Hawaii's Senate Ways and Means Committee needs to generate new revenue to offset the projected deficit of $1.3 bi over the next two years.
The first option is 1% increase in GET. This initiative would raise about $500 to $600 mi per year. To protect poor and middle-income residents from the regressive, broad-base tax, there will be a $100 mi in tax credits.
The second alternative is temporarily suspending GET exemption on certain business activities and imposing a 4% GET on them. This adoption would bring in about $200 mi per year.
The governor and the House prefer the second option. The Senate leans toward the first. Chamber of Commerce of Hawaii and Hawaii Association of Realtors are against first alternative and are silent towards the second.
General Excise Tax in Hawaii has not been raised since 1965. Economists praise its broad application and relatively low 4% rate. Critics highlight the pyramid effects and regressive nature of GET.
Tax exemptions on GET aims to address pyramid effect on certain business activities - where tax is applied at more than one point along a chain of related economic transactions.
Tax Foundation of Hawaii claims that both initiatives - GET raise and tax exemption - would damage the economy. It recommends to move special fund revenue into state's general fund and scale back high technology and tax credits to help with deficits.
If exemptions are suspended, construction and aircraft industries, for example, will be highly affected. The extra cost of production will be eventually passed on to consumers and job positions will be lost.
Unions and liberals, however, argue that cuts on social service programs like drug treatment will end up costing government more in the long run. There will be higher costs with health care and criminal justice.
Democrats are in favor of GET increase. They argue that this raise is needed to generate revenue for the budget and a net tax savings will be provided for middle and low-income taxpayers through tax credits.
Republicans oppose new tax increases to balance budget.
http://www.staradvertiser.com/news/hawaiinews/20110407_Business_leaders_protest_tax_increase.html
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sexta-feira, 8 de abril de 2011
segunda-feira, 7 de março de 2011
The relations bewteen budget transparency and fiscal situation & political turnout
In “Budget Transparency, Fiscal Performance, and Political Turnout” Francisco Bastida assesses the relationships between i) budget transparency, ii) fiscal situation and iii) political turnout.
He identified positive relationships between budget transparency and fiscal balance & political turnout. The more information is disclosed, the less politicians use deficits for opportunistic goals and the more incentives people have to vote.
Chile is an example of these relationships.
He identified positive relationships between budget transparency and fiscal balance & political turnout. The more information is disclosed, the less politicians use deficits for opportunistic goals and the more incentives people have to vote.
Chile is an example of these relationships.
Adressing Local Fiscal Distress
In “Preventing Local Government Fiscal Crises” Charles Koe discusses the relation between the state and local governments over preventing fiscal emergencies.
The main reasons for fiscal distress are i) economic decline ii) tax base erosion iii) demographics change iv) federal & state mandates v) federal revenue cuts vi) state tax levy limits vii) recessions viii) mismanagement.
States help local governments prevent fiscal emergencies by i) monitoring local government finances ii) assisting local government in ameliorating fiscal problems (by i) providing technical assistance ii) loan iii) grants iv) backing of local government debt v) temporarily waiving state property tax limits) and iii) assistance notwithstanding (if situation becomes grave, require strong remedial measures like tax increase and expenditure cuts).
States should measure local fiscal condition by analyzing the operating budget and the annual financial report to detect fiscal condition at the beginning of fiscal year.
The main reasons for fiscal distress are i) economic decline ii) tax base erosion iii) demographics change iv) federal & state mandates v) federal revenue cuts vi) state tax levy limits vii) recessions viii) mismanagement.
States help local governments prevent fiscal emergencies by i) monitoring local government finances ii) assisting local government in ameliorating fiscal problems (by i) providing technical assistance ii) loan iii) grants iv) backing of local government debt v) temporarily waiving state property tax limits) and iii) assistance notwithstanding (if situation becomes grave, require strong remedial measures like tax increase and expenditure cuts).
States should measure local fiscal condition by analyzing the operating budget and the annual financial report to detect fiscal condition at the beginning of fiscal year.
Predicting Local Fiscal Distress
Khola, Weissert, and Kleine deal with the prediction of state financial difficulties in “Developing and Testing a Composite Model to Predict Local Fiscal Distress”.
The main reasons for local fiscal distress are i) population & job market shifts ii) governmental growth iii) interest groups demands and iv) poor management.
States can adopt a 10-point scale to detect local financial difficulties before they become serious. The components of this scale are i) population growth ii) real taxable value growth iii) large real taxable value decrease iv) general fund expenditure as a percentage of taxable value v) general fund operating deficit vi) prior general fund operating deficits vii) size of general fund balance viii) fund deficits in the current or previous year and ix) general long term debt as a percentage of taxable value.
The problems of this scale are i) too many variables ii) exclude key variables iii) ignore incentive problems iv) use relative rather than absolute measures v) use data that are not often readily available.
The main reasons for local fiscal distress are i) population & job market shifts ii) governmental growth iii) interest groups demands and iv) poor management.
States can adopt a 10-point scale to detect local financial difficulties before they become serious. The components of this scale are i) population growth ii) real taxable value growth iii) large real taxable value decrease iv) general fund expenditure as a percentage of taxable value v) general fund operating deficit vi) prior general fund operating deficits vii) size of general fund balance viii) fund deficits in the current or previous year and ix) general long term debt as a percentage of taxable value.
The problems of this scale are i) too many variables ii) exclude key variables iii) ignore incentive problems iv) use relative rather than absolute measures v) use data that are not often readily available.
quarta-feira, 23 de fevereiro de 2011
US Federal Budget Reform
The White House issued in December 2010 "The Moment of Truth: Report on the National Commission on Fiscal Responsibility and Reform".
The objective of this report is found in the preamble: "America cannot be great if we go broke".
The Federal Government plans to use the guidelines of this report to tackle an unsustainable budget plan, to anticipate austerity measures that might be triggered if China, the largest foreign holder of US' debt, loses confidence that the US government is able to repays its loans.
The plan to address the nation's overwhelming debt burden, make Social Security solvent, reduce long-term growth of health care spending, and cut red tape consists of a fiscal restraint program that promotes reform and efficiency forcing the government to produce better results and save money.
The components of this fiscal restraint program are:
1) Discretionary Spending Cuts. The consequences of this measure are i) force budget discipline in Congress, ii) include enforcement mechanisms, and iii) cut low-priority programs.
2) Comprehensive Tax Reform. This reform requires to i) sharply reduce rates, ii) broaden the base, iii) simplify tax code, iv) reform corporate tax, v) cap revenue to avoid excessive taxation, and vi) cut spending in tax code.
3) Health Care Cost Containment. Achieve this goal by implementing a common-sense reform to i) physician payments, ii) cost-sharing, iii) malpractice law, iv) prescription drug costs, iv) government-subsidized medical education
4) Mandatory Savings. For these savings it is necessary to i) cut agriculture subsidies, ii) modernize military & civil service retirement systems, and iii) reform student loan programs.
5) Social Security Reforms. "Reform it for its own sake, not for deficit reduction".
6) Process Changes. In other words, reform the budget process to ensure that the debt remains on a stable path.
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
The objective of this report is found in the preamble: "America cannot be great if we go broke".
The Federal Government plans to use the guidelines of this report to tackle an unsustainable budget plan, to anticipate austerity measures that might be triggered if China, the largest foreign holder of US' debt, loses confidence that the US government is able to repays its loans.
The plan to address the nation's overwhelming debt burden, make Social Security solvent, reduce long-term growth of health care spending, and cut red tape consists of a fiscal restraint program that promotes reform and efficiency forcing the government to produce better results and save money.
The components of this fiscal restraint program are:
1) Discretionary Spending Cuts. The consequences of this measure are i) force budget discipline in Congress, ii) include enforcement mechanisms, and iii) cut low-priority programs.
2) Comprehensive Tax Reform. This reform requires to i) sharply reduce rates, ii) broaden the base, iii) simplify tax code, iv) reform corporate tax, v) cap revenue to avoid excessive taxation, and vi) cut spending in tax code.
3) Health Care Cost Containment. Achieve this goal by implementing a common-sense reform to i) physician payments, ii) cost-sharing, iii) malpractice law, iv) prescription drug costs, iv) government-subsidized medical education
4) Mandatory Savings. For these savings it is necessary to i) cut agriculture subsidies, ii) modernize military & civil service retirement systems, and iii) reform student loan programs.
5) Social Security Reforms. "Reform it for its own sake, not for deficit reduction".
6) Process Changes. In other words, reform the budget process to ensure that the debt remains on a stable path.
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
sexta-feira, 11 de fevereiro de 2011
Fiscal Note and Hawaii
Fiscal note is a mechanism that legislators and constituents rely on to grasp the financial impacts of enacting a bill.
Precisely, it estimates the costs, savings, revenue gain & loss resulting from the implementation of proposed legislation.
Fiscal notes help legislators and taxpayers better understand how a bill might impact the state budget as whole, individual agencies and, in some instances, local government.
Fiscal analysts are the ones who assess the financial impact of a proposed legislation. Fiscal note price tag accompanies a bill throughout the legislative process.
Oppositionists claim that the work done by fiscal analysts are redundant since Taxation Department provides estimates on many bills already. Also, estimates provided are vague inasmuch as numbers evolve through the process and they only aim the short-term.
Supporters argue that fiscal notes are especially important when money is tight. In addition, public authorities must ensure greater transparency of legislative process. Taxpayers have the right to request “death by fiscal note” when the costs of a bill is not offset by revenues.
Hawaii is the only state that does not require fiscal notes. In the current legislature process, two bills proposed by Republicans (SB 268 and HB 449) wait for public hearings. Democrats, the great majority on both houses, are reluctant to allow testimonies, though.
Precisely, it estimates the costs, savings, revenue gain & loss resulting from the implementation of proposed legislation.
Fiscal notes help legislators and taxpayers better understand how a bill might impact the state budget as whole, individual agencies and, in some instances, local government.
Fiscal analysts are the ones who assess the financial impact of a proposed legislation. Fiscal note price tag accompanies a bill throughout the legislative process.
Oppositionists claim that the work done by fiscal analysts are redundant since Taxation Department provides estimates on many bills already. Also, estimates provided are vague inasmuch as numbers evolve through the process and they only aim the short-term.
Supporters argue that fiscal notes are especially important when money is tight. In addition, public authorities must ensure greater transparency of legislative process. Taxpayers have the right to request “death by fiscal note” when the costs of a bill is not offset by revenues.
Hawaii is the only state that does not require fiscal notes. In the current legislature process, two bills proposed by Republicans (SB 268 and HB 449) wait for public hearings. Democrats, the great majority on both houses, are reluctant to allow testimonies, though.
State Budgeting and Strategic Planning
Last night we talked about state budget and how it is estimated.
It was said that the pattern of growth rate of expenditure ceiling for operational costs - the ones measured within a year - is calculated based on the average of personal income growth over the last three fiscal years.
The same rationale - but with different percentage - is applied for debt limits, which caps capital costs - expenses on long-term investments.
In other words, both operational and capital costs, which are parts of public budget, are based on past expenses, that is, past shaping future to mitigate risks.
In terms of strategic planning, this methodology of linear projections is inefficient to accelerate economic development. It does not take into account future gains, thereby misses the opportunities to make complete use of resource allocation by not fully investing, for instance, on capital improvement projects.
Oppositionists to this approach claim that budgeting based on future revenues skyrockets risks. This issue is addressed by imposing greater rates and legal enforcement mechanisms for Rainy Day Funds.
Indeed, lessons are learned from the past, but should not constrain the future.
It was said that the pattern of growth rate of expenditure ceiling for operational costs - the ones measured within a year - is calculated based on the average of personal income growth over the last three fiscal years.
The same rationale - but with different percentage - is applied for debt limits, which caps capital costs - expenses on long-term investments.
In other words, both operational and capital costs, which are parts of public budget, are based on past expenses, that is, past shaping future to mitigate risks.
In terms of strategic planning, this methodology of linear projections is inefficient to accelerate economic development. It does not take into account future gains, thereby misses the opportunities to make complete use of resource allocation by not fully investing, for instance, on capital improvement projects.
Oppositionists to this approach claim that budgeting based on future revenues skyrockets risks. This issue is addressed by imposing greater rates and legal enforcement mechanisms for Rainy Day Funds.
Indeed, lessons are learned from the past, but should not constrain the future.
quarta-feira, 9 de fevereiro de 2011
Budget Analysis and Social Scientists
Last night we designed few graphics based on US budget.
Bars and lines are a great tool for decision-making. They organize numbers in historical contexts by relating political and social events to economic facts. They also compare present with past numbers and trigger discussions over desired scenarios.
Lines and bars not only guide but also help illustrate amounts of money that otherwise would be impossible to grasp. They, finally, help identify trends, resource allocation, and geopolitical strategies.
Budget is a management instrument that shows how much money should be spent, what areas have been spent on, and how much more should be raised. Without graphics representing percentages of outlays and receipts informed decisions would not be made, let alone strategic public policies.
Interesting to note that everyone who receives technical training is able to make graphics, but only few have the capacity to correctly and accurately interpret explicit and implicit information lying behind bars and lines over a period of time.
That is why public administrators ought to work along with a team made up of social scientists to ensure that lessons were learned and an equal and stable society is being built.
Bars and lines are a great tool for decision-making. They organize numbers in historical contexts by relating political and social events to economic facts. They also compare present with past numbers and trigger discussions over desired scenarios.
Lines and bars not only guide but also help illustrate amounts of money that otherwise would be impossible to grasp. They, finally, help identify trends, resource allocation, and geopolitical strategies.
Budget is a management instrument that shows how much money should be spent, what areas have been spent on, and how much more should be raised. Without graphics representing percentages of outlays and receipts informed decisions would not be made, let alone strategic public policies.
Interesting to note that everyone who receives technical training is able to make graphics, but only few have the capacity to correctly and accurately interpret explicit and implicit information lying behind bars and lines over a period of time.
That is why public administrators ought to work along with a team made up of social scientists to ensure that lessons were learned and an equal and stable society is being built.
sexta-feira, 4 de fevereiro de 2011
Budgeting in the Public Sector
The module on budget started yesterday. Three readings were assigned but one especially caught my attention.
“Reinventing Government” from Osborne and Gaebler talks about the relation of budget and governance from bureaucrats’ perspectives.
It starts off highlighting the pros and cons of Line Items Budget (LIB). This form of detailing and categorizing the cost of inputs help public administrators keep track of expenditures; however, because it is extremely centralized, LIB does not encourage savings as well as requires high expenses on monitoring mechanisms.
Expenditure Control Budget (ECB) aims to solve these problems. This mission driven budget is more concerned about measuring outcomes (quality) and outputs (volume). Since this control mechanism encourages the savings of budgets previously earmarked, it frees up resources for managers to test new ideas as well as give managers autonomy to pursue organizations’ missions. Although this system has significantly reduced red tape, it has also perpetuated undesirable situations. In public health, subsidizing more the very ill has not encouraged hospital staff to improve patients’ overall conditions.
Public administrators then came up with a mechanism that would precisely measure performance. Management By Result (MBR) is about quantifying performance. Public service would now be measured by its quality, quantity, and cost. Taxpayers and constituents were asked to fill out surveys stating how much they were satisfied with services provided. If results turned out positive, entrepreneurial public administrators would receive bonuses and other financial incentives.
Although MBR dramatically improved public performance, it has neglected the very process of accomplishing public tasks and as a result greatly raised the level of stress among civil servants and also involuntarily created a system where public goals did not necessarily match with constituents’ needs.
Total Quality Management (TQM) aimed to address the problems of MBR. As individuals were afraid of revealing their feelings against powerful bosses and institutions, TQM encouraged not individual but group feedbacks. In doing so, TQM was able to identify and tackle systematic institutional problems. Not only budget but also personnel, purchasing, accounting and other systems were anonymously scrutinized by groups of unhappy civil servants.
(After this brief budget historical analysis, it is possible to envision an evolution of budget systems in the years ahead where TQM is widely extended to constituents through online and regular feedbacks so that public administrators would be able to gratify departments and organizations who have not only fulfilled quantity, time and cost assigned goals but also, and especially, surpassed quality measurement expectations)
“Reinventing Government” from Osborne and Gaebler talks about the relation of budget and governance from bureaucrats’ perspectives.
It starts off highlighting the pros and cons of Line Items Budget (LIB). This form of detailing and categorizing the cost of inputs help public administrators keep track of expenditures; however, because it is extremely centralized, LIB does not encourage savings as well as requires high expenses on monitoring mechanisms.
Expenditure Control Budget (ECB) aims to solve these problems. This mission driven budget is more concerned about measuring outcomes (quality) and outputs (volume). Since this control mechanism encourages the savings of budgets previously earmarked, it frees up resources for managers to test new ideas as well as give managers autonomy to pursue organizations’ missions. Although this system has significantly reduced red tape, it has also perpetuated undesirable situations. In public health, subsidizing more the very ill has not encouraged hospital staff to improve patients’ overall conditions.
Public administrators then came up with a mechanism that would precisely measure performance. Management By Result (MBR) is about quantifying performance. Public service would now be measured by its quality, quantity, and cost. Taxpayers and constituents were asked to fill out surveys stating how much they were satisfied with services provided. If results turned out positive, entrepreneurial public administrators would receive bonuses and other financial incentives.
Although MBR dramatically improved public performance, it has neglected the very process of accomplishing public tasks and as a result greatly raised the level of stress among civil servants and also involuntarily created a system where public goals did not necessarily match with constituents’ needs.
Total Quality Management (TQM) aimed to address the problems of MBR. As individuals were afraid of revealing their feelings against powerful bosses and institutions, TQM encouraged not individual but group feedbacks. In doing so, TQM was able to identify and tackle systematic institutional problems. Not only budget but also personnel, purchasing, accounting and other systems were anonymously scrutinized by groups of unhappy civil servants.
(After this brief budget historical analysis, it is possible to envision an evolution of budget systems in the years ahead where TQM is widely extended to constituents through online and regular feedbacks so that public administrators would be able to gratify departments and organizations who have not only fulfilled quantity, time and cost assigned goals but also, and especially, surpassed quality measurement expectations)
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