Week 8: Issues in State and Local Public Finance

1. Week 8: Issues in State and Local Public Finance • Guest Speaker: Betty Masuoka, Assistant City Manager, City of Sacramento • City revenues and expenditures • Major financing issues facing the City • ICMA Case Studies • School Finance • E-commerce • Eight-week evaluation

2. Case Study -- Developing the Tax Base Substantive Issues • Competition for economic development, tax rates • Strategies: annexation, attracting industry and jobs, redevelopment (tax increment financing, enterprise zones) Process/political Issues • Long-run v short-run benefits • Expertise v politics; professional v political incentives • Old v new organizational culture -- professionalism • Ethics (of omission and/or commission) • Political Skill to avoid untenable choices

3. Case Study (cont.): LeBlanc’ s Choices 1. Present his cost-benefit analysis to Board in low-key way 2. Present his analysis to Board and express concern 3. Let someone else make presentation and keep quiet or don’t attend Board meeting 4. Revise cost-benefit analysis with rosier numbers Could he have avoided this situation?

4. Case Study: Estimating Revenues Substantive Issues • City finances are heavily dependent on state economy • There is always uncertainty in making revenue projections • There are more and less sophisticated ways to estimate revenues. Is more “rationality” always best? Process/political Issues • Politicians need to explain and communicate to citizens • Conventional wisdom can be powerful • There are political consequences to being right • Ethics – when there’s no clear right or wrong

5. Case Study (cont.): Questions Raised • How useful to the city manager is the consultant’s report? • How should the manager deal with the uncertainty reflected in the range of revenue estimates? • How should he present the information to the Council? • What recommendations should he make with regard to layoffs and reserves?

6. Issues Raised by School Finance Generally • Role of government • promote equality -- defined as: • opportunity/quality/outcomes/revenue per effort? • public v private education • local choice issues • Accountability • shows complexity of performance measurement • inputs and outcomes of public education • cause/effect knowledge • Nature of citizen involvement in education issues

7. Effect of Serrano and Proposition 13 (PPIC Study) • Decline in per pupil spending • due to end of subsidy by non-residential property owners? • State finance has resulted in less inequality in revenue, but: • performance has declined • housing choices still reflect preferences for “better” schools • Are problems caused by State financing of schools? • Do other factors affect performance? • Do other factors affect housing choice? • Impact of financing v governance on school quality • disconnect between financing and governance • move to local financing or state control; not mixed

8. Taxation of E-Commerce • Sales Tax and Income Tax issues • “Nexus” -- connection between state and taxpayer • consumption v production/performance • physical v economic presence • Reasons to support internet taxation • states have legitimate claim to revenues • Reasons to oppose internet taxation • tax increase; hinders business climate • Other issues • Enforcement issues • Definitional issues -- new kinds of transactions/services

9. Preview of Week 9 Part III: Practical Applications in Budgeting • Back to Rubin, Ch 5 on tradeoffs and competition for $$ • Practical chapter on budgeting in local government • Department of Finance • Budget analysis • BCPs • In class project on budget justification/analysis • Class notes may not get posted (I’m in St. Louis until Tuesday)