Week 7: County-level Finance Issues

1. 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

2. 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

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

4. 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%

5. 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)

6. 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

7. 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

8. 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

9. 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

10. 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