Budget Games and Gimmicks

Agreeing on the local government budget is the most important thing that the government does every year, because it affects every department and agency. But with the exception of the big issues of the year, it's a pretty arcane process often accomplished behind closed doors. Thus, it provides excellent opportunities for unethical conduct, very little of it dealt with in ethics codes.

I raise this issue because of what the Obama Administration just announced, according to an article in today's New York Times. For the annual budget the president will be presenting next week, four accounting gimmicks will be dispensed with. This means an additional deficit over the next decade of $2.7 trillion. This is certainly the most radical thing the administration has done so far. The gimmicks involve accounting for the two wars, Medicare reimbursements, disaster response, and Alternative Minimum Tax revenues.

Local governments don't fight wars and don't plan much for disasters, but there are many gimmicks available. I will use my own town, North Haven, CT, as an example. Games with the budget were so bad that the editorial page editor of the local daily newspaper, the New Haven Register wrote , "The budget numbers are as suspect as the people who put the figures together."

Even though budgets have to be approved at referendum and defended at a town meeting, the first selectman (effectively the mayor), when confronted publicly, but not on community TV, admitted that the town's budget numbers were "fungible," that is, meaningless (knowing that most people wouldn't understand). Dozens of large budget items bore no resemblance to past numbers or future expectations. A large fund was created so that, at the end of the year, town officials could make up for huge underfunding of budget items not only from overfunded budget items but also from this fund. This meant that there was a second budget process that was not approved at referendum and occurred secretly, off-budget.

And this is true even though state law requires the town meeting to approve all budget transfers over $20,000. How did town officials get around this requirement? First, they decided that any transfers from the fund, no matter how large, did not need to be approved by the town meeting and were therefore, effectively, secret. They also split up large transfers so that part would come from the fund, part from overfunded budget items in the department, which do not require approval, and part from overfunded budget items in other departments.

The last year town officials got away with their games, 37 budget transfers from other departments were in the exact amount of $19,999, yes, $1 short of the state's $20,000 limit for town meeting approval (that's a total of $740,000, in addition to an $800,000 fund in a town of 23,000 people). When confronted at a town meeting (for the first time), the director of finance said that this was a common accounting strategy. And not one official, from either party, said a word. (For more on this, see a blog entry I wrote two years ago.)

I'm not an accountant, so I couldn't even guess at the numerous ways to hide the budget process from the public for the sole purpose of giving officials more control over how public money is spent (or do some just enjoy seeing what schemes they can pull off?). Creating separate authorities is one good way of getting spending out of the public eye. On the revenue side, not disclosing (that is, not including in the budget) or underestimating various forms of revenue allows officials to raise taxes more than required and, thereby, to have extra money to play with (that happened in my town, too). It would be great to get all these schemes in one place, so that citizen groups could recognize them.

But what's important, from a government ethics point of view, is the fact that this is yet another example of a conflict between personal and public interest, albeit one that is usually out of the jurisdiction of an ethics program, at least in the sense of enforcement. However, these issues can be dealt with in the aspirational portion of a code. The ASPA Code of Ethics, which is what the City Ethics Model Code uses for its aspirational portion, has several provisions that provide guidelines for how to deal with budgets, although without specifically referring to the budget process:

• Recognize and support the public's right to know the public's business.
• Involve citizens in policy decision-making.
• Respond to the public in ways that are complete, clear, and easy to understand.

But it would be useful to have aspirational provisions that directly relate to the budget process. Stamford, CT has gone further. It has an ethics provision making a misrepresentation of a budget item a violation of the ethics code.

It is difficult to get the public excited about budget games, primarily because they are hard to understand and, therefore, easy for officials to defend. That's why it's important to work to get the news media on board. It's also important, especially where the public does have a role in the budget process, to make an honest budget an issue. I did this with an online petition immediately after a budget was rejected, asking people to say that the reason they rejected the budget was that it was dishonest. When the budget was reconsidered, the budget transfer gimmick was largely cut out of it. Without the petition, there likely would just have been cuts.

Robert Wechsler
Director of Research-Retired, City Ethics

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