State governors beware: Former Fed Chair Paul Volcker has his eyes on you.
On Monday the non-profit Volcker Alliance released a preliminary report on state budgeting practices. The organisation said that the report is part of the groundwork being laid for the development of a “scorecard” for state budgets and finances.
Currently, there is no central source for this information in regards to all fifty states. But Volcker aims to change this.
Volcker wrote that the report, “sets out a preliminary set of reporting principles to better assure the clarity and integrity of state financial practices. The intent is to extend the analysis to all 50 states, providing a firm basis for ‘grading’ the performance of individual states with respect to the integrity and clarity of their financial reporting.”
Volcker first established the Volcker Alliance in 2013 “to address the challenge of effective execution of public policies and to help rebuild public trust in government.” Several past public officials sit on the Alliance’s board of directors, including former FDIC Chair Shelia Bair and former New Jersey Senator Bill Bradley.
The report, titled “Truth and Integrity in State Budgeting,” builds upon the work done by Volcker and board member Richard Ravitch from when the two co-chaired the State Budget Crisis Task Force from 2011 to 2014. The Task Force analysed the budgeting practices of six states, three of which — California, New Jersey, and Virginia — were looked at for the report released Monday.
The Alliance made the following conclusions about the three states:
California: Economic reforms have enabled California to greatly improve its fiscal well being, but the state still faces more than $US250 billion in unfunded pension liabilities, unfunded retiree healthcare benefits and infrastructure improvements.
New Jersey: The state depends on “short-term maneuvers such as debt restructuring, diversion of funds, and inconsistent management of revenue collection” to balance the budget each year and is facing strong resistance to tax hikes as well as slow economic growth.
Virginia: The report hailed Virginia’s “strong reputation for sound financial policy,” which includes pension reform, strict borrowing constraints, revenue re-estimation, and a solid rainy day fund.
Finally, the Volcker Alliance established a list of initial recommendations for all state officials, in hopes of establishing a healthier and more transparent budgeting system.
The recommendations include:
- Complete budgetary information should be readily available and easy to interpret
- “Short-term revenue forecasts should be transparent and supportable by historic growth trends.”
- “Recurring costs should be paid with recurring revenue.”
- Borrowing should not be used to cover state operating costs
- Substantial rainy day funds should be built and maintained, and quickly replenished after being tapped.
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