None earned the lowest mark of D-minus, and only Arkansas received a D. The state lacks a consolidated website that provides budget and other financial information essential in developing and analyzing its biennial spending plan. Like most other states, Arkansas does not disseminate any information about deferred infrastructure maintenance liabilities. It also does not publish a capital budget, although some information about capital expenditures can be obtained from individual appropriations bills or the state’s transparency website.
While federal standards for reporting highway and bridge deferred maintenance costs are being upgraded, Hawaii, which received a grade of B, and the three states receiving top average scores of A—Alaska, California, and Tennessee—are the only ones making a clear effort to disclose these costs in budgetary or related documents.
Alaska’s Legislative Finance Division reports the cost estimates by department and agency, estimating a $1.9 billion deferred maintenance backlog for its 2,200 facilities as of January 2018. California, meanwhile, produces the data in an annual five-year infrastructure plan as part of its budget documents. The state estimated $78.1 billion in deferred maintenance costs in 2017. The Tennessee Advisory Commission on Intergovernmental Relations, created by statute in 1978, handles that state’s deferred maintenance cost disclosures. We gave Tennessee a three-year average of B in transparency in our 2017 report because of a lack of deferred infrastructure maintenance disclosure in budget documents. However, we have found that the commission’s reports are equivalent to budgetary disclosures.
The absence of deferred maintenance cost information in most states is a critical shortcoming in a nation in which the word “infrastructure” is frequently preceded by “crumbling.” Unfunded infrastructure maintenance is akin to underfunded pensions; the total liability for each may grow every year that spending is short of what is required. A road needing only partial resurfacing in a given year may be costlier to repair—and result in congestion and higher car and truck maintenance expenses—if work is repeatedly put off. Similarly, the usefulness of buildings and other public assets declines, and long-term costs rise, if the state does not provide necessary upkeep.
Other transparency findings for fiscal 2016 through 2018 include:
- Eight states failed to provide an annual or biennial tax expenditure budget or equivalent report showing the cost of state-provided exemptions, credits, and abatements. But Indiana raised its 2018 transparency grade to B from C by requiring the Legislative Services and the State Budget agencies to produce complementary tax expenditure reports, with the shorter budget version to assist in biennial budget formation and the legislative report to delve into greater detail on each tax expenditure. The first reports were produced at the end of 2016. (Since the reports were released following adoption of the 2016–17 biennial budget, the state received no credit for the document in 2016 or 2017, leaving its three-year average unchanged at C.)
- All states provided tables listing outstanding debt and debt service costs, as well as information on any legal debt limits.
While most states have consolidated budget websites and were given credit for them in their evaluations, their content and usefulness vary.
On the Arizona Governor’s Office of Strategic Planning and Budgeting website—the state received a B average in transparency—it was a simple matter to find past budgets and supplemental information. It was also easy to locate budget briefs, which present summarized revenue and expenditure information with straightforward charts and explanations of how spending plans link to the governor’s priorities. The consolidated website helps users track monthly spending, provides links to five-year strategic plans, chronicles the impact of court cases on the state budget, and posts updates to revenue projections, such as a budget director memo from April 2018 noting that fiscal 2018 revenues were $262 million over projections.
In Ohio, which also scored a B average in the category, the Office of Management and Budget provides a web page with links to many standard features, including the operating and capital budgets, detail on the budget stabilization fund, and monthly financial reports. One feature, Ohio’s Interactive Budget, lets users click through a series of charts for more information derived from the state’s accounting system. Users can get levels of detail on such questions as the breakdown of nontax and tax revenues and the portion of the budget spent on various items, including debt service, personnel, and equipment.
Other states that received credit for having a consolidated budget website may still scatter other information over different sites. Take Nevada, which earned a three-year average of B in transparency. The governor’s Finance Office website presents elements such as the executive budget, agency budget requests, information on performance-based budgeting, and an explanation of the Economic Forum, which produces the state’s consensus revenue estimate. Information on debt, however, appears in the annual report of the separately elected state treasurer, which includes a summary of the activities of the Debt Management division. A key debt capacity and debt service report for 2017 to 2019 is even more difficult to find and appears to be available only on the state Senate Finance Committee website, embedded in meeting notes.
Similarly, the quality of tax expenditure reports varies among the forty-two states that received credit for following this best practice. Some states that did not receive credit for producing such reports provided partial information but failed to include comprehensive reports on a consistent basis. From 2007 to 2011, the Virginia legislature required the Department of Taxation to report the fiscal, economic, and policy impact of sales and use tax exemptions. The requirement was repealed in 2012. Though the legislature’s Joint Subcommittee to Evaluate Tax Preferences currently publishes updates on the topic on its website, disclosures are neither consistent nor complete—one of the reasons Virginia received only a C average for transparency.
Despite not capturing credit in this study for producing an annual or biennial tax expenditure document, Iowa has instituted processes that result in the regular production of reports designed to provide state officials with insight into forgone revenues. While the state passed legislation in 2012 to increase the frequency of formal tax expenditure reports to annually from every five years, it has not produced the document in recent years. However, it has provided information on the top twenty sales and use tax expenditures for fiscal 2017.
State and local governments are likely to continue to improve their tax expenditure disclosure to comply with GASB Statement No. 77, which became effective for financial reports covering periods that started after December 15, 2015. The state requires governments to disclose in their CAFRs any tax abatements granted to individuals or companies, generally for economic or real estate development. The disclosures include the amounts involved and any commitments made by companies receiving exemptions.
Because of timing issues, there are limits to the new rule’s usefulness in budgeting. In most states with annual budgets, fiscal 2018 budget preparation began in fall 2016, while the most recent CAFR covered fiscal 2015. In addition, GASB 77 covers only certain kinds of abatements—those that occur in exchange for agreeing to a specific action, such as creating a set number of jobs. Tax exemptions or credits that are more generally available, such as sales tax exclusions for groceries or property tax abatements for nonprofits, are not included.
States can underestimate the importance of transparency. It can be a costly exercise, requiring frequent updates of websites and compilation of data. But making important fiscal decisions without easily available data contributes to weaknesses throughout the fiscal system.