The Transparency 2.0 Revolution. How States are Responding to the Fiscal Crisis and Taxpayer Demands for Reform by Impr

1. The Transparency 2.0 Revolution.How States are Responding to the Fiscal Crisis and Taxpayer Demands for Reform by Improving Government Accountability

2. What is Transparency 2.0? • Transparency 2.0 is the general term that describes the additional steps undertaken by state governments to ensure proper procedures have been implemented to monitor state spending activities. This is a decided improvement over the initial wave of budgeting reform known now as Transparency 1.0. Transparency 2.0 needed in Following Areas: • State Transparency and Accountability website • State Legislative Fiscal Office • State Tax Expenditure Reports • State Business Subsidies and Economic Development Investments

3. Transparency leads to Accountability thus Improving Governance and a Body Politic “We might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every member of Congress and every man of any mind in the Union should be able to comprehend them, to investigate abuses, and consequently to control them.” Thomas Jefferson, 1802 “A popular Government, without popular information, or the means of acquiring it, is but a prologue to a farce or a tragedy; or, perhaps both. Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives.” — U.S. President James Madison, 1822 (emphasis added). Madison to W.T. Barry, August 4, 1822. The Mind of the Founder: Sources of the Political Thought of James Madison, p. 437, ed. Marvin Meyers, Indianapolis (1973).

4. Overwhelming number of Americans Distrust Washington • In 1958, 73% of Americans trusted the government in Washington, 23% distrusted Washington • In 2013, 73% of Americans distrust the government in Washington, 26% trust Washington • In 2011, only 16% of Americans trusted Washington, the lowest during the last 60 years. • FROM THE HIGH OF 73% IN 1958: • Fallout from the Great Society Programs, Trust Falls to 70%. • The Vietnam War, Trust Falls to 65%. • Watergate and Nixon’s Resignation, Trust Falls to 36%. • Stagflation and Carter’s Malaise, Trust Falls to 25%. • Between 1992 and 1995, Trust Falls to 17%. • Post 9-11 public confidence improves, Trust Rises to 60%. • Iraq War, Katrina, Financial Crisis, Bank Bailouts, Trust Falls to 17% (2008) Pew Research Center for the People and the Press, Public Trust in Government: 1958 – 2013.

5. The State of Transparency and Accountability in West Virginia Government Operations and Fiscal Affairs Findings • Good Jobs First ranked West Virginia 33rd in the country receiving a D+ grade and lower than all of our surrounding states in transparency and accountability of indirect, off-budget state spending. • West Virginia publishes tax credit information on a three year rotating basis and fails to disclose recipient name and award amount. • West Virginia remains one of only ten states in the US to not provide a legislative fiscal office. • In West Virginia, fiscal notes are inherently biased and causes distorted estimates of a bills true costs and benefits. • West Virginia spending and fiscal reports can be found across more than twenty-five different state agency websites.

6. Do State Taxpayers deserve less information about State Spending than they do about Federal Spending? In 2009 and 2010, West Virginia received a favoring ranking based on the level of information provided on its state transparency and accountability website for its accounting of ARRA related spending. During the same period, however, the state received failing grades for information provided about its own state spending. Why? 1 = Best

7. Lack of Tax Expenditure Reporting across many States

8. Lack of Fiscal Notes Leads to Lack of Transparency and Accountability • West Virginia is one of 10 states in the country that does not have an independent legislative fiscal office; in fact, among the 40 states that do maintain a legislative fiscal office, 10 of these states have more than one legislative fiscal office. All of West Virginia’s surrounding states have a legislative fiscal office. In 2011, Pennsylvania became the most recent state to create a legislative fiscal office. Maryland and Virginia each have two. • West Virginia’s legislature has no fiscal office with the capacity to perform an independent fiscal analysis or, to effectively challenge Executive branch agencies fiscal analysis. Therefore, it is impossible to know whether Executive branch agencies are “gaming” the fiscal note process to surreptitiously undermine the proposed legislation by unfairly inflating its costs or, to lend a helping hand to the bill by undermining its expected costs. • During each legislative session, approximately 1 in 5 bills introduced in West Virginia had a fiscal note attached.  

9. Role of Fiscal Notes • Fiscal Notes are the “Price Tags” attached to legislation – prioritizes legislative spending among approximately 2,000 bills introduced • Fiscal Notes identify quantifiable costs (state revenues, state expenditures, number of state employees, etc.) • Fiscal Notes identify costs in current and future fiscal years • Fiscal Notes must be objective, nonpartisan, and easy to understand What Would a Good Fiscal Note Look Like? • Statutorily Required • Independently Created • Accurate and Reliable • Transparent • Dynamic and Current • Include Local Impacts • Objective and Non-Partisan • Requested from any Legislator

10. Lack of Transparency and Accountability in Publicly Funded Economic Development Investments “The role of government is to create conditions in which jobs are created, in which people can find work.” George W. Bush What are Business Subsidies? • Business subsidies include out-right cash grants, tax credits, low-interest loans, tax-exempt bonds, tax-increment (build now, tax you later) financing, payment- in-lieu-of-taxes, and other creative financing arrangements at the state, regional, and local level. They can also be called business incentives, job subsidies, or corporate welfare. West Virginia Earns “F” in Subsidy Transparency and Accountability • West Virginia’s current inability to identify and evaluate the totality of its economic development investments has not gone unnoticed. West Virginia received an “F” for its lack of transparency and accountability of business subsidies from Good Jobs First, a national non-profit organization that promotes the smart use of business subsidies to attract good paying jobs. Its recent report, “The State of State Disclosure,” placed West Virginia among those states with the weakest subsidy disclosures in the nation. • West Virginia’s current disclosures fail to provide firm-specific outcome analysis of business subsidies, such as number of jobs created or retained, relative changes in wage and benefit levels, and other useful employment benchmarks.

12. West Virginia: A Laggard in Transparency and Accountability Leading States A Kentucky, Texas A- Arizona, Indiana, Louisiana B+ Massachusetts B North Carolina B- Ohio, Oregon Category Grade States Emerging States C+ Missouri, New Jersey, Pennsylvania, Virginia C Alabama, Colorado, Georgia, Hawaii, Illinois, Kansas, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New York, Utah C- Oklahoma, Rhode Island D+ California, Delaware, New Mexico, South Carolina, South Dakota, Wisconsin D Florida, Vermont D- Alaska, Tennessee, Wyoming Lagging States F Arkansas, Connecticut, Idaho, Iowa, Maine, Montana, New Hampshire, North Dakota, Washington, West Virginia

13. Change in West Virginia’s Transparency Grade , 2011-2013 2011 State Grade Score West Virginia F 28 2012 State Grade Score West Virginia A- 91 2013 State Grade Score West Virginia C 74 2011 and 2012 US PIRG Report, “Follow the Money,” page 5, 2013 US PIRG Report, page 7.

14. Scope and Availability of Information from VISTA Ideally, a fully functional transparent website would present summary data with graphs of state expenses and revenues on its front page while allowing the viewer to drill further down to retrieve additional information. The descending levels of information include organization, fund, category, as well as vendor information. In 2012, WV State Auditor Glen Gainer, III with input from the WV Center on Budget & Policy, launched the state’s first web portal designed to provide the general public with information on spending and expenditure activities. This was a dramatic breakthrough for Transparency and Accountability for West Virginia.

15. Recent Wave of Federal and State Transparency and Accountability Reforms FEDERAL • The Federal Funding Accountability and Transparency Act of 2006enacted September 2006. • The American Recovery and Reinvestment Act (Recovery Act) enacted February 2009 • The Federal Financial Accountability and Transparency Act (Federal Transparency Act) went into effect October 1, 2010 STATE • WV State Auditor’s Office creates Transparency Website in 2012, “TransparencyWV.org.”

16. Transparency 2.0 Revolution in State Spending Accountability Transparency 2.0 Transparency 1.0 Incomplete – State residents have only limited access to public information about contracts, subsidies, or tax expenditures. Information is not disclosed online or not collected at all. Encompassing – States provide user-friendly web portals that allow residents to search detailed information about government contracts, spending, subsidies and tax expenditures for all government entities. Scattered– Only determined state residents who visit numerous agency websites or make public record requests may be able to gather information on government expenditures. One Stop – Residents can search all government expenditures on a single website. One-click Searchable and Downloadable – Residents can search data with a single query or browse common-sense categories. Residents can sort data on government spending by recipient, amount, legislative district, granting agency, purpose or keyword. Residents can also download data to conduct detailed off-line analyses. Tool for informed insiders –Researchers who already know what they’re looking for and understand the bureaucratic structure of government programs can dig through reports for data buried beneath layers of subcategories and jurisdictions. 2013 US PIRG, “Follow the Money,” page 17.

17. The Benefits of Transparency 2.0 ATTRIBUTES : • Results connected to programs • Expenditures connected to results • Information to managers, the public and interested groups • Information is transparent, accessible, and understandable OBJECTIVES: • Greater openness and communication • More meaningful public engagement BENEFITS: • Increased Accountability

18. Government Accountability requires Sunshine and the Light of Day Supreme Court Justice Louis D. Brandeis once said, “Sunshine is the best disinfectant” and the adoption of higher transparency and accountability standards would move government activities closer toward the sunlight that inspection provides and away from the darkness and uncertainty that surrounds present state government spending activities. • Lack of Sunshine in Government Operations breeds Suspicion and Conspiracy Theories • Governments operating in the darkness fosters distrust of government and contributes to the low approval ratings of policymakers • Transparency and Accountability has bipartisan support and Reforms provides no distinct advantage to either political party

19. Fiscal Stimulus Spending Under Close Scrutiny • President Obama tapped into this reservoir of suspicion about government corruption, malfeasance, and mismanagement that can be found among voters within all political parties and demanded stringent oversight standards of the $787 billion dollar ARRA federal government recovery program when he created his transparency and accountability website. • “Instead of politicians doling out money behind a veil of secrecy, decisions about where we invest will be made public, and informed by independent experts whenever possible. And we will launch a sweeping effort to root out waste, inefficiency, and unnecessary spending in our government, and every American will be able to see how and where we spend taxpayer dollars by going to a new website called recovery.gov. Because I firmly believe with Justice Brandeis that sunlight is the best disinfectant, and I know that restoring transparency is not only the surest way to achieve results, but also to earn back that trust in government without which we cannot deliver the changes the American people sent us here to make.” President Barack Obama, 2009 (emphasis added).

20. Final Thoughts and Questions? • How will anti-government sentiment particularly regarding QE1, QE2, QE3, and additional monetary and fiscal stimulus spending affect the government’s ability to deal with downturns in the economy in the future? • How will improved Transparency and Accountability affect the publics attitude toward government in general and government spending in particular? • In the backdrop of the fiscal crisis and the corresponding debt overhang, accountants are becoming the new “Defenders of Democracy” by restoring faith in our democratic institutions as they strive to improve government efficiency, effectiveness and reduce government abuse and wasteful spending. Presentation to the AGA Spring Training Meeting, May 14th, 2013 Contact Information: Paul E. Miller, MPA Senior Policy Analyst 4pmiller@gmail.com Questions?