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.<br>
<br>
I raise this issue because of what the Obama Administration just
announced, according to <a href="http://www.nytimes.com/2009/02/20/us/politics/20budget.html" target="”_blank”">an article in today's New York <span>Times</a>.</span> 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.<br>
<br>
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 <span>Register </span><a href="http://www.nhregister.com/articles/2007/05/30/import/18400409.txt" target="”_blank”"><span></span>wrote</a> , "The budget numbers are
as suspect as the people who put the figures together."<br>
<br>
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.<br>
<br>
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.<br>
<br>
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 href="http://www.cityethics.org/node/277" target="”_blank”">a blog entry</a> I wrote two years ago.)<br>
<br>
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.<br>
<br>
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 <a href="http://www.cityethics.org/mc/full" target="”_blank”">City Ethics Model Code</a>
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:<br>
<br>
<ul>
<li>Recognize and support the public's right to know the public's
business.</li>
<li>Involve citizens in policy decision-making.</li>
<li>Respond to the public in ways that are complete, clear, and easy
to understand.</li>
</ul>
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.<br>
<br>
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 <a href="http://www.petitiononline.com/nohaven/petition.html" target="”_blank”">online petition</a>
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.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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