Ravitch Initiative Encourages Federal Action Around State and Local Budgeting, Borrowing


Quick Takeaways

  • Multiyear effort to educate federal leaders needed 
  • Use of GAAP budget accounting, transparent debt disclosure urged 
  • Ensure cities, states are on guard against fiscal cliffs when pandemic aid expires 
  • Consider federal incentives to promote best practices 

The Volcker Alliance came to the nation’s capital to launch the Richard Ravitch Public Finance Initiative, marking the start of a multiyear effort to educate Congress, the executive branch, and regulators about the need for federal action to ensure sound budgeting and borrowing by cities and states, the recipients of more than $1 trillion annually in federal grants and tax breaks.

The Initiative’s goal “is to help avoid the fiscal crises that Dick spent his whole life fixing,” Volcker Alliance President Sara Mogulescu said at a January 11 dinner preceding a day-long kickoff Symposium held at the Pew Charitable Trusts in Washington. Ravitch, a Volcker director and former lieutenant governor of New York State, is credited with guiding New York City out of its 1970s fiscal crisis. In the 2010s, he advised the judge in Detroit’s bankruptcy and the US Treasury during Puerto Rico’s bankruptcy.   

“Members of Congress have an appalling ignorance of state and city budgets,” Ravitch, a Volcker Alliance director, said in a conversation during the dinner with fellow Volcker director Norm Ornstein, a senior fellow emeritus at the American Enterprise Institute. Even after the crises in Detroit and Puerto Rico, Ravitch said, “many cities and states continue to budget in an irresponsible manner.” 

The January 12 symposium, hosted by the Alliance in cooperation with Pew, the Milken Institute, National Academy for Public Administration (NAPA), and the University of Pennsylvania Institute for Urban Research, featured keynote addresses by Representative Earl Blumenauer (D-OR) and New York State Comptroller Tom DiNapoli; panels of municipal regulators, analysts, public officials, and academics; and a discussion of a Ravitch Initiative issue paper by Matt Fabian and Lisa Washburn of Municipal Market Analytics. The paper, Sustainable State and Local Budgeting and Borrowing, recommends a more active role by lawmakers in overseeing the municipal securities market and the implementation of federal incentives to encourage states and cities to follow generally accepted accounting principles (GAAP). 

Ravitch and other speakers raised concern that fiscal crises may loom for cities and states that have used federal COVID-19 relief money to fund ongoing programs and failed to budget for the expiration of the aid. “It’s going to be a very hard stop for state and local governments,” Blumenauer said during a talk entitled “The Cost of Failure.”  

Representative Dan Kildee (D-MI) said that, given the dysfunction in the House of Representatives, Congress is unlikely to approve stimulus to help cities and states in the event of recession or to extend COVID programs. Lawmakers are more likely to be focused on fundamental challenges such as keeping the US government open, he said.  

DiNapoli said the most notable change in New York City’s financial practices since the 1970s was an adherence to GAAP. “This comprehensive accounting forced the city away from the cash-basis [budgeting] it had leveraged to hide its fiscal issues through the use of borrowing and timing choices,” DiNapoli said. “The lessons provided by New York City regarding better accounting and budgeting practices are clear. First, and most important, is the transparent, full, and fair presentation of revenues and expenditures. Only a true and complete representation of annual budget resources and commitments can allow for grappling with tough budget decisions.”    

The comptroller said he would propose reforms in New York State’s debt practices, including a constitutional amendment imposing a debt cap, eliminating unaccountable “back-door borrowing” by public authorities, and requiring prudent debt management practices.  

Fabian and Washburn led a discussion on what Congress and regulators could do to persuade cities and states to adopt budgeting and disclosure reforms that some municipalities may find burdensome. Some participants said tactics to incentivize better practices would be more effective than penalizing noncompliers. For example, Congress could offer enhancements to the federal tax exemption for municipal debt for those issuers who adopt the best practices for disclosure and budgeting.  

Other participants in the Symposium included Nancy Y. Augustine, director of NAPA’s Center for Intergovernmental Partnership, who introduced Blumenauer. A panel discussion on current efforts to ensure stability in municipal borrowing included Michael Piwowar, an Alliance director and executive vice president of finance, Milken Institute; Joel Black, chair of the Government Accounting Standards Board; Emily Brock, director of the Federal Liaison Center, Government Finance Officers Association; Mark Kim, president of the Municipal Securities Rulemaking Board; Fitzroy Lee, deputy chief financial officer and chief economist at Washington’s Office of the Chief Financial Officer; and Vikram Rai, head of the municipal strategy group at Citi. 

In addition to Kildee and Ravitch, a panel on state and local budgeting and federal dollars included Scott Pattison, deputy executive director, Multistate Tax Commission; Sean Dougherty, senior adviser at the Organization for Economic Co-operation and Development; Shelby Kerns, executive director, National Association of State Budget Officers; and David Schleicher, professor, Yale Law School.