Friday, April 29, 2011

Accountability in State Government Financing

I'm please that the Senate President has filed legislation that reflects a number of concepts for accountability and state government financing that I have advanced over the past several years.  Given the importance of securing meaningful reform as soon as possible I have joined her as a sponsor of this legislation.  While a great deal remains to be done in achieving the accountability that citizens and taxpayers deserve, the filing of this legislation reflects a promising development.  To read a section by section summary of the bill please click "Read more" below.  To view the actual language of the bill please click here.

An Act to Improve the Administration of State Government and Finance
Section-By-Section Summary:
Section 1 – Sunset Review Commission
Based on similar procedures operating in Texas and Florida, this legislation would establish a commission charged with reviewing the operations of all state agencies and authorities in the Commonwealth. The commission would consider the continuing need for agencies and authorities in state government and assign recommended sunset dates for each agency and authority in state government. 
Section 2, 23, 70 – Printing
This section repeals chapter 5 of the General Laws, which governs state printing.  Provisions of this chapter that remain relevant have been moved or will be moved to other appropriate places in the General Laws: chapter 3 (the Legislature), chapter 7 (Administration and Finance) and chapter 9 (the Secretary of State).
Sections 3 to 9 – The Governor’s Office
These sections update titles and references that appear in chapter 6 of the General Laws and conform to current practices with respect to the role of the Governor’s Council.
Sections 10 to 11, 13-15 – Executive Offices
These sections update titles and references that appear in chapter 6A of the General Laws and conform to current practices with respect to the role of the Governor’s Council.
Sections 12, 29, 87, 102, 104 – Performance Management
These sections require executive offices and the State Lottery Commission to implement performance management strategies to facilitate the measurement of the performance of all budgeted agencies and to enable better programmatic decision-making. For Executive Branch agencies, the implementation and output of such strategies must be coordinated by a new office proposed to be established in the Executive Office of Administration and Finance.
Sections 16-22, 24-28, 30-52, 54-55 – Executive Office of Administration and Finance
These sections update titles and references that appear in chapter 7 of the General Laws and conform to current practices with respect to the role of the Governor’s Council.
Sections 53 and 68 – Division of Capital Asset Management and Maintenance
These sections consolidate all statutes concerning the Division of Capital Asset Management and Maintenance in a new chapter, chapter 7C of the General Laws, from their current locations in chapter 7 and 29 of the General Laws.
Section 56 – Office of the Comptroller
This section clarifies two currently conflicting provisions of the General Laws to specify that the office of the comptroller is an independent agency located within the Executive Office of Administration and Finance.
Section 57 – Office of the Comptroller
This section updates a reference in section 2 of chapter 7A to the secretary of administration and finance.
Section 58 – Payment Verification
This section conforms section 3 of chapter 7A of the General Laws with the current practice of submitting electronic verifications for purposes of obligating Commonwealth funds, and adds an explicit requirement that all such authorized payments be contained in a report by the comptroller.
Section 59 – Federal Grants and Reimbursements
This section eliminates a redundant report compiling all federal grants and reimbursements received by the commonwealth.
Section 60 and 61 – Vendor Payments
These sections clarify the comptroller’s authority to ensure the maintenance of records of payments to vendors by state agencies, and require any schedule for vendor payments promulgated by the comptroller to consider the impact of such schedule on the Commonwealth’s cash flow and to minimize the commonwealth’s short-term borrowing.
Section 62 – Prohibition on Consultants
This section repeals section 6 of chapter 7A, an unenforceable prohibition against the Commonwealth contracting with consultants.
Section 63 – Adjustments for Current or Prior Reporting Periods
This section adds explicit authority for the comptroller to make adjustments in the Commonwealth’s accounts, both for the current reporting period and for prior reporting periods.
Section 64 – Conformity with Required Reports
This section explicitly requires the comptroller to ensure that all accounting statements contained in reports by states agencies reconcile to the Commonwealth’s official statutory basis financial and comprehensive annual financial reports. 
Section 65 – Office of the Comptroller
This section clarifies that the office of the comptroller operates subject to appropriation.
Section 66 – Budget Director
This section eliminates a reference to the commissioner of capital asset management and maintenance from a provision for which that commissioner has no responsibility.
Section 67 – Liability Management
This section strikes an obsolete ceiling on deductibles the comptroller may establish within the Commonwealth’s current liability management program, and eliminates obsolete references in the current statute.
Sections 69-72 – Secretary of State
These sections eliminate obsolete references to the Governor’s Council and Governor with respect to hiring decisions over which the Secretary of State has exclusive authority.
Section 73 – State Treasurer
This section eliminates obsolete references to the Governor’s Council and Governor with respect to hiring decisions over which the State Treasurer has exclusive authority.
Section 74-76 – Investment Advisory Council
These sections eliminate the statutory requirement to create an investment advisory council, which has not operated for many years.
Section 77 – Deposits in Trust
This section eliminates an obsolete section requiring a report of every corporation who holds “deposits in trust” with the Commonwealth.
Section 78-79 – Debt Reporting
These sections ensure that the house and senate ways and means committees receive a report of outstanding debt, and require that all state agencies or authorities that are empowered to issue debt to report any issuance of debt at least quarterly to the state treasurer.
Section 80 – Cash Flow Reports
This section proposes numerous improvements in the Commonwealth’s current regime of cash flow reporting. This section requires the quarterly cash flow reports to compare actual spending and revenue in a reporting period with estimates previously made for that reporting period, and to analyze possible reasons for variances between estimates and actuals. This section clarifies the department of revenue’s responsibility to report tax revenue collections, and the comptroller’s responsibility to report spending and non-tax revenue collections, and explicitly requires the compliance of all state agencies in submitting such reports, including the State Lottery Commission. This section also requires the state treasure, the Executive Office of Administration and Finance and the Comptroller to compile monthly the variance reports currently made weekly by the state treasurer, and to distribute the compiled monthly reports to the house and senate committees on ways and means as well as the relevant state agencies.
Section 81 – Metropolitan District Commission
This section eliminates an obsolete section referring to assessments made by the former metropolitan district commission. 
Sections 82-83, 103 – State Lottery Commission Financial Statements
These sections would require the State Lottery Commission to produce audited financial statements, and to publish those statements electronically in conformity with the same deadlines established for the Commonwealth’s own financial statements.
Sections 84-86, 88-90 – State Lottery Commission
These sections strike two obsolete paragraphs governing the former arts lottery and the allocation of multi-jurisdictional lottery revenues, and update various requirements that lottery proceeds be used to fund local aid for cities and towns, subject to appropriation.
Sections 91-93 – State Auditor
These sections eliminate obsolete references to the Governor’s Council and Governor with respect to hiring decisions over which the State Auditor has exclusive authority.
Sections 94-96 – Department of Revenue
These sections update titles and references that appear in chapter 14 of the General Laws. 
Sections 97, 105-107 – State Finance
This section strikes existing chapter 29 of the General Laws in its entirety and replaces it with a new proposed chapter 29. 
Among the initiatives appearing in the new chapter 29 are:
Statutory debt limit – This initiative rebases the Commonwealth’s debt limit at $17.07 B starting on the first day of FY 12, and changes the index to make it more responsive to economic conditions. (revised section 60A)
Statutory debt affordability – The commonwealth currently has an almost-meaningless debt affordability statute adopted decades ago, which simply provides that “debt service” (which is undefined) cannot exceed 10% of budgeted appropriations. The Patrick Administration has (for the first time) released an annual study of how much debt the Commonwealth can afford to issue each year, but this requirement is not codified. This initiative is modeled on a statute from the state of Maryland, a AAA-rated state similar in many ways to Massachusetts. Revised section 60B provides: 
Codifies a requirement that a debt affordability study be performed before the Administration establishes a bond cap and issues bonds that fiscal year.
Requires this study to be performed by an independent debt affordability committee, chaired by the secretary of administration and finance. The other voting members of the committee would be the Comptroller, the Secretary of Transportation, one academic expert in public finance appointed by the Governor, the State Treasurer, and two experts in public finance who are not employed by the Commonwealth either as state employees or as consultants. The house and senate chairs of Bonding, Capital Expenditures and State Assets would be non-voting members of the committee.
Establishes criteria for debt that should be counted in that study.
Requires the committee to establish and review methodologies for how the study should calculate available revenues. 
Requires the committee to establish statutory benchmarks against which to compare Massachusetts. 
Update the statutes governing the investments of the state’s assets. These changes also require the re-procurement of management of the Massachusetts Municipal Depository Trust, the entity holding much of the Commonwealth’s cash deposits. (revised sections 34, 38 and 38A)
Allow interfund borrowings during the fiscal year to support cash flow (to be repaid during the fiscal year). In other words, permit draws from the Stabilization Fund to help with cash management, as long as they are repaid during the fiscal year. They would in effect render some short-term borrowing unnecessary. These borrowings would only be authorized after a written certification by the secretary of administration and finance and the state treasurer that it is cost-effective to borrow from the Stabilization Fund rather than issue revenue anticipation notes. (revised section 2H)
Adjust sections 9B and 9C to current electronic allotment practices
Improve oversight of non-tax revenue collections. This change would require the Comptroller to promulgate a common uniform schedule for classifying non-tax revenue collections by state agencies of the Commonwealth. (revised section 2)
Eliminate all requirements of paper notifications
Alter the presentation and content of sections 1A and 1B of the budget. These critical sections of the budget recite budgeted revenues. This initiative would require section 1B to present restricted and unrestricted revenues by department, according to revenue category (federal reimbursements, departmental revenues and consolidated transfers). (revised section 6D)
Improve treatment of federal grants (revised section 6B)
Conform provisions concerning the reimbursement of fringe and indirect costs to current practice (revised section 5D)
Index the $1 B ceiling on capital gains revenues to inflation (revised section 5G)
Require a presentation, with House 1, of anticipated budget trends for the succeeding five years after the year for which we are budgeting. (revised section 7H)
Expand the tax expenditure budget and require it to compare estimates with actual. The current tax expenditure budget is incomplete, as it only addresses tax expenditures in the income tax, business and corporate tax, and sales tax categories.  It also does not compare past estimates with actual results, a best practice that results in improved forecasting. This initiative requires the budget to present tax expenditures in the financial institutions and insurance tax categories as well, and requires each budget to compare prior estimates with actual results and analyze reasons for discrepancies and how those discrepancies might improve forecasts. (revised sections 1 and 5B)
Eliminate various statutory requirements that a “maintenance budget” be developed. Many of our state finance laws are organized around the notion that the starting point for any state budget – and, in fact, the purpose of any state budget – is to preserve existing programs and existing state agencies.  These assumptions are at odds with a more modern notion of budgeting that the Commonwealth should continuously evaluate agencies and programs for performance, and invest in the higher-performing programs. This initiative eliminates various requirements in state finance laws that the Governor develop a maintenance budget.
Require consolidated net surplus to be split in half – one-half to Stabilization Fund, one-half to OPEB liability. In the future, the Commonwealth’s newly-enacted ceiling on capital gains tax collections will be the predominant source of deposits in the Stabilization Fund. This initiative proposes to divide the Commonwealth’s year-end consolidated net surplus in two, sending half to the Stabilization Fund and the other half to the State Retiree Benefits Trust Fund. (revised section 5C)

Sections 98, 108  – Local Aid
These sections propose to start distributing unrestricted local aid (general government aid, chapter 70 aid and payments in lieu of taxes) monthly rather than quarterly, starting in fiscal year 2013. This initiative will aid the cash flow of cities and towns, and is intended to mitigate the Commonwealth’s need to issue revenue anticipation notes.
Section 99-100 – Temporary Holding Fund
These sections eliminate the temporary holding fund, a device that hurts the Commonwealth’s cash flow without any real benefit for the Commonwealth’s budgeting.
Section 101 – Highways
This section moves two sections out of chapter 29 into their correct chapter of the General Laws, chapter 81.