Public Money

The Great Recession's Lessons on Rainy Day Funds

So far, 2016 has been a year of tenuous economics. Record losses in the stock market. Slow job growth. Financial turmoil in China and Europe. For the first time since 2007, state budget planners are talking about the next recession.

That conversation naturally turns toward rainy day funds. These funds -- sometimes called “budget stabilization funds” or “counter-cyclical stabilization policies” -- are one of the few tools states can deploy to protect their budgets when recessions cause revenues to drop. The challenge, of course, is that putting money in a rainy day fund means limiting the state’s spending on highways, education, Medicaid and other needs. As such, one of the biggest challenges of state government finance is finding a rainy day fund amount that’s not too small, but not too large. READ MORE

States Slap Cities With Fiscal Handcuffs

In our current federal system, states are endowed with the right to chart their fiscal destinies. Each state can choose which kinds of taxes it wishes to impose -- and what rates and rules will apply. 

Not so with municipalities. States can, and do, impose fiscal straitjackets on local governments, defining their authority or lack thereof to levy certain kinds of taxes, or even how such taxes may be assessed, applied or collected. At the same time, they require local governments to balance their budgets, keep their debt under control, and promise more to retirees than can be paid. READ MORE

How 'Philanthrocapitalism' Could Transform Government

Mark Zuckerberg is now a big-time philanthropist. Two months ago, Facebook’s chief executive and his wife Priscilla Chan launched a plan -- the Chan Zuckerberg Initiative -- to give away most of their wealth. It’s not clear what specific causes the initiative will target or what it will do. But what it does is not nearly as important as how it does it. Without spending a dollar, it has already brought disruptive change to philanthropy. 

How? It’s all about the organization. The initiative is set up not as a traditional tax-exempt nonprofit, but as a for-profit company. It is not bound by the rules that charitable and tax-exempt foundations are. Organized as a limited liability company (LLC), the initiative can call on a variety of capitalistic tools, such as funding nonprofit organizations, making private investments and participating in policy debates. Traditional nonprofits still do good work, but the Chan Zuckerberg Initiative makes “philanthrocapitalism” the center of gravity for a modern charity. READ MORE

Climate Change and Credit Ratings

Patricia, the strongest hurricane ever recorded in the Western Hemisphere, slammed into the town of Emiliano Zapata in southern Mexico in October. Peak winds were 165 miles per hour. The National Oceanic and Atmospheric Administration predicts that the 2015/2016 El Niño -- a causal factor in the ferocity of Patricia -- could foreshadow an indeterminate frequency, number and intensity of such storms in the Northern Hemisphere.

Wildfires in the U.S. West -- California, Colorado, Montana, New Mexico, Oregon and Washington -- were more severe and widespread this summer than in the past, burning or threatening millions of acres of land and thousands of homes. As wildfires increasingly imperil urban areas, they are putting more homes, lives and infrastructure at risk.  READ MORE

Is 'Fair Value' Accounting Actually Fair?

On Oct. 8, 2008, investors were desperate to understand why stocks were cratering and banks had quit lending. It was the height of the financial crisis. That day William Isaac, a former chair of the Federal Deposit Insurance Corporation, went on television and blamed an unlikely culprit: bankers’ accountants. “The Securities and Exchange Commission has destroyed $500 billion of bank capital by its senseless marking to market of these assets for which there is no marking to market,” he said. “That has destroyed $5 trillion of bank lending.” In other words, accounting rules enforced by the federal government were at the heart of the then-unfolding financial catastrophe. Many bankers and investors shared Isaac’s view.

By contrast, government accountants, led by the Governmental Accounting Standards Board (GASB), have embraced these same rules -- known as “fair value” accounting -- with the same enthusiasm that bankers’ and investors’ accountants have scorned them. In fact, during the past three years the people who write accounting standards for states and localities have made fair value a key factor in how governments manage their pensions, investments and retiree health care. Strange as it might sound, that’s a good thing. READ MORE