Week 7: County-level Finance Issues Guest Speaker:  Russ Fehr, Principal Administrative Analyst, Sacramento County –County financing issues -- Proposition 13 and beyond –Sacramento County—revenues and budgeting Local government finance since Proposition 13 –background and definitions –policy issues Begin discussion of ethics in public budgeting and finance

Background Cities & counties in CA public finance pre-1978 –pre-1900, limited powers to tax and spend –Progressives: home rule and separation of revenue sources –cities became more fiscally independent –counties became agents of state and feds Proposition 13 (and progeny) –in one year, property tax revenues to local government cut in half –counties hit hardest decline in revenue decline in control –future measures further limited counties’ ability to raise revenues Calls for reform of state-local fiscal relationship –define local responsibilities – who does what? who pays? –restore fiscal authority (responsiveness to local preferences) –simplify

Sources of Local Revenues General taxes Assessments Regulatory fees and charges Fines, penalties, forfeitures Inter-governmental transfers Enterprise revenues Service revenues/user fees

Counties’ Loss of Discretion Control over raising of revenues –declined from 52% to 31% –increasingly reliant on revenue streams not directly under county control –cities declined from 75% to 61% Control over spending of revenues –discretionary revenues declined from 57% to 31% –discretion limited by unfunded mandates and maintenance of effort requirements –cities declined from 49% to 44%

Policy Consequences of Limited Discretion accountability – loss of connection between who raises revenue and who allocates local boards focus on allocating fixed budgets—not on setting tax rates local government is less reliant on tax revenue *** shift from general taxpayer funding “public goods” to users funding services received *** less ability to respond to local preferences counties more fully agents of the state (implementing state policies and programs)

Framework for Public Sector Ethics Traditional view of ethics (roots in business world): –neutrality/expertise/administration/rules/efficiency –controls to guard against fraud, waste, abuse –“low road” of compliance -- stay out of trouble –means-based approach Contemporary view of ethics – integrity/moral reasoning/leadership/justice –Increased administrative discretion –Results-oriented government ==> ends-based ethics

Ethics Framework Applied to Public Budgeting Old budgetary ethics –line item accountability –limit discretion –focus on allowable uses of funds New budgetary ethics –discretion on use of funds across categories –program control, not line-item –focus on accomplishments with budgeted funds

Some Ethical Issues in Public Budgeting Budgeting as political –who benefits from public budgeting decisions –political leadership for the public interest –political v rationality issues Budgeting as technical –budget experts can withhold or frame information –gimmicks and fixes Budget process –playing the budget game –use (abuse) of data in budget justifications –advocacy for program v loyalty to executive budget

Some Ethical Issues in Public Finance Estimate of available revenues –Are there circumstances when withholding information could be ethical? –Choosing optimistic v pessimistic scenarios –Reliance on volatile revenues for ongoing costs Impact of tax policies –Short-term v long-term impacts (leave problems for successors) –Political expediency to gain passage (features or gimmicks that aren’t fiscally sound) –User taxes to replace general purpose revenues

Preview of Week 8 Guest Speaker: Betty Masuoka –Assistant City Manager, City of Sacramento –Topics: city budget process: expenditures and revenues major revenue/financing issues facing the city Local government and fiscalization of land use mid-term course review