Socrates was known for confusing, stinging and stunning his debate partners into realizing their own ignorance, a thought process usually requiring genuine intellectual curiosity. Yet he transmitted no information, just the ability to think critically.
He wanted others to join with him in his question-and-answer mode of critical thinking. His lifework consisted in the examination of people's lives, his own and others', because “the unexamined life is not worth living for a human being.”
Friday, March 11, 2011
Thursday, March 10, 2011
Justice and Equity
Social is/or pertains to society; relating to men living in society, or to the public as an aggregate body; as, social interest or concerns; social pleasure; social benefits; social happiness; social duties. Justice is rendering to every one that which is his due. Justice is the upholding of what is just, especially fair treatment and due reward in accordance with honor, standards, or law. It has been distinguished from equity in this respect, that while justice means merely the doing what positive law demands, equity means the doing of what is fair and right in every separate case. The aim is to make our principles and judgments coincide in a balance that is reflective in that we know to what principles our judgments conform and the premises of their derivation.
Wednesday, March 9, 2011
Now You're a Policy Analyst
The art of policy analysis is the balancing of time and resources to provide relevant information to the decision makers. Policy analysis in its simplest form has four distinct steps that need to be considered and implemented. These steps are: what is the problem; what are the alternatives; which is the best alternative; and selling the recommendation. These four steps encompass Bardach’s1 eight-fold process. The amount of time and resources the analyst puts into each step may well determine the usefulness of the recommendation. Policy analysis generally happens as a continuum and tends to be iterative. The initial problem definition may change as the alternatives are reviewed and the analyst learns more about how things are and how the client wants them to be. The analyst must understand the process for coming to a decision and be able to choose the problem solving method and/or models appropriate for the issue being debated. The experienced analyst can generally think through the competing value systems, abstract factors deemed relevant from complex problems and provide a point at which to start winnowing the problem definition. The analyst should use the simplest decision method the problem will allow to build enough rational and political evidence to justify the recommendation. The analyst should attempt to “connect the dots” so that the decision makers understand enough of the information and the recommendation so that they feel it will provide some level of problem resolution. The decision makers should not be able to say they did not understand the information and then justify the recommendation on someone’s technical expertise. The summation of my debate is that the available resources should be allocated based on the problem being analyzed, the skills and abilities of the analyst, the political environment or value systems and the time constraints. The analyst should then re-evaluate the resource distribution at regular intervals and adjust as needed. I believe that the analyst will generally enjoy the process more and feel better about the results when using this method of resource distribution.
Monday, March 7, 2011
Basics
The public sector (i.e. government) does not undertake activities to achieve a profit, but to achieve equity (The definition for equity here is the fair or just distribution between those who gain from a change and those who lose from it). The public sector provides services that are deemed necessary by the community and that are not effectively provided by the private sector because the optimal quality and quantity are difficult to measure and generating a profit is difficult.
Today, most of us think it is the collective responsibility of our governments to ensure each citizen's equality, rights, safety, and freedom by ensuring fairness, transparency, and a healthy balance between private opportunity and the public interest. Based on this perceived social contract, a municipality provides services and goods that would otherwise be difficult for people, acting as individuals, to provide for themselves. It can be argued that municipalities are not only involved in exploiting gains from markets arising from free riding and market failure. But, like it or not, municipalities are also institutions for redistribution. This redistribution occurs in many ways, including through equalizing outcomes, equalizing opportunities, and providing social insurance. All policies then, even those with efficiency objectives, have gainers and losers, and it is impossible to avoid taking account of that somehow.
Given that pure public goods require a social decision, it is the consequences for economic welfare (total surplus), rather than mere profit, that matter. This decision includes notions such as equality of opportunity and capability, fairness, and poverty alleviation. Most individuals are pragmatic and are inclined to favor the organizational form that “works best.” A policy-maker should consider the distribution of burden and benefit across residents in a manner that is consistent with the accepted norms of fairness and equity. These norms typically define fairness according to the relationship between the amount of revenue collected from residents and their respective abilities to pay the tax, charge, fee or assessment along with the benefits received by them from government programs. Three widely-accepted norms of fairness are:
• Vertical Equity. This principle of fairness requires that the amount of revenue collected from residents with different income levels should reflect their respective abilities to pay the tax, charge, fee or assessment. Specifically, the cost of government as a percentage of income should not unduly burden taxpayers with limited ability to pay. Some would view this principle as satisfied by a proportional revenue system, where revenues collected are the same percentage of income for taxpayers at all income levels. Others believe that the principle requires that revenues collected as a percentage of income should be higher for residents with more income than those with less income (a progressive tax burden). To our knowledge, almost no one believes that revenues collected should be a higher percentage of income for less affluent residents than for those with more income (a regressive tax burden).
• Benefits Received. A revenue system may be considered fair if the revenues collected are matched by benefits received by a resident from the government. This principle is most relevant when a cost is charged specifically for the purpose of providing a particular government service to a specific group of residents. Such “benefit charges” are impractical for much of government spending because the “benefits” received cannot be determined for each resident. Therefore, this principle is relevant mainly for certain types of selective fees, charges and assessments which are termed user fees.
• Horizontal Equity. According to this principle, residents with similar abilities to pay a tax should pay comparable amounts of the costs. More generally, the principle of horizontal equity enjoins the government from levying charges that have arbitrary and peculiar distributions of costs across residents or from levying dissimilar tax burdens on taxpayers that are not justified by differences in their ability to pay or by distinctions in the benefits they receive from government programs.
Today, most of us think it is the collective responsibility of our governments to ensure each citizen's equality, rights, safety, and freedom by ensuring fairness, transparency, and a healthy balance between private opportunity and the public interest. Based on this perceived social contract, a municipality provides services and goods that would otherwise be difficult for people, acting as individuals, to provide for themselves. It can be argued that municipalities are not only involved in exploiting gains from markets arising from free riding and market failure. But, like it or not, municipalities are also institutions for redistribution. This redistribution occurs in many ways, including through equalizing outcomes, equalizing opportunities, and providing social insurance. All policies then, even those with efficiency objectives, have gainers and losers, and it is impossible to avoid taking account of that somehow.
Given that pure public goods require a social decision, it is the consequences for economic welfare (total surplus), rather than mere profit, that matter. This decision includes notions such as equality of opportunity and capability, fairness, and poverty alleviation. Most individuals are pragmatic and are inclined to favor the organizational form that “works best.” A policy-maker should consider the distribution of burden and benefit across residents in a manner that is consistent with the accepted norms of fairness and equity. These norms typically define fairness according to the relationship between the amount of revenue collected from residents and their respective abilities to pay the tax, charge, fee or assessment along with the benefits received by them from government programs. Three widely-accepted norms of fairness are:
• Vertical Equity. This principle of fairness requires that the amount of revenue collected from residents with different income levels should reflect their respective abilities to pay the tax, charge, fee or assessment. Specifically, the cost of government as a percentage of income should not unduly burden taxpayers with limited ability to pay. Some would view this principle as satisfied by a proportional revenue system, where revenues collected are the same percentage of income for taxpayers at all income levels. Others believe that the principle requires that revenues collected as a percentage of income should be higher for residents with more income than those with less income (a progressive tax burden). To our knowledge, almost no one believes that revenues collected should be a higher percentage of income for less affluent residents than for those with more income (a regressive tax burden).
• Benefits Received. A revenue system may be considered fair if the revenues collected are matched by benefits received by a resident from the government. This principle is most relevant when a cost is charged specifically for the purpose of providing a particular government service to a specific group of residents. Such “benefit charges” are impractical for much of government spending because the “benefits” received cannot be determined for each resident. Therefore, this principle is relevant mainly for certain types of selective fees, charges and assessments which are termed user fees.
• Horizontal Equity. According to this principle, residents with similar abilities to pay a tax should pay comparable amounts of the costs. More generally, the principle of horizontal equity enjoins the government from levying charges that have arbitrary and peculiar distributions of costs across residents or from levying dissimilar tax burdens on taxpayers that are not justified by differences in their ability to pay or by distinctions in the benefits they receive from government programs.
Friday, March 4, 2011
Let's start at the Beginning
“For profit” corporations are interested in monitoring and managing liquidity which refers to how quickly an asset can be converted to cash (a three-month treasury note is probably more liquid than a water tower but less liquid than money in a checking account), solvency (refers to ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth) and profitability which refers to the residual assets after liabilities have been paid and is referred to as net worth. Corporations use an accounting equation to monitor the performance of these areas. The accounting equation A=L+E, where A stands for assets, L for liabilities, and E for equity, is a simple algebraic equation and a great technique for describing an economic unit and keeping track of its financial performance. This equation can be used at the beginning and end of an accounting cycle to show the business’s financial status and change in financial performance.
This equation communicates the central elements of an economic operation. In the equation, assets represents the resources of the unit (cash, buildings), liabilities are resources received from others that must be repaid (notes payable, accounts payable), and equity exhibits the contributions and distributions of owners (retained earnings, dividends).
Equity is a complex concept in that it includes results of operations and contributions and withdrawals of owners. The results of operations address whether revenues exceed or do not exceed expenses. Contributions are what the owners put in, hoping for a good return. Withdrawals are what the owners take out for themselves. The word equity is usually associated with business activities in that it connotes ownership. For example, the accounting equation can be rearranged in the form of:
A - L = E
Equity is a residual interest after all the liabilities have been taken out or paid by existing assets. The residual equity belongs to the owners. Equity is sometimes called net worth or how much a business is worth (on the books, not on the market) after paying all the liabilities. All private sector businesses set out to increase equity and profit/net income.
Most municipal activities, however, function quite differently than private sector businesses. First, municipal activities are not undertaken to achieve a profit. They provide needed services that are not effectively provided by the private sector because the optimal quality and quantity are difficult to measure. Second, the activities provided have no direct relationship between the benefits received and the taxes paid. Finally, participation in municipal activities and taxes is involuntary.
Generally, municipal accounts are organized on the basis of funds and account groups, each of which is considered a separate entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenue, and expenditures, or expenses, as appropriate. The various funds are grouped into five generic fund types and three broad fund categories. These broad fund categories consist of governmental funds, proprietary funds and fiduciary funds. This report will focus on the governmental funds.
Municipal governmental funds are divided into three categories. The General Fund is the general operating fund of the municipal. It is used to account for all the financial resources except those required to be accounted for in another fund. Special Revenue Funds (Special Assessment, CableTV, etc) are used to account for the proceeds of specific revenue sources (other than expendable trusts or major capital projects) that are legally restricted to expenditures for specific purposes. Capital Project Funds (TID) are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds). Most funds are established by governing bodies (such as state legislatures, municipal councils, or school boards) to show restrictions on the planned use of resources or to measure, in the short term, the inflows and outflows arising from certain activities.
The municipal governmental fund method of accounting designates any generated municipal equity as a fund balance. With governmental fund accounting, the accounting equation is somewhat different from that used in business. For governmental funds, the equation takes the form:
CA = CL + FB
Current assets = Current liabilities + Fund balance
Essentially the equation is comparable to that of the equation for businesses, although two changes are made. (1) Equity is changed to fund balance. Equity connotes ownership and, in government, citizens do not own any of the excess that might accumulate. Thus, fund balance is used to measure inflows over or under outflows. The balance, if positive, is what can be appropriated for later spending. The term fund is used since the equation relates to each individual governmental fund, not the government as a whole. As noted, if the inflows are greater than the outflows, then the fund has a surplus for the period and the legislature can authorize how it is to be used in the next period. Inflows and outflows are used instead of just revenues and expenditures since fund balances can actually be increased by borrowing, whereas equity in business cannot be increased by borrowing. (2) Notice also, the focus of the equation for governmental funds is on current assets and current liabilities since governmental funds revolve around annual budgets or annual appropriations. In governmental funds, items that go beyond a year are placed outside the funds, in account groups.
Assets have been divided into two main groups, expendable and capital. Expendable assets are cash, investments, supplies, and accounts payable that are all short term. Capital assets are land, buildings, and equipment which is all items not expected to become available for spending in the short term. When accountants are reporting both short and long term assets, they call it the economic resources measurement focus. When they are reporting only the current assets and liabilities, they call it the current financial measurement focus. When municipal accountants are using the economic resources measurement focus, they will report net assets (A – L = NA) and when they refer to the current financial measurement focus they will report the fund balance (CA – CL = FB).
This equation communicates the central elements of an economic operation. In the equation, assets represents the resources of the unit (cash, buildings), liabilities are resources received from others that must be repaid (notes payable, accounts payable), and equity exhibits the contributions and distributions of owners (retained earnings, dividends).
Equity is a complex concept in that it includes results of operations and contributions and withdrawals of owners. The results of operations address whether revenues exceed or do not exceed expenses. Contributions are what the owners put in, hoping for a good return. Withdrawals are what the owners take out for themselves. The word equity is usually associated with business activities in that it connotes ownership. For example, the accounting equation can be rearranged in the form of:
A - L = E
Equity is a residual interest after all the liabilities have been taken out or paid by existing assets. The residual equity belongs to the owners. Equity is sometimes called net worth or how much a business is worth (on the books, not on the market) after paying all the liabilities. All private sector businesses set out to increase equity and profit/net income.
Most municipal activities, however, function quite differently than private sector businesses. First, municipal activities are not undertaken to achieve a profit. They provide needed services that are not effectively provided by the private sector because the optimal quality and quantity are difficult to measure. Second, the activities provided have no direct relationship between the benefits received and the taxes paid. Finally, participation in municipal activities and taxes is involuntary.
Generally, municipal accounts are organized on the basis of funds and account groups, each of which is considered a separate entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenue, and expenditures, or expenses, as appropriate. The various funds are grouped into five generic fund types and three broad fund categories. These broad fund categories consist of governmental funds, proprietary funds and fiduciary funds. This report will focus on the governmental funds.
Municipal governmental funds are divided into three categories. The General Fund is the general operating fund of the municipal. It is used to account for all the financial resources except those required to be accounted for in another fund. Special Revenue Funds (Special Assessment, CableTV, etc) are used to account for the proceeds of specific revenue sources (other than expendable trusts or major capital projects) that are legally restricted to expenditures for specific purposes. Capital Project Funds (TID) are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds). Most funds are established by governing bodies (such as state legislatures, municipal councils, or school boards) to show restrictions on the planned use of resources or to measure, in the short term, the inflows and outflows arising from certain activities.
The municipal governmental fund method of accounting designates any generated municipal equity as a fund balance. With governmental fund accounting, the accounting equation is somewhat different from that used in business. For governmental funds, the equation takes the form:
CA = CL + FB
Current assets = Current liabilities + Fund balance
Essentially the equation is comparable to that of the equation for businesses, although two changes are made. (1) Equity is changed to fund balance. Equity connotes ownership and, in government, citizens do not own any of the excess that might accumulate. Thus, fund balance is used to measure inflows over or under outflows. The balance, if positive, is what can be appropriated for later spending. The term fund is used since the equation relates to each individual governmental fund, not the government as a whole. As noted, if the inflows are greater than the outflows, then the fund has a surplus for the period and the legislature can authorize how it is to be used in the next period. Inflows and outflows are used instead of just revenues and expenditures since fund balances can actually be increased by borrowing, whereas equity in business cannot be increased by borrowing. (2) Notice also, the focus of the equation for governmental funds is on current assets and current liabilities since governmental funds revolve around annual budgets or annual appropriations. In governmental funds, items that go beyond a year are placed outside the funds, in account groups.
Assets have been divided into two main groups, expendable and capital. Expendable assets are cash, investments, supplies, and accounts payable that are all short term. Capital assets are land, buildings, and equipment which is all items not expected to become available for spending in the short term. When accountants are reporting both short and long term assets, they call it the economic resources measurement focus. When they are reporting only the current assets and liabilities, they call it the current financial measurement focus. When municipal accountants are using the economic resources measurement focus, they will report net assets (A – L = NA) and when they refer to the current financial measurement focus they will report the fund balance (CA – CL = FB).
Thursday, March 3, 2011
Statewide Interest
The Governor's budget bill does not repeal the maintenance of effort on emergency services spending requirement that was included in the last state budget. His mother must be a police officer.
The largest single cost factor in most of the state's municipalities is untouchable.
The largest single cost factor in most of the state's municipalities is untouchable.
Tuesday, March 1, 2011
Brave New World
The new leadership role of the Supervisor in the Walker world. I just can’t wait to hear this discussion at conference. Is it a “how to strip the employees of more benefits” or how to lead local governments to fairly handle their new given powers? The new “at will” supervisor will often to be in a “no win” situation and they will turn over their employees or they will turnover.
The history of local governments is some sort of cyclical swing right to left until there is some specific resolution to the issue. I just can’t wait to start the zig zag.
The history of local governments is some sort of cyclical swing right to left until there is some specific resolution to the issue. I just can’t wait to start the zig zag.
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