James R. Ramsey

MANAGING PUBLIC RESOURCES: BUDGET EXECUTION

Much of the budgeting literature has focused on the questions of “how” budgets are prepared and “how” budget decisions are made. Minimal attention has been directed to “how” budgets are executed. This paper focuses on this issue with special emphasis on state government budget execution processes. The paper provides an overview of the similarities and differences of state and federal budget execution follows by an assessment of how state balanced budget requirements place special responsibilities on state budget offices to monitor “within” budget execution year expenditures and revenues. Actions which may be taken to insure that state budgets are balanced are discussed. These actions are enumerated and analyzed in terms of legislative and executive branch authority and responsibility shifts.

State approaches to debt capacity assessment: a further evaluation

The simultaneous effects of an aging infrastructure, the retreat of the federal government from assisting state and local governments finance capital acquisitions, and an expansion of the publics perception of what constitutes legitimate public infrastructure and capital investments has created a need for different approaches to financing state and local government debt capital needs. This has led t o an increasing use of debt financing to meet growing capital and/or infrastructure needs. This paper reviews the concept of a debt capacity index measure for state governments. Results of a survey of state debt capacity methodologies are reported. The results of the survey are then incorporated into a statistical model for calculating the debt capacity of one state. The results of this analyses are reported and discussed for this one state issuer.

Estimating Tax Evasion Losses: The Road Fund Case

Federal, state, and local government concern about the loss of state revenues from tax evasion has increased in recent years. In order for policymakers to address this issue effectively, more information regarding the nature and magnitude of the problem is needed. This article reports on research that focuses on estimating the level of road fund tax evasion for several states. Estimates of road fund tax evasion are developed from previous research regarding individual state evasion levels, perceptions of road fund tax evasion by state revenue officials, and a statistical estimate of road fund tax evasion.

Municipal Bond Sales in Foreign Markets: Experience and Results

This article reviews the issue of state economic development financial incentives and the more development specific issue of engaging foreign capital markets as a source of funds for state industrial incentive in the post-TRA86 environment. An empirical analysis of such a transaction is provided by revisiting the KDFA yen bond transaction. Observations and policy conclusions are also discussed.

Financing the capital budget: change and transition

The changes in intergovernmental finance which occurred in the 1980s have impacted the traditional roles of state and local governments in many areas. The changing roles of such governments in the financing of infrastructure and public capital investments have been particularly pronounced. Their growing responsibilities in infrastructure finance has led to an enhanced emphasis on capital budgeting and on developing new initiatives in the capital financing arena. This article explores the impact of such changes on the strategies that are and will, probably, be employed by state and local governments to finance future capital acquisitions in a changing economy and intergovernmental fiscal environment.

Municipal Debt Issues in Foreign Markets: Managing Currency and Interest Rate Risk

Since the mid-1980s, there has been an acceleration of state and local government interest in the taxable bond market as a source of capital. This has resulted from, among other factors, restrictions imposed on economic and industrial development loan programs resulting from the passage of the Tax Reform Act of 1986. Increased state and local government involvement in the taxable bond markets has increased competition for such capital between the public and the private sectors. In turn, the developing capital competition has expanded into overseas securities markets. Private sector corporations have frequently accessed foreign capital markets to take advantage of lower interest rates and reduced financing costs. By contrast, state and local governments have accessed such markets only recently. This article discusses the policy issues considered by a state or local government entity when it decides to borrow funds in foreign markets and discusses the issues involved in managing currency and interest rate risk when issuing municipal bonds in foreign markets. It includes a review of the hedging techniques used by the Kentucky Development Finance Authority (KDFA) to protect against changes in the Yen/Dollar exchange relationship on a recent Samurai bond issue sold by KDFA as an example of such a transaction.

THE ECONOMICS AND POLITICS OF REVENUE REFORM: A CASE STUDY

The 1990s witnessed unprecedented economic growth and state revenue growth. Many states used this strong growth to improve their financial position by building their “rainy day” funds and/or to cut taxes. This paper presents a case study of a state which experienced strong economic and revenue growth and was able to build its Budget Reserve Trust Fund, while also cutting taxes. This Case Study focuses on a Governor who understood that strong economic and revenue growth was not sustainable and that his state needed to ensure an elastic General Fund revenue base as protection against an economic downturn, thus proposing a revenue reform package that would increase taxes and enhance the adequacy of the state’s General Fund. This paper presents a historical development of the revenue reform package from the time it was submitted as part of the state budget through the end of the legislative session. This paper provides a series of “lessons learned” that can be helpful to public policy makers in other jurisdictions.

Municipal Bonds and Tax Arbitrage: A Cointegration Analysis

This article presents a new, cointegration approach to test a tax arbitrage opportunity in holding municipal bonds. Noticing that the variables of interest are nonstationary, two alternative cointegration tests are used to examine the relationship that may exist (1) between the yield on municipal bonds and the after-tax yield on corporate bonds and (2) between the explicit tax rate on corporate bonds and the implicit tax rate on municipal bonds. Previous studies do not take into account the time-series properties of the variables involved, assuming tacitly that they are stationary. Weekly bond yield data together with New Jersey and federal income tax rates are used, and various unit root and cointegration tests are employed to test for stationarity and for cointegration between the variables. The evidence fails to support the tax arbitrage hypothesis.