In Bonds on the Ballot, researchers analyzed survey data to uncover voter knowledge bases, preferences, and how they respond to different explanations of bond measures. They found voters don’t necessarily understand the fiscal implications of their vote.

“Only about half of voters can identify how bonds are financed,” says Shanna Pearson-Merkowitz, one of the researchers from the University of Maryland leading the study.

And if that’s the case, how can policymakers effectively and transparently propose bond initiatives? Person-Merkowitz’s research carries an important lesson for city managers, school board officials, and local government leaders: small changes in how bonds are presented significantly influence whether or not they pass.

Why Do Bonds Go to a Public Vote, Anyway?

The logic is straightforward.

Requiring a public vote acts as a safeguard against excessive borrowing. Putting decisions directly in the hands of taxpayers ensures communities only take on long-term obligations where there is clear support, disregarding the rest.

In practice? Reality may not produce the results we’d hope for.

In multiple-choice format, only about half of respondents correctly identified that bonds must be repaid with interest.

Professor Person-Merkowitz expands, drawing on current literature:

“Observational and experimental research suggests voters lack basic knowledge. They’re prone to cost misperception, aren’t influenced by the cost of a bond even when it well exceeds what the government can afford, and it even appears a bond’s placement on the ballot has the largest impact, despite having no impact on fiscal implications.”

But if voters don’t fully understand how to meaningfully evaluate bond measures, should they be tasked with the decision in the first place?

According to Person-Merkowitz, perhaps they shouldn’t:

“The rationale [preventing the legislature from burdening the public with excessive debt] is difficult to justify. It’s not clear whether voting requirements succeed in protecting against legislative short-sightedness… Consideration should be given to eliminating the requirement.”

Nevertheless, it’s difficult to imagine a scenario where we eliminate bond mandates. Under the status quo, how do voters behave? And how might we use this information?

What Influences Voter Behavior?

“Voters do not understand the difference between bonds and taxes. Even a small amount of information about how bonds are financed can significantly reduce voter support,” Person-Merkowitz explains.

The following statement, split between control and experimental survey groups, lowered support for bonds from ~82% to ~67%.

“Generally speaking, are you in favor of or opposed to using bonds, which have to be paid back with interest, to pay for local projects like schools, roads, and other community resources?”

So, providing a very simple explanation of bonds — merely eight words in Person-Merkowitz’s experimental design — drops support by a significant margin, and perhaps enough to change the outcome of a bond election.

Importantly, that decline doesn’t reflect opposition to the projects behind investments.

“What surprised us,” Person-Merkowitz begins, “was when people learned how bonds actually work, they became more supportive of using taxes to fund city projects, rather than less supportive of spending altogether.”

In other words, voters may be rejecting the financing mechanism rather than the projects themselves.

Given that, how might public officials more effectively champion public investments?

Takeaways for Bond Referendums

If small changes in framing can influence outcomes, then communication strategy becomes central.

Person-Merkowitz shares a clear suggestion:

“If you want a bond measure to pass, avoid emphasizing how bonds are paid for and what they will cost. Focus instead on what bonds will do and what the community will gain. Higher teacher retention leading to improved test scores, a new recreation center to bring residents together, fewer potholes, and lower car repair bills. Lead with tangible benefits, not financing mechanisms.”

Conversely, if public officials prefer to raise taxes, sharing how bonds actually work may increase support for alternatives.

However, Person-Merkowitz conclude research by asking whether bond mandates are effective decision-making mechanisms to begin with.

“Kogan (2025) argues the root of the problems with K-12 education is due to local democratic control… There is some evidence school board officials set bond proposals at lower amounts than necessary over concerns of voter disapproval… Other modern means exist to create a check on unwise legislative bond spending… By contrast, the election requirement appears to be an anachronism.”

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Shanna Pearson-Merkowitz’s and colleagues article, Bonds on the Ballot: What Voters (Don’t) Know About Debt Financing and Why It Matters, appeared on EarlyView in February 2026 of Public Budgeting & Finance.

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Many researchers have examined the public health impact of opioid rescheduling.

However, a new Public Budgeting & Finance article, published by researchers Felipe Lozano-Rojas and Mikhail Ivonchyk, examined the fiscal impact on local budgets instead.

When the DEA reclassified hydrocodone from Schedule III to Schedule II, conditions were ripe for a natural experiment: prescription rates fell precipitously, nationwide, and all at once.

After analyzing a dataset of ~1,100 county budgets over 16 years — before and after the change — scholars found that:

• Communities heavily impacted by the epidemic saw budgets grow by as much as 8% per capita.

• Growth was largely driven by increased spending on healthcare services.

• Funding was primarily provided by intergovernmental transfers and increased property taxes.

What lessons might local leaders take? And how might their findings inform how we most effectively combat the opioid epidemic?

A Natural Experiment in Public Policy

Hydrocodone has long been one of the most commonly abused prescription opioids. But the 2014 change discouraged physicians from prescribing the drug, leading to an immediate drop in nationwide prescriptions.

Lozano-Rojas and Ivonchyk used that exogenous shock as a natural experiment. Counties varied widely in their dependence on hydrocodone prescriptions; some places relied heavily, while others prescribed relatively rarely. So, researchers next explored their central question by comparing: what happens to local government fiscal decisions when the supply of legal opioids suddenly drops?

Measuring the Fiscal Impact

To determine government responses, researchers first used variations in the proportion of doctor-prescribed opioids to separate highly affected counties from unimpacted communities.

On average, hydrocodone accounted for ~27% of all opioid prescriptions in highly affected areas (the top quartile of the distribution), and ~10% for the remainder.

But it wasn’t immediately obvious how demand for local services, and thus the cost to provide them, would change. Would abusers recover after rescheduling? Or turn to more dangerous options to maintain their habit?

As Lozano-Rojas writes: “Reducing legal opioids may exacerbate the epidemic if users turn to illicit and more potent drugs. Thus, in turn, could require increased law enforcement and healthcare services.”

Counties sit at the operational center of the opioid response, funding everything from public hospitals and detox centers to emergency response and welfare support; if hydrocodone patients turn to dangerous behaviors after rescheduling, it’s reasonable to assume local service demand would rise.

And in practice, a significant number of users do turn to illicit sources

“Drug rescheduling would increase total deaths over five years as some opioid users escalate to heroin,” health policy researcher Isabelle Rao notes, “while overall deaths would decrease over ten years.”

Researchers next segregated county spending into eight categories, and discovered health and hospital spending accounted for 80% of new expenditures. In other words, reducing hydrocodone supply saves lives in the long term, but has immediate short-term consequences that lead to greater demand for local healthcare services.

The Fiscal Double Bind

Absorbing rising public health costs is only the beginning for impacted communities. A variety of downstream consequences can exacerbate conditions as well.

Washington State University economist Patrick Carlin explains:

“An 8% increase in expenditure is quite large. And, the burden could be compounded if the crisis also depresses local labor markets. Lower labor force participation and wages mean governments face rising costs at precisely the moment their tax base is weakening.”

So, the crisis doesn’t just strain public health resources. It can also depress revenue, forcing policymakers to respond to new problems with fewer resources at their disposal.

A Heartening Silver Lining

Amidst the heartbreak and struggle opioids unleash on communities, Lozano-Rojas’ research carries a positive finding; despite the surge in opioid-related spending, police budgets barely changed.

Researchers found no statistically significant increase in police spending in highly affected communities. Such spending may have even slightly declined several years after rescheduling.

Rather than treating opioid addiction as a criminal justice issue, it appears counties are approaching it as the public health crisis that it is.

Research Implications

“Reducing the supply of legal opioids, a primary cause of the epidemic, is only an initial step,” Lozano-Rojas shares. “As some individuals turn to illicit drugs, local policymakers should be prepared to invest additional resources to prevent adverse outcomes and support recovery.”

Combatting a public health crisis is no easy task.

But which additional interventions may have the most impact?

Carlin shares a variety of possible approaches.

“How effective these strategies are is debated in the literature. It’s likely that a combination will be important to address the pandemic, including investing in both inpatient and outpatient treatment facilities, naloxone (Narcan) availability among emergency responders, and Good Samaritan Laws providing legal protection to people who call for help during an overdose.”

Their findings highlight an uncomfortable reality: restricting opioid supply is a step, but one that generates new costs for communities and local government to contend with.

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Lozano-Rojas’ and Ivonchyk’s paper, Opioid Epidemic and Local Fiscal Choices, appeared in the December 2024 issue of Public Budgeting & Finance.

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But what happens when organizations, praised by donors for their financial prudence, enter the bond market?

According to research by Qingqing Sun, they may face higher interest rates.

Sun’s analysis, published in a recent Public Budgeting & Finance article, examined ~750 nonprofit bond issuances between 2009 and 2016, uncovering something unfortunate.

“Nonprofits that operate with thin financial margins, meaning little surplus, limited cash reserves, and relatively low operating revenue tend to receive weaker ratings in the municipal market.”

But why do bond rating agencies penalize leanness? And how can nonprofits navigate the tension between donor and lender preferences?

Low Bond Ratings Are Unsurprising

“Since nonprofits are encouraged by funders, watchdogs, and public narratives to minimize surpluses and reserves,” Sun begins, “my expectation was rating agencies might interpret their finances differently. Instead, findings suggest they apply a credit-risk lens similar to that used for other borrowers.”

Which makes sense.

A lender’s first and last questions are: ‘Will they be able to pay us back?’

And if you’ve bought a house recently, you may remember how important your debt-to-income ratio was. Similar logic applies to bond issuances; strong revenue, surpluses, and profits are key factors.

“It may seem logical that a credit agency would penalize organizations with low profits and thin cash reserves,” begins NYU Director of Finance, Thad Calabrese, who was not involved in the study. “However, what makes this study noteworthy is that, for the first time, it provides empirical evidence of a ‘trustworthiness tax’ for the nonprofit sector.”

Rating agency behavior may not be surprising. If they treat nonprofits the same as businesses, lean organizations will appear weaker by default.

But what’s the cost of higher nonprofit borrowing rates?

The Cost of Interest

One might imagine debt as something for corporations, not nonprofits. Why would a small neighborhood museum or food bank, operating entirely on donations and community generosity, need a loan?

But “nonprofit” is a tax status, not a business model, and many of the organizations we rely on need access to affordable long-term capital to accomplish their missions.

Calbrese explains: “From hospital beds to charter school classrooms and universities, nonprofit bond ratings directly impact the quality and availability of services. And while for-profits can raise money by selling stock, there’s no efficient equity market for nonprofits.”

Nonprofits are stuck between a rock and a hard place. They need capital to succeed, but simultaneously attracting donors, grants, and bond market lenders is a challenging balance to strike.

All the while, higher interest rates limit the sector’s ability to expand, strain current-day finances, and restrict their ability to positively impact communities.

What, Exactly, Impacts Bond Ratings?

Moody’s publishes six key rating criteria, from which her analysis expanded into 23 explanatory variables.

• Positive Impact: High operating revenue, days cash on hand, profitability, and revenue diversification contribute most positively to good bond ratings. Keeping your board member count relatively small was also moderately impactful.

• Negative Impact: Funding mixes relying too heavily on donations or program revenue, as well as asset mixes weighted heavily toward fixed assets.

• (Surprisingly) Neutral Impact: Debt burden, measured by the ratio of annual debt service to total revenue, had no statistically significant impact, nor did operating margin or percentage of total assets coming from endowments.

How Might Nonprofits Respond?

It’s easier said than done, but Sun shared a handful of approaches that can better position nonprofits in bond markets:

“Rating agencies place greater weight on revenue that’s predictable, renewable, and within managerial control. For example: mission-aligned revenue, such as tuition and university housing services, government contracts for charter schools, and museum memberships.”

Calabrese concurs, adding:

“To secure the best bond ratings, strong profitability, consistent surpluses, cash reserves, and multiple income streams that aren’t overly dependent on volatile donations are regarded as characteristics of financial strength.”

However, most organizations can’t do so without risking other funding sources.

“The ‘nonprofit dilemma’ is that large reserves tell donors ‘we don’t need your check right now,’ while high profit margins might suggest you’re overcharging or under-serving beneficiaries.”

But how can organizations position themselves for bond market and donor-based fundraising?

The right approach, according to Calabrese, is educating stakeholders away from the “lean is better” myth, and toward a mindset that values surpluses rather than punishes them.

Sun concludes similarly, advising:

“The implication isn’t that nonprofits should pursue revenue growth at all costs, but that they should think strategically about revenue mixes and financial buffers. Modest surpluses, diversified income streams, and liquidity reserves can coexist with mission integrity.”

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Sun’s article, Is Financial Leanness Punished by Bond Credit Rating Agencies?, appeared in the March 2025 issue of Public Budgeting & Finance.

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When people picture the budget process, they may picture noisy fights over spending bills and government shutdowns as “resolutions” to disagreements.

But increasingly, President Trump has withheld, cancelled, or slow-walked spending already approved by the legislature — the branch which is constitutionally in charge of the power of the purse.

In his recent Public Budgeting & Finance article, University of Maryland public policy professor Phil Joyce argues these actions are not just technical budget skirmishes, but a direct challenge to the balance of power between Congress and the president.

I spoke with Joyce about how presidents are supposed to decline to spend congressionally approved funding, what Trump is doing instead, and potential implications he sees for the future of our democracy.

Nick Baird (NB): Your recent paper, High Noon for the Separation of Powers?: Trump and the Impoundment Control Act, deals with a lot of legal and historical complexity. For readers who don’t follow closely, could you start with the basics? How are presidents supposed to decline to spend congressionally approved funding, and why are Trump’s recent actions concerning in that context?

Phil Joyce (PJ): The refusal to spend money that’s been appropriated by Congress is referred to as impoundment, and you really have to go back to President Richard Nixon to understand. He had the habit of refusing to spend money that had been approved, picking and choosing which programs he wanted to spend on and which programs he didn’t. And there were a couple problems with that. First, it made Congress mad. Second, it was deemed by the courts to be illegal and unconstitutional.

So in 1974, Congress passed the Congressional Budget and Impoundment Control Act, which reasserted the role of Congress in the budget process, and in their mind, made their role consistent with what the Founders intended.

It set out a specific process and 45-day timeline where the President can request Congress cancel spending that’s already been appropriated, but if Congress doesn’t act, the President is compelled to go ahead and spend that money.

NB: So, in short, it’s a way to restrict a president’s ability to ignore what Congress has already decided? Is that right?

PJ: Yes. Although I would say that the courts already restricted that. It’s not the Impoundment Control Act that actually prevents the President from refusing to spend money that’s been appropriated. It’s the constitution that does that–or at least that is what the courts have decided in the past.

But what the Impoundment Control Act said was, okay, let’s say you’re a president who wants to refuse to spend money. Here’s a process you can use to try to do that.

NB: I see. So my reading of your paper is that, since the Impoundment Control Act has been on the books, it was mostly inconsequential. Between 1974 and 2020, presidents proposed about $100 billion worth of rescissions, and about a quarter of those were accepted by Congress. Pretty negligible in the grand scheme of federal spending.

I know it’s difficult to estimate, since the Trump administration turned off the Office of Management and Budget website that tracked disbursements, but just for comparison, could you estimate how many rescissions the Trump administration has attempted since he returned to office?

PJ: We actually know that because they only proposed rescissions once – about $9 billion for a combination of foreign aid and Public Broadcasting. But the Trump administration isn’t really following the Impoundment Control Act at all. By and large, he’s just refusing to spend money.

The much larger issue is all the spending the Trump administration has unilaterally canceled, which has not gone through the ICA process.

Nobody has a precise estimate, although I will say the Senate Appropriations Committee estimated there was something like $430 billion worth of funds that have been provided for by Congress, and in one way or another, the Trump administration has failed to spend it.

NB: So they essentially blew past over two decades’ worth of similar rescission activity in just under a year, by just choosing not to spend the money?

PJ: Correct. Although I think, arguably, they also exceeded the total amount that previous presidents have illegally withheld by almost the entire $430 billion [since they’re not following the process laid out by the ICA].

It’s part of a larger effort by the Trump administration to exercise executive power. There’s this theory — Unitary Executive Theory — that basically says when the President pledges to “faithfully execute the laws,” then it means, in effect, if he finds a law he thinks would result in spending money inefficiently, it’s within his power to just refuse to spend money, regardless of the fact that money has been provided for by Congress.

NB. Which brings me to my next question. In your paper, you traced a long line of arguments supporting both impoundment and the Unitary Executive Theory. Do you think those are genuine constitutional legal debates? Or just post hoc justifications for the Trump administration to do whatever they want?

PJ: We’ll find out, I suppose.

I’ve been careful not to use words like unconstitutional in describing what they have been doing because what’s “constitutional” is ultimately whatever the Supreme Court decides. The only thing I will say is that the things they’re doing have always been deemed to be unconstitutional in the past, and that the lower courts have stepped in and supported the challenges to many of these impoundments.

However, we don’t really have a definitive decision by the Supreme Court, but so far, they’ve tended to be pretty deferential to Trump’s claim of additional power.

There’s also a couple cases that don’t involve impoundment that I think will give us some signals. One of them is about President Trump’s authority to impose tariffs [Learning Resources vs. Trump], and the other one has to do with whether President Trump is within his authority to fire people who were appointees of independent commissions [Trump vs. Slaughter].

Historically, commissions haven’t been under the direct control of the President. But it’s really hard to say, in the end, how the courts are going to rule on this. What you can say is these actions are inconsistent with past legal rulings.

So to go back to your question about these arguments, whether these are legitimate legal arguments or not, I guess you’d have to say they’re legitimate legal arguments that are inconsistent with all past legal arguments that have tended to win the day in this arena.

NB: Wow. That’s a really tactful way to put it.

PJ: Hah. I try not to be tactful, so I’ll try to work harder on that.

NB: Thanks, hah. Let’s move on a little bit. Help me understand something that doesn’t quite make sense. The Impoundment Control Act means that the President may delay disbursements by 45 days, but if Congress fails to act within that time frame, their inaction means money has to be distributed. If this is how the law is laid out, how is the Trump administration doing what they’re doing to begin with?

PJ: To move back to not being tactful, I would say they’re not following the law. I mean, that’s the argument, right? That they’re illegally withholding funds without going through the process that is laid out in the law.

What happens in cases like that is the Government Accountability Office (GAO) is empowered, as a representative of Congress, to look into matters where the President may be engaging in unilateral impoundments. It’s supposed to then tell Congress, hey, just so you know, here’s a case where you appropriated money, and the President is refusing to spend it, and he hasn’t followed the procedures.

We don’t know exactly how many of those cases are underway, but we do know the head of the Government Accountability Office, the Comptroller General of the United States, gave testimony to the House Appropriations Committee maybe four months ago, indicating they had 39 investigations of violations of the Impoundment Control Act.

I think about 10 of them have been decided, and it’s a mixed bag of violations, no violations, and partial violations.

Interestingly, the GAO is empowered to bring suit against the administration for illegally impounding funds. And even though they have these investigations underway, and some of them have found they’ve illegally withheld funds, they’ve chosen, at least so far, not to pursue actual legal action against them.

NB: That’s what I was going to ask next. When they find that he has broken the law, what happens? What’s the recourse?

PJ: Well, the GAO is choosing not to pursue the recourse. Arguably, there are people who have been harmed by the refusal to spend money, who would also have standing in court to sue. But that’s not the case.

There was a weird court decision, that’s my opinion at least, sometime in the last few months, that said the GAO was the only entity that could actually bring suit.

To me, that’s an odd reading of the law. It feels to me like having standing to sue is normally related to whether you can identify a party who has actually been injured.

Let’s take the Agency for International Development (USAID), which has been essentially totally abolished, unilaterally, by the Trump administration, as an example. There are nonprofits that used to get money from USAID under appropriations that were essentially canceled. Arguably, they should have standing to sue. But whether they choose to do that or not is another question.

NB: That is a weird decision. For what it’s worth, I agree. But let’s move on a bit. In our interview in April, you mentioned you wondered to what extent the other branches of government would stand up to an executive trying to exert extreme levels of authority. It’s December now. Since then, to what extent have you seen them stand up for themselves?

PJ: Well, certainly relative to the power of the purse, not very much.

What’s happened since the last time we did an interview was the longest shutdown in history. But it was really the Republicans in Congress, because they’re in control, who haven’t been standing up to the President. The Democrats are effectively powerless to do anything.

The one place where Democrats did have power, was appropriations, since it can be filibustered in the Senate. The argument they were making was primarily about subsidies under the Affordable Care Act. But everyone I have talked to says that the other thing really behind this was anger, on the part of the Democrats, that the President had been running roughshod over Congress.

There are also some slight indications that there are limitations to what the Republicans in Congress are willing to put up with. In particular, during the shutdown, the president said he thought the Senate should just get rid of the filibuster. And the majority leader, Senator Thune, said well, we’re not going to do that.

And this may be obvious, but one of the reasons is because they may one day not be in the majority, and if you’re not in the majority, then you would like to have some degree of leverage. So in the short run, getting rid of the filibuster will let you do something right now, but in the long run, it may not be a good thing.

I’m really waiting to see what happens with a couple of these cases we talked about earlier, though. I actually think the lower courts have been quite direct in many cases in standing up to some of the more extreme things the administration is doing.

But the Supreme Court, while it hasn’t made a final ruling on many things, actually let a lot of the administration’s actions go forward through the emergency docket. That’s where basically, a lower court says you have to stop doing this, the Supreme Court says you can keep doing it until we make a decision, and since many of these cases haven’t come up at the level of the Supreme Court, the administration can keep going until they do.

NB: What do you think about the case where Trump fired the head of the FCC? They heard oral arguments on that this week. Could you lay out the potential outcomes, and the stakes, of that case?

PJ: Well, we’ve had a professional civil service since the late 1800s, and I really think what’s at stake here is the notion that we have an independent, relatively merit-based, expertise-based civil service that doesn’t ebb and flow with whoever the president happens to be.

There are a whole set of people who are political appointees, some of whom are confirmed by the Senate and some of whom are not, where there is no question about whether the President has the legal authority to fire.

But the question comes down to people who are not political appointees, and this includes civil servants in some cases, and also includes people who are appointed to independent commissions where the appointment staggers across multiple administrations.

So if the President comes in and sees some of these people and doesn’t like the fact that they’re there, the question is, can he go ahead and fire those people? As opposed to waiting for their terms to expire?

With some of these commissions, by law, there are supposed to be members from both parties. So part of the question is, does he have the ability to get rid of members that aren’t from his own party?

The broader issue is an extension of what we talked about earlier — Unitary Executive Theory — which is how much control does the President have over the executive branch? The argument made by the administration is that the President is the chief executive of the country, and therefore, anybody in the executive branch should be subject to the will of the President.

But if you take this to its logical extreme, it would mean we’re returning to the spoils system.

NB: One last question before we go. We’re spending a lot of time talking about what is and isn’t legal. But at least to me, it seems evident that Trump himself doesn’t start with what’s legal, but rather, what do I want? Which legal questions can I pull, however tenuous, and if there are none, how can I slow walk the courts to buy myself time to get what I want?

So, if the administration doesn’t care what is and isn’t legal, why should we?

PJ: Well…I think we should care, because the founders cared.

When they set up the United States under the Constitution, the thing they were most afraid of, if you go back and read the Federalist Papers, was concentrated executive power. And the reason they were worried about that is because they had just fought a revolution against a king.

I don’t have the quote on the tip of my tongue, but Madison wrote that the power of the purse was essentially the most effective way to constrain the excess of executive power. So they gave Congress the power of the purse for a reason. And anything that moves us in the direction of more executive power, is inconsistent, in my mind, with the separation of powers and the checks and balances that were set up under the Constitution.

We can decide, if we want, that they had it wrong in 1789. There are reasons to believe our system is very inefficient, and it would be more efficient if you just gave the President more power. But in my mind, we should do that intentionally. We should do that because we had a conversation and said well, okay, there have been some problems happening in the last ~236 years since the Constitution was ratified, and one of the big problems is the President doesn’t have enough power.

But I don’t think that should happen because a particular president decides to grab power. It should happen because we are consciously deciding.

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Phil’s article, High Noon for the Separation of Powers, appeared in the October 2025 issue of Public Budgeting & Finance.

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our website. AP and Getty images may not be republished.

One solution being explored? Saving money by switching to 401(k) style defined contribution (DC) plans.

Around the time of the 2007-2009 financial crisis, five states (Alaska, Michigan, Kentucky, Oklahoma, and West Virginia) experimented with such plans.

Beyond the dollars and cents, though, these kinds of reforms lead to concerns over staffing changes, in some ways a softer version of the impacts caused by the recent federal shutdown or the Department of Government Efficiency’s furloughs. In short, changing public pension plans could have unintended consequences on public employee recruitment and retention.

To inform this debate, researchers examined what happened after Alaska shifted from a DB to a DC system for state educators.

The Rare Natural Experiment

University of Texas at Dallas professor Eugenia Gorina and Georgia Tech PhD Candidate Jen Sidorova analyzed over 19,000 Alaskan educators between 2005 and 2017, and found that the switch significantly increased annual turnover rates, with the risk of separation for an average teacher going up by at least 50 percent over the first decade of employment.

Despite increased teacher attrition, Sidorova argues teacher quality didn’t decline:

“Although more teachers left their jobs after the reform, those who replaced them were, on average, just as qualified as those they replaced [in terms of educational attainment]. In other words, the system experienced more turnover, but not a decline in teacher quality.”

However, public administration professor Robert Bifulco thinks the jury is still out:

“Measuring teacher quality is a difficult thing, but a master’s degree almost never predicts anything about student outcomes. It’s about as consistent a finding in the literature as you can have.”

The social sciences are known for difficult-to-test theoretical frameworks. In contrast to laboratories enjoyed by the physical sciences, policy researchers often have to make do with what’s available.

However, whereas some theoretical predictions conflict, there’s a wide consensus on how switching from DB to DC retirement plans should impact teacher retention.

“There are lots of disincentives to changing jobs when you’d be giving up a large amount of pension wealth,” Bifulco explains. “Your wealth changes a lot under DB conditions, but not if you have a DC plan.”

Alaska’s decision, however, provided a rare opportunity — a natural experiment that’s as close to a laboratory setting as economists get. And Gorina and Sidorova were curious to put theory to the test.

“It wasn’t immediately clear to us what we would find in practice,” Sidorova explains. “Economic theory predicts retention would decrease when benefits became more portable, but we know public sector workers aren’t always informed about their benefits, especially pensions. So we expected some mobility, but we were surprised by how clearly the reform affected teacher exits, and how workforce quality stayed consistent.”

Fiscal Sustainability vs Teacher Retention

Alaska’s hand was forced after years of underfunded pension obligations eroded the state’s teacher retirement system. And unlike the old plan, which rewarded staying until retirement, the new one made benefits fully portable.

The result? Slimmer operating budgets for schools, but also higher teacher turnover.

While relieving pressure, it’s not clear whether the reform was enough to resolve the state’s budget woes, nor whether teacher compensation remained competitive enough to retain the state’s best educators.

In a piece covering ongoing contract negotiations between the Anchorage School District and teachers’ union, journalist Tim Rockey writes:

“Finance officials have said the district faces at least a $75 million deficit this year.” He continues, “In an email, Union President Corey Aist shared that we already face a retention problem. And the longer this situation continues, the more educators will leave for more competitive urban districts in the Lower 48 states.”

Lessons for Other States

Alaska’s experience offers an important case study for policymakers. Sidorova and Gorina’s analysis shows modernizing benefits leads to increased turnover while arguing the shift doesn’t necessarily undermine teacher quality.

For those weighing similar reforms, Bifulco’s perspective is worth considering: “There’s no free lunch here,” he says. Shifting from a DB to a DC program may ease fiscal strain, but it also means accepting higher turnover and the possibility of a less qualified and more transient teacher base.

As states eye the balance between sustainability and student outcomes, Alaska’s story illustrates that public policy decisions often come with painful trade-offs.

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Gorina and Sidorova’s research appeared in the Summer 2025 issue of Public Budgeting and Finance.

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Research conducted by American University scholar Tingli Qu found when local governments pool resources — anything from emergency response to education and public safety — they spend less on service delivery while collecting fewer tax dollars along the way.

But there’s also a welcome twist.

“When counties collaborate, taxpayer dollars stretch further,” Qu begins. ”But because of Nebraska’s rules, cooperation also gives extra property tax authority. This means service costs stay down, while governments still have the fiscal tools to respond [by raising additional revenue] in a crisis.”

Nebraska’s system allows local governments to raise property taxes to fund shared projects. That means counties can save money during good years by spending smarter, while also staying ready for unexpected emergencies.

The Science of Sharing Services

Oftentimes, scholars simply count the number of agreements and draw conclusions from there. But Qu went further, asking a deeper question: “Does where you sit in the collaboration network matter?”

To find out, she analyzed five years of data (2012 - 2017) from every county in Nebraska, mapping who was working with whom, how centrally a county fell within an ILA, and measuring “density” by tallying the number of counties participating in the same agreement.

Her analysis was robust, but in plain terms, it turns out the answer is “yes.”

• When counties enter service agreements with one another, they save money.

• When multiple counties enter the same service agreement, the network gets denser, and they save even more money.

• If counties enter disparate agreements, with a “central” entity playing intermediary between disconnected parties, the central player benefits the most.

Where Do the Cost Savings Come From?

If you’ve studied economics, this will sound familiar — centralizing service delivery leads to cost savings through economies of scale and reduced transaction costs.

Public policy professor Gang Chen, a public finance scholar not involved in the study, likens the logic to a small town sharing with neighbors.

“Rather than maintaining a fleet of vehicles, local governments can pool emergency response resources. The shared approach not only enhances disaster preparedness but also reduces the fiscal burden of maintaining redundant equipment and personnel.”

The analogy goes beyond just emergency response. Governments can consolidate pension or health insurance plans, school districts, police forces, waste management, and any number of other services.

The Nebraska Twist

The state’s fiscal framework adds an intriguing wrinkle. Since 1999, they’ve capped local property tax rates, but it also allows a small additional property tax levy for counties if the funds support ILAs.

That incentive is a second explanation Qu presents for her findings:

“This result differed from my expectations, but county governments, especially those with limited fiscal resources, actively seek to join ILAs because they can get access to additional property taxes.”

The Bottom Line: How Much Money Can We Save, Exactly?

Correlation isn’t causation, and Nebraska’s experience may not extend everywhere. But if we can, in fact, extrapolate from Qu’s data, there are significant savings on the table for both taxpayers and local governments.

Across Nebraska, counties in the middle 95% of her sample varied by +/- 6.8% in per capita revenue, and +/- 7% per capita spending, depending on how centrally positioned they were within an ILA. Similarly, those same counties varied by +/-3.5% per capita revenues and +/- 4.5% per capita spending, depending on their network’s density.

Taken together, that translates roughly to a maximum 10-20% spread between the highest and lowest bounds of her data, suggesting a county’s fiscal health depends not only on how much they spend, but also on how well they cooperate with their neighbors.

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Qu’s research appeared in the November 2024 issue of Public Budgeting and Finance.

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“Our budget has become more about preservation than medium or long-term planning,” explains Nicholas Whitener, who co-authored the study with professor James Savage.

Their analysis compares fiscal years 2018 and 2025, periods when Republicans had unified control of government, to study how the budget process functions when a single party controls the outcome.

Despite different economic landscapes at the time, they found a similar pattern; rather than proactively reacting to inflation, rising interest costs, or shifts in economic growth, lawmakers prioritized maintaining existing commitments without confronting politically difficult tradeoffs.

In short? We’re affirming the past, while declining to plan for the future.

Performing Discipline (Without Imposing It)

At a glance, Washington looks busy.

The White House announces priorities. The House and Senate pass budget resolutions. And all the while, pay-as-you-go requirements, deficit limits, and spending caps are still on the books.

But in practice, the study’s authors argue the rules meant to constrain spending have become rituals giving the appearance of discipline, while doing little to enforce it.

“We expected polarization,” Whitener says. “But we didn’t expect that we’re just going to keep adjusting rules that were supposed to bind the budget. They’re getting disregarded based on political will.”

The procedural mechanics of budgeting are still running, but the purpose has been lost over time. Instead of adapting to new realities, Congress creates exceptions to rules in order to hold onto old priorities — tax cuts, defense, and entitlements — while avoiding politically painful choices.

Savage, who has studied budgeting since the 1980s, says the change reflects a deeper shift in how both parties govern.

“You have a presidency and a Congress that want to maintain without going through a lot of strife and struggle, like we’re doing with the shutdown right now,” Savage says. “They’d like to preserve [the budget], and the process allows for that to happen.”

What’s the Limit?

America has never been completely debt-free.

Moreover, no country on Earth is, either. It’s perfectly normal for countries to carry some debt while running deficits in some years, and surpluses in others. Still. Even under that generous framing, at some point, too much is too much.

But where is the limit?

Economic literature analyzes that question through several theoretical frameworks.

“Micro theory says to balance the budget and keep the government out of it,” Savage explains. “Then there’s Keynesianism and supply-side economics, both of which tolerate high deficits for different reasons. We also have modern monetary theory, which tolerates huge national debts, but even then, there’s a threshold. And so the question is, what’s the tipping point?”

Unfortunately, theory can’t point to any single critical point. Ray Dalio’s Principles for Navigating Big Debt Crises includes a compendium of the worst debt disasters of the last 100 years, indicating that losing a major war predicates many debt crises and hyperinflationary events, but that analysis is outside the scope of pure macro theory.

However, Whitener and Savage argue that America’s problem is about more than numbers; it’s about institutions. The budget process still performs the motions of discipline, yet no longer enforces it.

And if the system itself is unresponsive, the question becomes how to fix it.

Options for Reform

One issue is how easily a single party can take control of reconciliation; all it takes is a simple majority in the Senate — 51 votes — to pass a budget. The low vote threshold discourages compromise between parties, and is ripe for abuse by whoever is in power.

Whitener has a favored remedy: “Constitutional reforms would likely be more effective, since politicians would need a super majority to change the rules.”

It’s hard to imagine that passing these days, but there’s at least a precedent; the many EU countries have constitutionally enforced automatic correction mechanisms.

And in lieu of such a sweeping change? Whitener jokes, “If you really want to balance the budget, make congressmen ineligible for reelection if the deficit exceeds a certain threshold. They’d be forced to prioritize fiscal responsibility.”

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Whitener and Savege’s research appeared in Public Budgeting and Finance.

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However, recent research has started to turn to the European Union, where the countries have a variety of different rules designed to curtail government debt. The findings could provide potential guidance for the US as it faces a growing deficit. The authors of the study, Sungho Park and Sewon Kim (scholars at University of Alabama and Indiana University, respectively), found that expenditure rules were the most effective strategy, while balanced budget rules had minimal impact. Furthermore, fiscal rules are most effective at controlling debt when they’re more stringent, based on a stronger statutory basis, and are monitored by an independent body.

Understanding America’s Debt

Most predictions of US federal debt suggest it will continue to grow. This will likely mean a rising portion of future revenue is funneled into interest payments, reducing the government's ability to respond to future economic shocks or address social issues. The role of the US dollar as a world reserve currency and the power of economic growth have prevented the country’s debt sparking an economic crisis. Yet there’s no guarantee this can continue forever.

“The debt is projected to continue growing steadily due to structural factors such as an aging population, rising mandatory spending on programs like Medicare and Social Security, persistent defense expenditures, and ballooning interest payments” says Kim.

However, she is also keen to point out that there’s no universally agreed “magic number” for how much debt a country can take on, and the US hasn’t necessarily crossed a red line.

Besides, there is a tradeoff between maintaining a balanced budget and achieving desirable social outcomes. Jürgen von Hagen, Director of the Center for European Integration Studies and Professor of Economics at the University of Bonn, points out: “It is important to protect public investment from being slaughtered on the altar of expenditure rules. Germany is a prime example: 40 years of allegedly fiscal discipline under conservative governments have resulted in a state of near collapse of public infrastructure and education.”

Policymakers cannot consider debt in a vacuum, although understanding how to tackle it is a necessary starting point.

Turning to Europe for Answers

Given the complexity of decisions related to debt management, taking an evidence-based approach is crucial. While there is limited data on the impact of various fiscal rules within the US, EU countries are the ideal environment to study.

The region has focused on the sustainability of public finances since the early 1990s, and European countries have experimented with various strategies. Plus, since the EU is made up of multiple countries that have each taken distinct approaches, which allows for comparisons.

Kim says: “Some countries have constitutional rules with automatic correction mechanisms; others rely on political commitments or advisory bodies. Such variation offers powerful insights into the institutional ingredients that help fiscal rules succeed—and provides a basis for thinking about how similar mechanisms might be adapted to the U.S. context.”

While the EU and the US are different in many ways, they share enough similarities for the results from Europe to be broadly applicable. “EU member states share many institutional and economic similarities with the U.S.” says Kim. “They operate under structured, democratic decision-making systems with competitive party politics, much like the American federal system. From a fiscal perspective, both the EU and U.S. governments shoulder primary responsibility for large-scale social spending programs, and in turn, carry the weight of rising public debt.”

The Power of Expenditure Rules

Studying EU countries between 2000 and 2021, the research looked at four types of fiscal rules:

1. Balanced budget rules (constraining the size of the deficit)

2. Debt rules (placing explicit limits on public debt)

3. Expenditure rules (limiting spending)

4. Revenue rules (putting a cap on revenues)

The key finding is that a single unit increase in the stringency index of expenditure rules led to a 0.9% decrease in the debt ratio, with greater stringency leading to even more impressive debt reductions.

This suggests that adopting and implementing expenditure rules may be the most effective approach the government can take. However, successful implementation would likely involve more than just setting a number to reduce spending.

Complementary mechanisms like independent monitoring authorities and real-time monitoring were also found to reduce central government debt (by 4.4% and 7.8% respectively). Jürgen von Hagen points out: “Monitoring is of key importance for the effectiveness of fiscal rules. Simple numerical rules invite accounting gimmicks to get around them. It takes human judgment to discover such efforts at evasion. This, in turn, requires sufficient political clout of the monitoring body in the public debate about fiscal policy. EU law now requires all member states to have fiscal policy watchdogs. The German one is a joke - noone even knows about its existence. The Portuguese one - of which I was vice chair and the chairwoman was a very well-known public figure - was quite effective in the years when she was there.”

Meanwhile, the research found no significance for fiscal rules. The authors speculate that this is due to their complexity, or the lack of clarity surrounding them. Achieving a balanced budget is a more ambiguous target than simply reducing spending, and governments may face political or economic pressure to bypass the rules.

The Viability of Effective Execution

While it’s a useful first step to know which kinds of interventions are the most effective, the political feasibility must also be considered.

Kim holds out some hope that the US will tackle its debt issues in the future. “There is a growing and evolving concern about mounting federal debt both inside and outside government. In addition to our study, many others have raised similar concerns and proposed a variety of potential paths forward. Organizations such as think tanks and nonprofits have continued to focus on this issue and have developed several innovative solutions. With such meaningful ideas in circulation, it is reasonable to believe that progress will be made—and that the debt challenge can be addressed over time.”

Another important question is how the government can balance the need to address debt with securing socially desirable outcomes, which requires more than just choosing a number.

The research appeared in issue 45(1) of Public Budgeting and Finance.

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The findings highlight the urgency of addressing the long-term consequences of unchecked spending and raise crucial questions about policymaking horizons.

US federal debt has grown consistently since the abandonment of the Budget Enforcement Act of 1990 in 2002, which put constraints on deficit-increasing measures. The issue is only likely to increase over time, as the high interest rate environment and slower-growing, tax-paying, working-age population make it more difficult to pay down debt.

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Yet since commonly accepted debt estimates understate the true scope of the problem, researchers Jagadeesh Gokhale and Kent Smetters set out to find a more precise number.

Jagadeesh Gokhale, Director of Special Projects at the Penn Wharton Budget Model and an expert in U.S. fiscal policy, explains of his research: “This study brings together expertise accumulated over two decades on data sources, analytical methods, and budget policy frameworks. The motivating factor is to discover and summarize the implications of current budget allocations — that are specified in hundreds of billions of dollars across many federal programs — for the pocketbooks of people across socio-economic classes, those who are alive today, and future generations.”

The $162.7 trillion figure represents 6.6% of the present discounted value of GDP, and would change the economic landscape for future generations, with higher taxes and fewer state benefits.

Researcher Sita Nataraj Slavov, a professor of public policy at George Mason University (who was not involved in the study), said of the findings: “Economists have been warning for a long time that the federal government’s finances are on an unsustainable path. The government has made spending commitments that far exceed revenue, and the usual metrics — such as the current debt or short-term deficit projections — don’t capture this.”

Understanding Fiscal and Generational Imbalance

Policymakers primarily focus on explicit debt (the debt burden held in the present moment). This fails to consider how future debt will be repaid, which is a salient question as the deficit becomes excessive.

Adding implicit obligations offers a fuller measure of federal indebtedness, and therefore a more holistic view of the government’s financial situation. In their study, the researchers called this fiscal imbalance (FI).

As Sita explains: “The current debt only reflects what the government has already borrowed and is contractually obligated to repay. However, the government has made future spending promises that far exceed future revenue. That’s not reflected in the current debt, but it matters because some change will need to be made to bring that into balance.”

The paper also calculated generational imbalance (GI), which measures the imbalance between the federal taxes paid and the transfers received from social insurance programs by current and future generations.

It found that past and current generations are set to receive $62.7 trillion more than they will pay to fund Old-Age, Survivors, and Disability Insurance (OASDHI) programs. Meanwhile, maintaining the current OASDHI policy for those alive today throughout their lifetime will effectively levy significant taxes on future generations.

It’s an approach that most would agree is unsustainable and inherently unfair due to the burden placed on future generations, calling for the need to rethink fiscal policy.

Solutions For The Debt Problem

The new findings outline the current problems of the US government and its increasing debt, coloring fiscal issues in a new light.

Yet the solutions required speak to general principles of fiscal responsibility. Essentially, restoring fiscal balance requires some combination of tax increases and reductions in transfers or federal purchases.

The paper identified three main options:

1. Proportionate increases in all government receipts and reductions in all government expenditures. This would boost lifetime net tax profiles but reduced protections for those alive today and future generations.

2. Increases only in federal taxes. This would disproportionately affect those who pay higher net taxes.

3. Reductions only to all federal expenditures. This would disproportionately affect those who receive the largest net transfers.

There is a trade-off between harming those who most need a social security net and penalizing those who are most productive.

Jagadeesh explains: “The principles to follow are to achieve reasonable equity across current and future generations, provide a reasonable social safety net, and promote economic growth by maintaining low net tax burdens on households. A first step would involve distributing the adjustment burden for reducing the existing fiscal imbalance across as many individuals and generations as possible.”

A major reason that the government hasn’t placed enough emphasis on fiscal responsibility so far may be down to its short-term bias.

The Congressional Budget Office publishes budget projections for the next ten years, along with Social Security and Medicare actuaries. Since the reality of fiscal consequences go beyond this decade-long period, the current system results in a low chance of Congress adopting fiscal adjustments to address the entirety of its implicit federal obligations.

There’s also the fact that the hard fiscal changes needed tend to be inherently unpopular among voters.

Sita says: “Politically, it’s a difficult issue because restoring fiscal sustainability will require either cutting large, popular programs like Medicare and Social Security or raising taxes on the broader public, not just those at the top. These are hard choices, but something needs to be done.”

Sketching A Change In Thinking

While the figures identified in the research might suggest a bleak financial future for our children and grandchildren, Jagadeesh holds some hope that a better understanding of the current situation could change attitudes.

He says: “Federal tax and spending policies that emerge from the preferences of today’s voters and policymakers devote insufficient attention to their effects on future generations, presumably because the relevant information is not easily available. The hope is that revealing those effects may temper political incentives to adopt policies that could cause a vicious downward economic spiral.”

While the problem is rooted in economics, the path to a more sustainable future may well depend on a fundamental shift in public and political mindsets rather than solely on changing fiscal policies.

The research appeared in issue 45(1) of Public Budgeting and Finance.

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It’s been hard to keep track of everything the Trump administration has been up to recently, from tariffs to executive orders. While the possibility of tax law changes hasn’t been the focus of the media frenzy, it’s another policy that would have major implications. With his congressional majority in place, most observers believe President Trump will seek to renew key provisions set to expire from the Tax Cuts and Jobs Act of 2017 (the signature policy achievement from his first term).

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However, the budgetary impact of renewing these policies will face headwinds from the substantial government deficit and rising interest rates. I caught up with Martin J. Luby and Michael Granof at the University of Texas at Austin to discuss the important role of tax expenditures in the federal budget and how they are in need of reform. Luby and Granof, along with Matthew Zachary, recently collaborated on “An Essential Component of Any Policy Toolkit to Address Federal Budget Deficits: Tax Expenditure Reform.” Granof is Professor at the McCombs School of Business, and Luby is Associate Professor at the Lyndon B. Johnson School of Public Affairs.

Note: This transcript has been lightly edited for clarity.

Sarah Bromley (SB): I’m sure many people are familiar with the TCJA and looking forward to hearing your thoughts on everything that is happening in the government right now. But to avoid any confusion, maybe you could start by giving a quick breakdown of what exactly tax expenditures are, and why they’re so relevant for today’s political environment?

Martin Luby (ML): Federal tax expenditures are losses in federal tax revenue associated with provisions in the tax code that allow for a special exclusion, exemption, or deduction from gross income, a tax credit, preferential rate of tax, or tax deferral. These provisions reduce the amount of taxes owed by taxpayers, resulting in an overall reduction in federal tax revenues. Many people have identified curtailing tax expenditures as a source of new funds to increase federal spending, shrink the deficit, or reduce other taxes.

Michael Granof (MG): It’s also worth noting that tax expenditures for 2025 are estimated by the U.S. Treasury to total $1.569 trillion (although, owing to taxpayer behavioral changes, if various tax expenditures were to be eliminated, the impact on the deficit would almost certainly be less).

SB: Given the size of tax expenditures, I can see why they might have attracted some scrutiny. But is there any particular reason that tax expenditures are a popular target for reform?

ML: Tax expenditures are often criticized as lacking transparency and proper oversight. They exist in the tax code, which is rarely changed, rather than being budgeted via the appropriations process (which theoretically needs to be reviewed every year). And they lack proper oversight since tax expenditure programs are usually overseen by the IRS rather than federal agencies that have functional experience in the area of tax expenditure. The lack of oversight leads to tax expenditures remaining in the tax code long after they have achieved their stated purpose. Tax expenditures have also been criticized on equity grounds as mainly benefiting higher-income taxpayers.

MG: Tax expenditures are, in economic substance, subsidies. Some of these, especially the larger ones such as employer contributions for medical insurance, can better be provided in the form of tax expenditures rather than direct appropriations. Hence, we most certainly don’t advocate for the elimination of all tax expenditures.

SB: You mentioned something interesting there about tax expenditures being criticized on equity grounds. Why is that the case?

ML: Since many of the largest tax expenditures are in the form of deductions, which reduce a taxpayer's taxable income, higher-income taxpayers who face higher marginal tax rates gain more from the deduction than taxpayers with lower marginal tax rates. Thus, a tax system that includes deductions without or with limited tax deduction caps makes the overall federal income tax system less progressive (i.e., less equitable), as measured by the effective tax rate of various taxpayers.

SB: So it seems like tax expenditures have a place, but they can often be wasteful. Can you give some examples of tax expenditures that didn’t serve their intended purpose, yet persisted?

ML: Tax subsidies for oil and gas exploration and drilling — even as oil and gas shortages have turned into surpluses. In this case, the tax expenditure may have initially served its purpose, but the tax break has persisted longer than necessary to achieve the policy goal. We discuss this in more detail in our paper.

SB: Now we’ve covered some of the basics, I’m wondering where exactly the Tax Cuts and Jobs Act (TCJA) of 2017 comes into this. What impact did the Act have on tax expenditures and the budget as a whole?

ML: The TCJA simplified the tax code in certain ways — for instance, an expansion of the standard deduction reduced the number of taxpayers who itemized their deductions. It eliminated and reduced certain tax expenditures and introduced some new ones, and it slightly changed the number of tax expenditure categories. As a result of TCJA 2017, the amount lost in federal tax revenue (i.e., the size of tax expenditure budget) declined modestly after the passage of the law.

SB: Got it. And if Trump were to renew the TCJA, what impact would you expect it to have on tax expenditures, the federal budget, and the deficit?

ML: Republicans in Congress are scouring the federal budget to find ways to pay for the extension of TCJA 2017. This includes eliminating or reducing special preferences in the tax code as a way to raise revenues. At the same time, the Trump administration has signaled interest in expanding certain tax preferences, like increasing the deduction for state and local taxes (SALT) and instituting new tax preferences, such as no taxes on tip income.

There would be some difficulty eliminating or reducing existing special tax breaks, while it would be politically popular to expand existing measures like SALT and institute new provisions (such as no tax on tips). Given this, one could see momentum towards greater tax expenditures and larger budget deficits once the dust clears. However, Republican deficit-hawks in the House have influence given the thin margins among the Republican majority, which may both rein in attempts at expanding tax expenditures and force efforts to curtail existing tax breaks.

SB: So not all Republicans agree on how to approach tax expenditures. You mentioned in your paper that TEs are a bipartisan issue, and that reforming them would suit the interests of both parties. How feasible do you think it is to achieve bipartisan support for tax expenditure reform currently?

ML: Curtailing tax expenditures can be viewed as both cutting spending — since tax expenditure is simply a form of spending — and increasing taxes, since reducing or eliminating tax expenditures results in a greater tax bill to the taxpayer. This could form the basis for bipartisan support for deficit reduction since both Republicans and Democrats can credibly claim they’re using their preferred means. Republicans would be cutting spending to address the federal budget deficits, while Democrats would be reducing tax breaks for special classes of taxpayers and upper-income households to achieve the same goal.

SB: That makes sense, though I imagine it’s easier said than done. Do you anticipate that it would be difficult to gain political support to eliminate or scale back some of the most popular tax expenditures?

ML: It would be very difficult to scale back many of the largest tax expenditures, such as the mortgage interest deduction, charitable contributions, and child tax credit. Moreover, as we note in the paper, some of this type of spending may be best done via a tax expenditure rather than through direct federal appropriations, like supporting charitable organizations through tax deductions for charitable donations.

SB: I’m definitely getting the picture that this is an issue to be approached delicately. We’ve touched on your recommendations for reforming tax expenditures already, and I know it’s something you discuss in more detail in your paper, but maybe you could summarize your core ideas?

ML: We are simply suggesting to reduce or eliminate the least efficacious ones, as well as creating a formal process that regularly evaluates tax expenditures to ensure they are meeting their goals. Such a regular evaluative process would aim to reduce tax expenditures over time.

MG: At the very least, whenever a tax expenditure is incorporated into the tax code, it should be accompanied by a sunset provision to ensure that it will have to be reviewed and explicitly voted upon again after a specified number of years.

SB: Hopefully the Administration is reading this! You also say in your paper that you believe the federal government should provide subsidies through direct grants rather than special tax provisions. Can you explain why this would be a better approach for the federal budget?

ML: There are three reasons. Firstly, direct grants typically require reappropriation every year, whereas once a tax expenditure is incorporated into the tax code, it remains in the code until explicitly removed — which is often never. Direct grants can also be more readily targeted to specific industries or narrow classes of taxes that satisfy the goals of the subsidy, and they’re typically administered by the federal agency most closely associated with the nature of the grant. Meanwhile, tax expenditures fall under the purview of the IRS, which is less qualified to ensure that those who take advantage of the special tax provisions are truly qualified to do so.

SB: Before we close things off, there’s just one more thing I’m curious about. It’s been a few months since you last revised your paper — is there anything you would want to add-on if you wrote it today, based on recent events with the Trump administration?

MG: One thing to note is that since the presidential election, Congress has begun to scour the tax code and tax expenditures to find "pay fors" for the extension of the TCJA, as well as other policy priorities of the Trump administration. Unfortunately, they are looking to curtail tax expenditures not to address the federal deficit (which was the thrust of our paper), but rather to only partially offset the cost of extending tax cuts. This will have the effect of exacerbating the negative long-term federal budget outlook.

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Back in February, it emerged that President Trump is seeking to impound funds that have been approved by Congress and the President. This is viewed by many to be a violation, not only of the law, but of the procedures set up by the Impoundment Control Act of 1974. When the news broke, it left many scrambling to get their heads around this little-understood legislation.

Phil Joyce, a professor of public policy atthe University of Maryland School of Public Policy, has just published a paper on The Congressional Budget and Impoundment Control Act after 50 Years. I joined him to get some historical perspective and future insights on the actions of the Trump Administration.

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Sarah Bromley (SB): Thanks for joining me today, Phil. I think we can all agree that the last few months have been an interesting time to observe governmental policy in the US, and incidentally, some of the legislation that has become a focus of media attention is relevant to your paper. To start things off, could you give a quick explanation of what exactly impoundment is and how it relates to the recent actions of the Trump administration?

Phil Joyce (PJ): The main impetus for the Congressional Budget and Impoundment Control Act of 1974 was the fact that President Nixon had a habit of refusing to spend money that Congress had appropriated and that the President had approved. If Congress provides money and the President signs the appropriation, but later on says, “Well, I don't really like that program, so I'm not going to spend money on it” — that's referred to as impoundment.

That made Congress mad, and it was illegal to boot. And so when Congress passed this law in 1974, it effectively created a process that a President could use if he wanted to cancel spending. The President would have to propose the cancellation of the budget authority, which is really the appropriation that's been provided by Congress. And if Congress did not act to approve what's called a “rescission proposal” under the Impoundment Control Act, the money was automatically released. So the only thing the President could really do was delay spending for 45 days while Congress decided whether it wanted to go along with him or not. That's the process we've been following for the last 50 years, and that process has really effectively constrained impoundments.

So, that brings us to what President Trump is doing. It’s very much like what President Nixon did. Actions like dismantling the agency for International Development should require him to go to Congress and ask if they agree. Instead, he’s unilaterally taking action.

SB: Some people have described the possibility of impoundment as unconstitutional, is that a sentiment you agree with?

PJ: Whether something is constitutional or not is really a function of whether the courts at a given point in time believe that it's unconstitutional. For example, there was a constitutional right to abortion, and now there is not. So, I don't think we know. I think what we do know is that in the past, impoundments have been viewed as unconstitutional.

There’s something called Unitary Executive Theory, which is what the Trump Administration is standing behind. It basically says that, when the President takes an oath to faithfully execute the laws, if he finds some law that he thinks is inefficient or wasteful, he doesn't have to spend money on it. And so that's ultimately what the courts are going to have to decide: Is this definition of executive power constitutional? Or are they going to return to what has been that historical interpretation, which is that the president can't pick and choose which programs he's going to spend money on and which ones he's not?

SB: That’s an interesting way of looking at things, so the way that the Impoundment Control Act has been understood for the last 50 years could actually change within the next few years?

PJ: That's right. And effectively, if the courts decide that the President has this power, then it will be a huge shift of power from the Congress to the president. Historically, Congress and the president have had big debates and disagreements over what is going to be funded in the budget process. If the president doesn't have to argue with Congress up front, he can just sign the bills. Then, later on, he can decide what he wants to spend money on and what he doesn't want to spend money on, and that very much weakens Congress.

One of the surprising developments to me is that the Congress (and I really mean the Republicans in Congress) so far is not really standing up for itself. Because once this power gets shifted to the president, it's not only President Trump that's going to have this power. It's also whatever President gets elected in the future. So if I were a Republican in Congress, I would think, well, what about the next Democratic president?

SB: Yes, that’s a good point. You mentioned in your paper that some people argue the presidential leadership promotes some fiscal responsibility rather than Congress. That would make these events less concerning. I’m curious on your thoughts.

PJ: I think it's easy to think that because, if you look at the Congress, it does not look like a body that's fiscally responsible. The problem that I have with that argument is that we have had fiscally responsible presidents and fiscally irresponsible presidents. I mean, I don't view President Trump as being a paragon of fiscal responsibility.

So I think it would be useful for the president to have more power if there was a fiscally responsible president. But to simply argue that presidents are inherently more fiscally responsible than Congress, I think that doesn't make sense. We can look at various presidents, and we can say, well, some of them were fiscally responsible. Like George H.W. Bush and possibly Bill Clinton. But we've also had presidents that clearly are fiscally irresponsible. So transferring power to the president in terms of getting control over deficits and debt is no panacea.

SB: So do you think that the measures introduced by the Impoundment Act were effective at moderating the more fiscally irresponsible Presidents, even if they limited the impact of the more responsible presidents?

PJ: Maybe it's useful to talk about a couple of other things besides impoundments. The more important thing historically is that the Act created a budget process that enabled Congress to look at the whole budget through something called the budget resolution. Prior to the Act, the congressional budget process was very decentralized. The Act created the budget resolution and budget committees, and the job of the budget committees was to look at the whole budget. Now, that has permitted Congress to do things we would view as fiscally responsible. But Congresses, just like presidents, are fiscally responsible when they want to be.

The other thing the law did was create the Congressional Budget Office (CBO). Prior to this, Congress had no independent mechanism for evaluating the effects of budget or economic policies. It had to rely on information coming from the executive branch, and that information could be slanted in favor of whatever a given president wanted.

So the CBO has been an effective check on the information coming from the executive branch, and it has empowered Congress to have its own source of information in a way that it didn’t prior to the creation of the CBO. Thanks to the CBO, every time a bill is considered on the floor of the House or the Senate, it has to carry with it a Congressional Budget Office cost estimate. It's a way of objectively and independently informing Congress about the fiscal effects on the budget. Sometimes, Congress doesn't want to do something that costs a lot of money and therefore it will change the policy to lower the cost. That's something that was less likely to happen before the creation of CBO.

SB: You sound pretty positive about the CBO, to what extent do you think it has become a significant voice and fiscal policy?

PJ: I wrote a book about the CBO, and one of the things that was interesting to me is that I talked to people who worked at the Office of Management and Budget (OMB), the president's budget office, and they said the CBO helped to keep the executive branch more honest. They knew that somebody else was going to be coming in after the fact and doing an analysis of their policies. If the president wanted to, he could say he was going to cut taxes but it wasn't really going to cost any money. But then when the CBO comes along later and says it's actually going to cost a lot of money, it damages the credibility of the president and the executive branch.

Another thing that made the CBO influential is that the media discovered CBO. And you know the media loves a story about fights between the executive and the legislative branches, right? At the point at which the president is proposing something and then CBO comes along and says “no, we don't think it's going to work exactly that way,” it gives the media a story to write about. It used to be that the media would go to OMB for budget numbers, but increasingly it began to go to the CBO.

SB: You mentioned in your paper that the CBO has the most influence when the media focuses on deficits and is less influential when the reverse is true. Why is that the case?

PJ: The CBO was described once in the Washington Post as the “skunk at the Congressional picnic.” What they really do is try to impose a kind of level of reality into the process. But the Congress doesn't always want to listen to that. One of the big questions then becomes, are the moon and the stars aligned so that Congress and the president believe it is in their political interest to focus on deficits?

A really good example of that was when President Obama proposed what became the Affordable Care Act. That was at a point when Congress and the president were pretty focused on deficits. And so what President Obama said is that he would not sign any bill that added one dime to the deficit. What that meant was they had to find ways to offset those costs so that it ended up being neutral with respect to the deficit. Because CBO were the ones who were going to do the analysis of whether the bill added to the deficit, they had a very powerful position. They had to keep iterating until they got to a place where CBO said, yes, this is a bill that is deficit neutral. Now, if President Obama had never said that, CBO would still have been doing estimates, but those estimates wouldn't necessarily have led to there being big changes in the bill because they wouldn't have to have been shooting for this particular goal.

Right now, I would say CBO is not very influential at all with respect to the deficit, because it's hard to find many people in Congress who care about deficits. And so, in that kind of a situation, CBO still has influence with respect to these individual cost estimates of the individual pieces of legislation, but I think its influence on overall fiscal policy is much more limited.

SB: As you mentioned in your article, deficits have continued to grow since the Act. Why has that been the case?

PJ: There was nothing in the act that prevented that from occurring; I mean, the law didn't say the budget had to be balanced. All the law did was create a process where Congress could come up with a proposal for a congressional budget that was an alternative to the President's budget. Prior to the 1974 Budget Act, the President's budget was effectively the only budget in town.

Because the law didn't mandate fiscal responsibility, there were attempts in the 1980s and 1990s to reform the budget process to try to focus on deficits and debt. And some of those were more successful than others. In the 1990s, several laws were passed that reduced deficits. And in fact that, coupled with the increased economic growth in the late 1990s, actually led to four years in which we had budget surpluses — 1998, 1999, 2000, and 2001. But since that point, there has not been much attention on deficits.

SB: Earlier, you touched on the fact that the last presidents to be fiscally responsible were Bill Clinton and the first George Bush. Clearly, that was a long while ago. Do you have any thoughts on why there’s not much political interest in being fiscally responsible now?

PJ: The short answer is that the things that would need to happen to seriously reduce the debt and the deficits are politically very unpopular. At this point, more than two-thirds of the budget on the spending side is what is referred to as entitlement programs, such as Medicare and Social Security. You can't make any kind of a serious run at reducing deficits and debt without doing something about those programs. But those programs are very politically popular and very popular with the public. They are very much geared towards people of a certain age, who vote, and they give money to congressional campaigns.

And so the kinds of things that you see President Trump doing, well, I will not suggest that they don't have any impact. They certainly have a big impact on the functioning of government. And they're going to have somewhat of an impact on federal spending. But they're focused on the portion of the budget that is small and not growing, they're not focused on the entitlement programs. To some degree, they're not even focused on defense spending, which is also about 15% of the budget. At this point, you are trying to cut the budget by focusing on less than 15% of spending because the rest of it is just too politically difficult to take on.

The other side is revenues, but they're trying to cut taxes. A serious deficit reduction package, in my opinion, would do two things: It would raise taxes and it would figure out how to reform entitlement spending, particularly on Medicare and Social Security.

SB: Another important aspect of the Act that we should touch on is reconciliation, which has become an important part of American politics now. Could you explain some more about what reconciliation is, and why it's become so significant?

PJ: Reconciliation is a process that was set up as a part of the budget resolution. It creates a mechanism for Congress to set targets for revenues and entitlement spending — it sets a target, and then tells those committees that they have to make changes to meet those targets.

Why does this matter? Let's take entitlement spending. For example, Medicare as an entitlement, the spending is more or less on automatic pilot — whatever gets spent on Medicare in a given year has to do simply with how many people are eligible for Medicare and how much money that costs. There is no ceiling. Reconciliation allows Congress to set such a ceiling. But then what has to happen is that the committees that have jurisdiction over those programs have to actually figure out a way to change the law to meet that ceiling.

And so all this comes back in what's usually called an Omnibus Budget Reconciliation Act. But the Congressional Budget Act says that a reconciliation bill can only be debated in the Senate for 20 hours, and that's very unusual. Most bills that come through the Senate can be filibustered, meaning you need 60 votes to be able to essentially move on to voting on the bill. But a reconciliation bill is limited to 20 hours of debate, so they can talk about something for 20 hours, but at the end of that 20 hours, they vote. And that means they don't need 60 votes — they only need 51 votes or 50 plus the Vice President. So reconciliation allows the majority party to be able to enact these big changes without having to get any votes from the minority party. That's meant there's a lot of major policies that are done through the reconciliation process, because it allows the majority party in the Senate to do what it wants to do.

I don't want anybody to get the sort of sense that the Congress can do anything it wants through reconciliation, but there are a lot of things that it can do through reconciliation, and one of the big things it can do through reconciliation is cut taxes.

SB: To finish things off, I’m curious about whether the current happenings in government have led to any new reflections for you since you published your paper, or uncovered any new topics you’d like to explore further?

PJ: If I were writing the paper today, I would spend a lot more time on impoundment than I did. Some people who were advising me on the article were suggesting that maybe I didn't need to talk about impoundment at all, or that I could de-emphasize it. And that was perfectly reasonable. It was essentially the dog that didn't bark, right? But now, I'm actually planning to write a Public Budgeting and Finance article just on impoundment.

While it was implied that the reason for the Congressional Budget and Impoundment Control Act had to do with the relative power of the president versus the Congress and the budget process, all the things that are happening now in the Trump Administration are bringing that all to a head. It kind of feels like we're now back in the 1970s, in the sense that we have a president who is trying to exercise a historically extreme level of authority and power.

And the question is going to become, to what extent are the other two branches going to respond to that? The separation of powers only works if the branches all stand up for themselves. It remains to be seen what the courts are going to do, but I think it’s of note that Congress so far has not really demonstrated that it's willing to protect its own role in the process. The Democrats have complained, but the Democrats are in control of neither house in Congress, so in the end, all they can really do is complain.

The question is, are the Republicans at any point going to decide that it's a bad thing for Congress to cede its power to the president, because that's something that could be more or less permanent as opposed to something that would only stop with this president.

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A new study of the prospect for federal legalization of cannabis outlines the many competing effects on Congress’s bottom line.

The study reveals that a modest 10% federal excise tax on cannabis sales could earn up to $4 billion in annual revenue, but the many other impacts on the economy and taxes make the net impact less clear. Federal tax revenue from alcohol, for example, will likely decline as a response to legal cannabis. Cannabis businesses would also become eligible for deducting their expenses from their taxable profits.

The biggest determinant is likely to be the effect of legalization on workers. As per Dr. Stan Veuger, a senior fellow at the American Enterprise Institute (AEI) and the study’s lead author, “In the long(er) run, any meaningful effect on labor force participation would swamp everything else. I do not think we can quite pinpoint what that effect would be, based on our current understanding. In the short run, excise tax revenue is of most importance on the revenue side, while health care spending matters most on the expenditures side.”

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The timing of the study is very relevant as the Department of Health and Human Services recently recommended reclassifying cannabis under federal drug laws, signaling a potential shift in federal policy. Currently, 24 states have legalized recreational cannabis use, while 38 permit medical use, creating a complex patchwork of regulations that businesses must navigate.

Last year President Joe Biden called the Drug Enforcement Administration to reconsider cannabis’s classification to reflect a more nuanced understanding of the plant’s uses and impacts.

Beyond Simple Tax And The 3 Points

The study, conducted by Veuger and his colleagues Alex Brill and Brian J. Miller, goes beyond simple tax calculations to examine how legalization could reshape federal healthcare spending. Their analysis suggests that while adding cannabis to federal healthcare programs could increase costs initially, the shift might lead to long-term savings through reduced reliance on more expensive medications, particularly opioids.

Veuger elaborated on how cannabis taxation policies might influence federal-state dynamics and made these three main points:

• Federal legalization would likely trigger national legalization, at least of medical marijuana.

• The states will likely adopt the federal tax base for their own taxation of cannabis activity and products.

• Medicaid coverage of medicinal marijuana will likely be quite controversial.

The research also highlights potential workforce benefits. Legal access to cannabis for pain management could boost labor force participation and reduce absenteeism, though the long-term public health implications remain uncertain.

State-level experiences offer important lessons for federal policymakers. Colorado and Washington, early adopters of legalization, have seen significant tax windfalls but also faced challenges in eliminating illegal markets. The study suggests federal success will require learning from these state-level experiments.

The study outlines several crucial decision points for policymakers. Beyond setting tax rates, legislators must determine how to structure regulatory oversight and integrate cannabis into federal healthcare programs. These choices will largely determine whether legalization delivers its projected financial benefits.

Veuger also indicated some of the results were surprising, “The main thing I hadn’t really thought through before starting this project is that you can think of the net, direct budget impact of cannabis legalization as basically being driven by two main factors: tax revenue (from an excise tax or however you want to tax cannabis) and healthcare spending. The federal government plays such a big role in healthcare spending (through the VA, Medicaid, Medicare, and various subsidy schemes) that it is not inconceivable federal spending on cannabis would exceed the additional federal tax revenue.”

The study was published on 12 April, 2024 in the journal Public Budgeting & Finance.

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When our local government announces a budget cut, what makes us either nod in reluctant understanding or grab our pitchforks in protest?

A fascinating new study has cracked the code on why some budget cuts make us see red while others get a grudging pass. Turns out, it's not just about what gets cut, but about who we think messed up in the first place.

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Dr. Carla Flink and Dr. Xiaoyang Xu, researchers at the University of South Carolina and Georgetown University, surveyed over 1,600 Americans with an experimental design. They provided a vignette where respondents were asked to review a hypothetical city experiencing budget pressure and then they evaluated the city government’s handling. In doing so, some respondents heard about outside forces, like natural disasters or cuts in state support, while others heard about mismanagement. What they found might surprise your city council. When forces beyond their control like Mother Nature or state budget slashers are to blame for empty coffers, we're surprisingly understanding. But catch a whiff of hometown mismanagement? That's when the patience runs dry.

As the authors explain, “In our study, we designed the blame attribution scenarios based on the source of the budget deficit and government's structure. Specifically, we considered whether the blame comes from within the government or from external factors, indicating how much control the government may have over the deficit. For example, if a budget deficit results from unexpected events such as natural disasters, the government's ability to control it can be limited. On the other side, if a deficit is a result of the mismanagement of funds, the government should have had opportunities to correct the error(s) before it became a larger issue.”

The findings also gave a baseline for public managers to understand how the public evaluates cutback strategies in different blame scenarios. Understandably, government officials and budget officers are focused on the financial outcomes of their decisions. It is shown that those decisions can have impacts on how citizens feel about government in general, which can have further implications for how they engage (or not engage) with government in the future. Having transparent and open communications with the public about financial management decisions can be important for preserving citizen satisfaction and trust in government.

To examine this idea, the researchers similarly experimentally varied the hypothetical city’s budget strategy, which were inspired by four short-term budget strategies the Government Finance Officers Association often recommends: reducing personnel costs, reducing capital spending, reducing materials or contractor costs, and raising revenues. “Overall, we try to select the scenarios that can best reflect the mundane realism” says Flink.

The findings suggest that under different blame scenarios, the public's perceptions and evaluations of budget strategies may also vary. For instance, when government mismanagement is the cause for budget deficit, raising taxes receives the lowest rating from study participants among the four cutback strategies. In contrast, the public is more accepting of tax increases when the deficit is caused by a natural disaster. 

Craig Maher, an expert in local government fiscal stress at the University of Nebraska-Omaha who was not directly involved in the study, thought the study adds to our understanding of strategic political calculations and that in some cases it might free up policymakers to be more aggressive than others. “There has been a good deal of interest by researchers in better understanding financial decision-making, particularly during periods of uncertainly, or fiscal stress” explained Maher. “This (study) suggests that in those scenarios (of budget cutting) local officials can be more bold in their actions taken to address the fiscal crisis.”

The big lesson for city leaders? Perhaps it is not to play hide-and-seek with bad news. When the money's tight, people can handle the truth…they just can't handle being played for fools.

The study was published on August 7, 2024 in the journal Public Budgeting and Finance.

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Researchers have found that participants in online budget simulations are more engaged when they’re given a budget to fix instead of one that is in balance. These findings highlight the importance of behavioral research in citizen engagement efforts and its role in helping governments formulate effective simulations.

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Online budget simulations have become an increasingly popular governance tool. They engage and inform citizens by allowing them to provide input on their preferred budget (which they achieve by adjusting revenue and spending). Local governments in particular have embraced simulations, with more than 130 local governments in the US now using the simulation tool Balancing Act.

As e-governance continues to grow, it’s more important than ever for policymakers to carefully consider the design of tools like simulations by accounting for behavioral quirks. One pertinent question is: How can governments improve the engagement of their citizens through simulation design?

To answer this, researchers Zach Mohr and Whitney Afonso aimed to determine whether starting a simulation in a balance, deficit, or surplus could influence respondents’ engagement or affect their budget preferences in a budget simulation.

They found that starting a simulation in either a deficit or surplus increased the number of changes made, while starting in a deficit decreased the probability of completing the simulation. Beginning in a deficit or surplus also changed budgetary preferences more than a balanced budget.

“The broader point that something as small as starting position can have such a big impact on simulation outcomes is just very interesting and points to the need for budgeters that are developing simulations to think about the behavioral impacts of their choices,” explains Mohr, an Associate Professor in the School of Public Affairs and Administration at the University of Kansas.

The Role Of Behavioral Theory

Contrary to the assumption that people make decisions rationally, behavioural theory suggests that humans often act in ways that aren’t strictly logical. These latest findings shed some light on why this may happen during simulations.

Personal loss aversion refers to humans’ tendency to be more sensitive to losses than gains, meaning that people may try harder to avoid losing money than to gain money. This suggests that it may be more psychologically difficult to reduce expenditures and increase revenue in a budget simulation — which would encourage engagement when faced with a deficit. As expected, participants showed signs of loss aversion.

Another behavioral trend uncovered was “chunking,” meaning that people made larger changes when faced with a task that requires more attention or is more intellectually demanding. It’s more challenging to navigate a deficit than a balanced budget, which is one explanation for greater engagement.

Yet there were also some unexpected results. Originally, the researchers focused on time spent on the simulation as an indicator of engagement, predicting participants would spend the longest when in a deficit condition, followed by a balance in surplus and finally a balanced budget. But this wasn’t found to be the case.

“At first, I was really bummed out that the results on simulation engagement as measured in time were not significant. It was when (co-author) Whitney forced me to get back into it and started showing me some of the other interesting results that I realized why the simulation engagement might not have worked like I thought it would” says Mohr.

Although the number of changes made within the different simulations was originally a secondary measure of focus, it turned out to be statistically significant, with participants making more changes to revenues and expenditures when in a surplus or deficit (relative to a balanced budget).

Other Considerations For Future Simulations

While this research is a fascinating discovery for those in the field, there are a lot of factors at play in simulations — as tends to be the case with anything involving humans.

“It is an experiment that we are using as a basis for other experiments. That accumulation of causal knowledge is very exciting to me,” says Mohr.

When governments design their budget simulations, the budget starting point is one decision of many to consider.

Bill Simonsen, a Professor at the School of Public Policy at the University of Connecticut who was not involved in the study, believes that another crucial consideration is whether to provide participants with context. He outlines: “Research suggests that providing information can change people’s views. This process would provide real value to officials by providing what an informed citizenry would choose, especially if the decisions are controversial or if there is gridlock or indecision about the best way to approach the fiscal problems.”

He also points out that, in some cases, simulations can be vulnerable to selection bias: “If the simulation is open to everyone only the most motivated will likely participate. The preferences of this group are likely to be different from the overall community. Officials and savvy citizens might wonder about the value of such a process for decision-making.”

Some results from the study reflected this bias, as it found the population of college students used in the study tended to be less supportive of expenditure on policing than the population at large tends to be.

While these considerations open the door to a whole new world of research possibilities, the latest findings solidify the power of psychological factors in driving citizen engagement.

The research appeared in issue 44(1) of Public Budgeting and Finance.

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A recent study has revealed that releasing information about school district performance improves trust, support for taxes, and the perception of efficiency in higher-performing districts. However, in lower-performing districts, providing this information doesn’t significantly influence perceptions.

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Performance information about school districts has become more readily available in recent years. The No Child Left Behind (NCLB) Act of 2001 boosted transparency about school districts, while websites like SchoolDigger publicize information like test scores. As transparency increases, it’s more important than ever to understand its impact.

Public perception is particularly relevant for education since spending makes up a high percentage of the government’s public expenditure. In 2018-19, 45% of public education revenue came from local governments, 36% of which was derived from property taxes. As a result, many people care about whether the money is used efficiently. Past research has suggested that providing tax or cost information lowers support for local taxes, with a few exceptions. It is therefore crucial for policymakers to understand factors that can affect support for taxes and other perceptions.

This is especially true given the decline in public trust in government over the last few decades. In 2024, only 22% of Americans said they trusted the federal government to do what is right, compared to 73% in 1958. Currently, trust is close to an all-time low, which could potentially have a negative knock-on impact on various social outcomes. These include the stability of society, financial sustainability, and willingness of people to engage with their government.

Four researchers from the University of Connecticut (Eric J. Brunner, Yusun Kim, Mark D. Robbins, and Bill Simonsen) investigated the impact of school performance by giving survey respondents the test scores of their school district and the state average.

Their results suggest that high-performing school districts should advertise their performance, while lower-performing districts should provide more context to explain the relatively poor results.

How Awareness Of School Performance Influences Perception

In the top third of highest-performing districts, those who said they trust “just about always” or “most of the time” increased by 5.2% after viewing results, alongside improvements in efficiency perceptions and support for increased school spending. Meanwhile, informing respondents in school districts with the worst performance didn’t have a significant effect on perceptions.

Iuliia Shybalkina, an Assistant Professor at the Martin School at the University of Kentucky (who wasn’t involved in the research) said of the findings: “I find the discovery that information was impactful in high-performing districts but not in low-performing ones quite surprising. This seems counterintuitive, given humans' well-documented negativity bias, where negative information tends to resonate more strongly than positive information.” She also points to previous research that has found strong effects of positive information, alongside an impact from negative information.

However, there are various mechanisms through which performance information can influence perception, which may explain these results. The researchers outlined these as follows:

• Citizens might have no prior knowledge of their school district’s performance

• Citizens might have some accurate ideas but incomplete

• Citizens might be completely aware and info confirms what they know

• Citizens might have inaccurate perceptions

As Bill Simonsen, a Professor at the School of Public Policy at the University of Connecticut who co-authored the paper, explains: “It’s not clear what the mechanism is that causes performance information to matter to people …. I suspect, although we did not study this, that for poorer performing districts residents may have been more likely to fall into categories 2) and 3) above, and so providing performance information might simply have confirmed what they already know.”

In addition to the core results, there were some interesting findings about subgroups.

Boosting awareness significantly reduced the number of people who said they “never” support increases in local taxes, and this group tends to be conservative and Republican.

Simonsen says: “Information makes a difference to how people react. Accurate information can help citizens make more reasonable decisions.” He also references past research that suggests people may prefer to remain uneducated about the government due to the cost of obtaining the information compared to the benefits of knowing it.

Another subgroup-specific finding was that positive information had more influence on respondents who were highly educated, without children, homeowners, and males.

The Transparency Dilemma

The main policy takeaway for higher-performing schools is self-evident: They should show their results to benefit from increased trust and support for spending.

However, there is more of a challenge when it comes to approaching lower-performing districts.

As Shybalkina points out: “The findings from the paper suggest the existence of a vicious cycle: high performance fosters greater trust, which in turn drives even higher performance. Conversely, lower-performing areas remain trapped in a cycle of low trust and continued underperformance.”

Policymakers should also keep in mind the potential risk of exacerbating inequality between higher- and lower-performing districts by showing results. There are often already wealth gaps in place, which may result in some districts receiving more funding. This can lead to a trade-off between transparency and equity, and it’s far from obvious which one is more important.

The researchers suggested a potential solution: Providing more context alongside the results. For instance, the schools could compare the results to those of another district with comparable income, language, and disability status to create more favorable judgments.

Simonsen explains: “Some of the lower-performing districts may look better when compared to similarly heterogeneous districts in the state that face similar challenges. Essentially, we suggest school districts think hard about how they benchmark themselves.”

Difficult questions remain about the information citizens have before information on school performance is revealed, and how policymakers should present performance data. Finding these solutions is crucial for keeping citizens engaged and trusting in government, at least in the education realm.

This research appeared in issue 44(2) of Public Budgeting & Finance.

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Recent research has found that race doesn’t significantly impact water rates when investigators also account for infrastructure. This provides useful context for existing evidence, which suggests certain groups (including majority-black communities) pay more for water.

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When studying northeastern Illinois, the researchers discovered that municipalities with higher proportions of black and Hispanic residents were associated with higher drinking water rates. However, this correlation disappeared when they considered infrastructure quality. There was also no statistically significant correlation between median household income and water rates.

These results might sound reassuring at first, but they highlight the complexity of the relationship between socioeconomic factors and water rates.

It is crucial to ensure that all communities can access high-quality water and infrastructure, regardless of demographics. By understanding the drivers behind water pricing, policymakers can improve community health.

The Enigma Of Water Rates

Few resources are more critical than water, as recent events like the Palisades fire remind us. Manuel Teodoro, a Professor of Public Affairs at the University of Wisconsin-Madison (who was not involved in the study) points out: “Water is the most basic of basic services. No government can maintain the trust of its citizens without providing for basic needs. Safe, reliable, resilient, and sustainable water for everyone, everywhere has to be a top priority for any policymaker.”

Yet despite its importance, understanding the determination of water rates is no simple matter, especially in the United States.

Municipalities control their partnerships for purchasing water and their rate structures, which has resulted in vast differences between regions. As of the end of 2023, there were nearly 50,000 community water systems (which supply water to a population) in the US. Plus, even regions that derive water from the same source may have different rates.

Partly due to this diversity, there is no universal data source for drinking water, making research difficult. However, there are some general principles to keep in mind.

Drinking water systems in the US are funded by customers, so municipalities must figure out how much to charge to maintain their infrastructure (by accounting for operational, compliance, and fixed costs). Yet this can lead to a conflict between affordability and quality.

The Environmental Protection Agency also sets the affordability threshold for water bills at 2.5% of the national median household income, based on socioeconomic characteristics. This means it’s harder to keep water affordable in areas with more low-income households.

As a result, the relationship between equity and water rates is complex. Rates could be higher in low-income or nonwhite communities due to their lower fiscal capacity, but it’s also plausible that officials would decide to address affordability concerns instead.

So far, there has been limited understanding of which factors drive variations in water pricing, and whether officials consider demographic or socioeconomic characteristics.

Making Sense Of Racial Equity

Although information on the specific drivers of water pricing is limited, previous research has found that zip codes with higher non-white populations pay more for water. Racial and income disparities in drinking water access, quality, and affordability have also been identified.

Deborah A. Carroll, a Professor in the Department of Public Administration at the University of Illinois-Chicago, was one of the five researchers involved in the recent study. She explains: “Our research was partly motivated by a three-part investigative series published by the Chicago Tribune in 2017 that noted rates varied across northeastern Illinois, and it raised questions of affordability and equity to the customer.”

The researchers expected the full picture regarding affordability and equity to be more complex than the 2017 findings.

Although they found that variance in water rates is somewhat related to socioeconomic factors, there was no statistically significant correlations between water rates and median household income or race when infrastructure was considered. This reveals racial equity in water pricing within communities, putting rate differentials down to the state of infrastructure in the supply network instead.

Teodoro believes these results are in line with the current evidence. “I’ve been studying rates and affordability for more than a decade and have never found a significant correlation between water prices/affordability and race/ethnicity in the U.S.—and believe me, I’ve looked. Rates are also not often correlated with income or poverty, but measures of poverty often are,” he explains. He also points out that some claims about race and ethnicity and water affordability have been poorly researched in the past, pointing to the “Water/Color” study as an example.

However, Teodoro does believe that race and ethnicity are correlated with drinking water quality: “There surely are racial, ethnic, and socioeconomic disparities in drinking water and sewer service, but it’s far more about quality than price.”

Another finding was that a cooperative purchasing strategy was associated with slightly lower water rates than an individualistic approach to purchasing, suggesting members can share capital costs for supply infrastructure.

The Difficulty of Setting Policy

While there is racial equity in water rates, this result can’t be passed off as a happy ending. There is significant complexity and nuance in the drivers of differences in water provision, and these latest findings are a stark reminder of deep-seated inequalities in access to essential services.

Policy is needed, but rate setting is a complex process that involves a balancing act between affordability and viability.

When asked about possible solutions, Carroll said: “As part of a broader study conducted for the Illinois General Assembly, we proposed a number of policy solutions.” These included strategic municipal investment in disadvantaged communities, which could fund technical maintenance, and state-level programs to target aging infrastructure.

By prioritizing infrastructure improvements, policymakers can help ensure all communities have access to this essential resource.

The research appeared in Volume 44 (2) of Public Budgeting and Finance.

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Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our website. AP and Getty images may not be republished.

is no secret that politicians prefer to tax anyone but their own constituents. In North Carolina, where tourists, commuters, and college students abound, the sales tax is one way in which local governments might be able to do just that. A new study out of the University of North Carolina by researchers Whitney Afonso and Jeremy Moulton have peeled back the layers on how these taxpayers silently fuel local revenues through their spending habits.

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The study used the economic chaos of the early 2020 COVID-19 lockdown to pinpoint these contributions. With people forced to stay home, the absence of non-local spenders created a unique window into their economic footprint.

Afonso and Moulton's findings are eye-opening: each commuter entering a county added roughly $1,000 to the monthly sales tax revenue, contributing around 17% of the tax base for a typical county in North Carolina. Similarly, every vacant hotel night during the lockdown meant a $525 dip in taxable sales, which equates to about 12% of a median county's sales tax revenue.

Afonso explains that there is a lot of diversity going on in how hotels are associated with sales tax collections. “In some counties, you are absolutely correct that there will be a mix of travel for pleasure and work. Some hotel rooms will be booked for individuals and others for families, etc. This will all impact how much they spend and how much they contribute to the sales tax base. So what we are really measuring is the average impact and it is important for public officials and others to consider how their overnight visitors and broader swath on non-resident visitors may differ from the average.”

Interestingly, the study didn't find that college students made much of a dent in local sales tax revenues, even when campuses emptied out. This might mean students aren't big spenders once the semester is underway, or perhaps they just found new places to live locally, keeping their dollars in the community.

“Candidly, I was surprised by the lack of evidence that residential college students impacted the sales tax base,” says Afonso. “Living in a college town myself, I know that they spend money here as a part of the community. Likely, a part of the lack of estimated impact is due to the timing of the pandemic. It is possible that there are seasons when college students contribute meaningfully to the tax base and that is likely not mid-semester. It is more likely that that it is during periods where they are moving on and off campus. Also, many residential students are on meal plans with their college and university and may not be contributing to the sales tax base in the anticipated ways. It is also possible that students are not large contributors to the tax base. I think the final note for this is that much like the variation in tourists, there are variations in the expendable incomes of college students and we were not able to capture that element.”

In places like North Carolina, where local sales taxes are a critical revenue source, this research could shake up how we think about tax distribution and equity. The state has already started addressing some imbalances with policies like the “Sales Tax Fairness Act,” but this study suggests there might be more work to do to ensure all counties benefit equally from tax revenues.

Take Dare County, for example, where tourism balloons the local population from 37,000 to nearly 300,000 in summer. A significant chunk of their sales tax — about 52% — comes from visitors. This reliance on non-residents can be a double-edged sword, especially when unpredictable events hit.

“Having the authority to levy a local option sales tax does not necessarily mean it will be a robust revenue generator,” says John Stavick, another public finance expert who was not involved in the study. “Certain local governments, such as those concentrated in the state's urban areas, or along North Carolina's beaches which attract business from non-residents, will generate much more revenue than those in more rural areas of the state and are less likely to be visited by non-residents.”

This may be a wake-up call for local policymakers to look beyond the surface of tax collection and consider the broader economic ecosystem they're managing. It's about ensuring that when the next big shift happens, whether it's another health crisis or something entirely different, our communities are ready.

The study was published in Public Budgeting & Finance.

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Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our website. AP and Getty images may not be republished.

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