LAST WEEK THE VOLCKER ALLIANCE PROJECT ON TRUTH AND INTEGRITY IN GOVERNMENT FINANCE released a report, Truth and Integrity in State Budgeting, examining in detail the budgeting practices of California, New Jersey and Virginia. It assessed the effectiveness of each state’s practices, highlighting the need for effective and transparent budgeting practices by “shining a spotlight on opaque and confusing practices and by identifying more appropriate approaches” when creating state budgets and fiscal policy.

The Volcker Alliance was launched in 2013 by former Federal Reserve Board Chairman Paul Volcker to address the challenges of effective execution of public policies, and to help rebuild public trust in government. Its board of directors includes such luminaries as Volcker himself (who serves as chair), Sheila Bair, Bill Bradley, Francis Fukuyama, Norman Ornstein, Richard Ravitch and Alice Rivlin.

Volcker writes in the preface to the report that a “particular area in which we want to make an impact is the public understanding of the budgetary pressures and financial reporting in America’s states — in U.S. Supreme Court Justice Louis Brandeis’s familiar phrase, the nation’s ‘laboratory’ of democracy.”

The report’s introduction sums up its findings: “States continue to balance their budgets using accounting and other practices that obscure rather than clarify spending choices. These practices make budget trade-offs indecipherable, lead to poorly informed policymaking, pass current government costs on to future generations, and limit future spending options. …

“In 49 states, ‘balanced budgets’ are required by constitution or by statute; Vermont, the sole exception, follows the practice of its peers. In truth, however, there is no common definition of a balanced budget, and many states resort to short-term sleight of hand to make it appear that spending does not exceed revenue.”

The techniques decried by the Volcker Alliance include “shifting the timing of receipts and expenditures across fiscal years; borrowing long term to fund current expenditures; employing non-recurring revenue sources to cover recurring costs; and delaying funding of public worker pension obligations and other post-employment benefits, principally retiree health care. While these actions temporarily solve budget-balancing challenges, they add to the bills someone eventually has to pay.”

The report goes on to say that “few states include information about these long-term spending obligations in the budgets that governors propose and state legislatures debate. This precludes accurate, informed consideration of policy trade-offs. When budgets are balanced using accounting and other short-term and obscure fixes, the long-term consequences require a continual search for plugs to fill gaps in future budget cycles”.

The Volcker Alliance report can be found at volckeralliance.org; I urge everyone to read it. After my four years on Benicia’s Finance Committee, it rings too true to me, because it highlights a host of practices that I witnessed in Benicia.

Lawrence Grossman is the principal of Grossman Financial Management and a certified financial planner, registered investment adviser and accredited investment fiduciary. He has taught financial planning at the University of California, University Extension, Davis and Berkeley, and is the former chair of the Benicia Finance Committee. He lives in Benicia.

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