed
The recent bankruptcies of Detroit and some other cities, as well as the fiscal problems now facing Illinois and Chicago, have shown that governments can slip into extreme financial distress without sufficient advance notice to prevent it.
Confusing budgeting and accounting practices, which obscured the actual amounts of tax revenues available or the true costs of government programs, contributed to these fiscal calamities. Little can be done to reverse the effects of past decisions made by states and localities to spend more than was coming in. However, improved budgeting and accounting practices could clarify the need to make tough choices about cutting spending or raising taxes sooner rather than later, so that current fiscal problems are not exacerbated. The conference – which focused on the results of two recent research papers – was devoted to identifying these very practices.
On December 7, 2015, the Volcker Alliance, the Institute of Government and Public Affairs at the University of Illinois, and the Federal Reserve Bank of Chicago held a conference examining ways to increase transparency and accountability in state (and local) budgeting. Based on research presented at the conference, the main speakers recommended budgetary principles and practices that, if adopted, would improve public understanding of the true nature, cost, and consequences of states’ tax policies and spending commitments.
Best practices for budgetary transparency
Katherine Barrett and Richard Greene (Volcker Alliance) presented the first paper, which was based chiefly on a literature review and interviews with numerous budget officers and public finance experts.1 They began by discussing their six general principles for good budgeting:
Policies governing the processes and presentation of the budget should be clearly stated. (This applies to policies concerning the use of reserves, such as rainy day funds – which should feature explicit procedures for withdrawals and contributions.)
The budget document should communicate the key fiscal and policy decisions that were made, as well as the current and emerging issues surrounding them and the tradeoffs involved
Revenue and expenditure information should be presented in a consistent format so that changes from one fiscal year to the next can be easily compared.
Budgets should provide long-term trend data to demonstrate how changes over time in a state’s demographics …..
[click on image below to continue reading]
Source: http://app.frbcommunications.org/e/er? s=1064&lid=3797 &elq=ebdc6847068d4ba4950a448cc0a433cf &elqaid=9905 &elqat=1 &elqTrackId=dfbcff9ab7c04eff905c236b62b269ad
