Public Money

Corporate Tax Attacks in the States

Lawmakers on Capitol Hill have been complaining for years about corporate tax havens. The Congressional Research Services reports that offshore tax shelters cost the federal government between $30 billion and $90 billion a year. But such is the gridlock in Washington that even bipartisan efforts to do something about the problem have stalled. That's where Maine comes in. Tired of waiting on Washington, it passed legislation this month with an eye toward recouping the estimated $5 million in corporate income tax revenue lost a year.

The new legislation will treat income that companies list in 38 known tax haven countries as domestic income for Maine tax purposes, bringing the state millions in tax revenues. "If a big company like Apple sells things in Maine, they should pay a portion of their corporate tax in Maine, even if they have income in Bermuda," is the rationale from Democratic Rep. Adam Goode of Bangor, the sponsor of the bill. READ MORE

Why Cities Can’t Go Bankrupt in Canada or Germany

This story is part of Governing's annual International issue.

Detroit’s insolvency was a fiscal shot heard round the world. In Germany, the authors of an article on municipal debt for the German Institute for Economic Research gave Michigan a nod when they titled a draft report, Race to the Debt Trap? Nevertheless, we could learn from Germany, as well as from our neighbor Canada, how to avert the fiscal catastrophes of municipal bankruptcies.  READ MORE

Bonds and the BFF Problem

The Beatles let us know that we all “get by with a little help from our friends.” Those nine words from the Awesome Foursome capture the essence of the American municipal bond market. Some new developments, however, could redefine how friends help state and local governments get by in the muni market. 

Like all markets, the municipal bond market is about buyers and sellers. The sellers are cities, counties, schools and other public entities that need to borrow money to build roads, bridges, hospitals and other major projects. The buyers are wealthy individuals, property-casualty insurance companies, mutual funds and others who like muni bonds for their secure, tax-free income. In concept, this market is simple and predictable. READ MORE

Double Whammy

New York City Mayor Bill de Blasio described social inequality in his inaugural address as a “quiet crisis” on par with fiscal collapses, crime waves and terrorist attacks. He said income disparity was a struggle no less urgent to confront.

Unfortunately, it’s not being confronted, especially in cities where the “quiet crisis” is leading to bankruptcy. These cities have disproportionate levels of poverty, minorities, crime and deteriorating tax bases. With each attempt to balance their budgets, they are forced to reduce essential public services. That, in turn, leads those who can afford it, to leave—further exacerbating an eroding tax base and forcing even more cuts in essential public safety services. Each round of departures results in a smaller and poorer population and tax base. READ MORE

This Annual Financial Report Says What?

It’s hard to see the bright side to the financial upheaval in Detroit and other distressed governments. But if there is one, it’s that taxpayers, journalists and others are starting to pay attention to government financial statements. In a prescient comment, a group of accounting professors once said our model for government financial reporting is—with apologies to Kevin Costner—“if you build it, they will come.” In this case the “it” is not a baseball stadium in a cornfield. It’s a set of financial statements chock full of details about a government’s financial inner workings. And the “they” is not baseball fans. It’s people who actually read those statements. Thanks to Detroit and other distressed cities, the “they” are starting to arrive. 

As new users come into the fold we’re reminded that the defining feature of government financial reporting is complexity. A typical state or municipality’s comprehensive annual financial report, or CAFR, is hundreds of pages long and different parts of it follow different accounting assumptions. Critics say this is because those that set accounting standards are too ambitious. Others say it’s because government financial operations are enormously sophisticated, so reporting on those operations is inescapably complex. READ MORE