Problems Auditors Can't Fix, the Dangers of Overtime, Flipped Classrooms and More

A roundup of public-sector management news you need to know.
April 23, 2015
Barrett and Greene
By Katherine Barrett & Richard Greene  |  Columnists
Government management experts. Their website is greenebarrett.com.

One of the basic characteristics of a good budget is that it uses revenues in ways that align with the purposes for which they were collected. This isn’t always the case.

A rather extreme case was the topic of an article in Crain’s Chicago Business, which revealed that Illinois is now using money collected specifically for clean-energy projects to stabilize the general fund.

The state is currently planning on taking nearly $100 million from surcharges on electric bills -- aimed at paying for wind and solar projects -- and applying it to the state’s $1.6 billion budget gap.

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Environmentalists are objecting and there’s a risk of litigation about the legality of this maneuver. What worries us is the long-term impact on trust in government that this kind of budget action has. When officials tell taxpayers they’re sending checks to the state for one purpose and then the government uses it to pay for something else entirely, doesn’t it seem likely that citizens will object when the state wants to raise cash for a promised benefit in the future?

People tend to think of auditors as the people who ensure state and local agencies are keeping their finances straight. But much of that work is supposed to be done by the agencies themselves, using a prescribed set of internal controls. It’s the auditor’s job to check to see whether those internal controls are good enough and being used. When that’s not the case, an army of outsiders would have difficulty getting an agency’s books in order.

One powerful example of the problems auditors can’t fix came from a Connecticut investigation of the state’s Office of Higher Education. It was pretty alarming, stating that, “Many of the agency’s written procedures are outdated ... There are no written procedures for some processes.” The Office of Higher Education responded to the audit with promises to fix the issues. But problems still remain. For example, “We were unable to determine if the agency billed the federal government for certain allowable expenditures for federally funded programs.”

Inventories may also be out of control. “Not all equipment is accounted for,” state auditor John Geragosian said. “The procedures do not align with current processes. It’s important that when a system or process changes that policies and procedures are updated to reflect those changes.”

Questions about the use of overtime in cities, counties and states are usually about fiscal concerns. But there are other issues that may be equally important. One has been percolating in Denver, Colo., where a recent investigation by the city’s auditor found that “[prison] facilities are understaffed due to inaccurate forecasting, leaving ... supervisors scrambling to fill vacant shifts.”

One of the easiest ways to do this is to pay for overtime hours. The problem with this is that “inmates are confronted with deputies that have been working so long that even good deputies may be short of temper, irritable and quick to overreact,” Jeff Schwartz, a California-based authority on corrections told Colorado Public Radio, recently. “That also means that those deputies are in more danger than they should be ... at the same time the city puts itself at risk of more expensive lawsuits.”

There are a variety of maxims related to tax policy that tend to be received with almost universal agreement. One of these is that a good tax system has the lowest possible rates, based on the broadest possible system. This notion is often applied to efforts to extend sales taxes to more services in states. As the economy has become increasingly service-based, continuing to rely on a sales tax system primarily focused on goods is inefficient and doesn’t raise enough revenue.

Some hard figures were applied to the benefits of taxing more services and were recently laid out by Professor John Mikesell of Indiana University in a paper prepared for the Indiana Fiscal Policy Institute. Indiana, Alabama, California and Illinois are the four states that tax the least services in the country.

According to Mikesell’s calculations, just adding sales taxes on services “associated with motor vehicles, recreation, consumer professions, personal care and household maintenance would increase the [sales tax] base by over twenty percent.” And that’s just the easy stuff. If the state taxed financial services and insurance, the base upon which sales taxes can be collected would go up 15 percent more. And (though it’s unlikely that Indiana would go this far) Mikesell said that “adding health care and education would increase the base by almost 50 percent more.”

When people think of managers paid for by government, they imagine supervisors in a department of personnel or people who oversee infrastructure projects. But one of the biggest corps of managers in the public sector are the classroom teachers, who sometimes manage  hundreds of young people on a daily basis.

With that in mind, we’ve been impressed by articles about the so-called “flipped classroom.” Traditionally, teachers explain math concepts in class, and then have students repetitively utilize the concepts through homework they do in the evenings.  But with flipped classrooms, teachers turn the process around. They ask students to watch videos of the lessons at home, and then do the practice examples the next day in the classroom, with the teacher making corrections and detecting problems.

When teachers tried this in a high school outside of Detroit, the results were powerful. According to Jeremy Strayer of Ohio State University, before the flip, some 44 percent of freshmen were failing math. Afterwards, that number plummeted to 13 percent. This sure seems like a promising practice.

“To pass a law in the real world means nothing. To enforce the law means everything.” – Noah Feldman, Harvard Law School professor

Without getting deeply into the contentious topic of Medicaid expansion, here’s something that worries us: No one knows if increased federal funding would help improve access, according to a February report from the U.S. Government Accountability Office. That’s because the Centers for Medicaid and Medicare Services do not “collect accurate and complete data on state sources of funds to finance the Medicaid programs.” This makes it very difficult for federal policymakers to administer Medicaid and determine where changes would help.

We recently wrote a piece for the Council of State Governments, making the case that tax cuts don’t necessarily lead to economic vitality. Shortly afterward, we read an excellent brief from the Center on Budget and Policy Priorities (CBPP) that backed this up.

The CBPP looked at five states -- Kansas, Maine, North Carolina, Ohio and Wisconsin -- that passed dramatic cuts in personal income taxes in recent years. The political language in all was that these cuts would pump the states full of economic vitality juice. But the policies didn’t work. Four of the five states -- except North Carolina -- experienced job growth that’s been slower than the national average since their governments implemented the tax cuts. All five are projecting weaker job growth than the national average over the next three years.

What’s more, wrote the CBPP, “By shrinking state revenues, the tax cuts contribute to problems that can harm state economies over the long term.” This is particularly a problem for education funding. Four of the states, all except for Ohio, are among the 10 states in this country that have sustained the deepest cuts in funding for K-12 education since 2008.