Journey to Assessment Excellence

All great journeys start by asking three questions:

  1. Where do I want to go?
  2. What is my current location?
  3. What path do I need to take to arrive at my desired location?

In instructing IAAO and Excel classes throughout North Carolina, I’ve had the pleasure of meeting many great assessment professionals. This article seeks to assist assessing professionals and assessing offices to chart their journey.  I hope you find this article helpful as you plan your journey to assessing excellence!

David Cornell, 2017: Journey to Assessment Excellence: Using the Assessor’s Maturity Curve Model as a Guide [PDF]

This article was published in the IAAO’s January edition of “Fair and Equitable”.

To Lower, or Not to Lower, That is the Question

Although there are no deaths to avenge in this story, it can be a tragedy to lower a  business personal assessment when it is not warranted. Reducing a value, is a de facto exemption. It is an expense to the county. Accounts (parcels) with the highest value in local governments are quite often business personal property accounts. When a BPP assessment is reduced without proper reason, it can create de facto classifications. This means your largest taxpayers could be assessed at a lower assessment ratio than the smallest residential taxpayers. That doesn’t sit well with me. There are certainly many variables to consider when faced with a request to lower an assessed value. Read on for this 5 act, I mean 5 question, blog post.

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Whose Assets Are They Anyway?

The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 84, Fiduciary Activities the last week in January 2017.  Obviously, this is breaking news – stop the presses!  The standard is the culmination of a long-term, wide-ranging project to address accounting and financial reporting for the following:

GASB Statement No. 68)

With GASB Statement No. 84, the GASB provides definitive guidance on how all fiduciary activities of a governmental entity should be reported. It is now definitive that assets that are associated with a fiduciary activity and are legally entrusted should be reported in one of three specific fiduciary fund types.  Those assets that are not legally entrusted but still meet the definition of a fiduciary activity are to be reported in a separate fiduciary fund type. This does clear some inconsistencies with fiduciary fund reporting currently where entrusted and non-entrusted assets may be reported in the same fund type (although many of us probably never lost much sleep over it).

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North Carolina Budget & Evaluation Officer Certification: FAQ

There is always room on the wall for a new shiny credential and on your resume for that matter.

The mission of the North Carolina Local Government Budget Association (NCLGBA) is to promote the budgeting profession through education, networking, and advocacy. As a strategy to promote the educational component of this mission, the NCLGBA created a certification program in July 2008 for members of the association to become Certified Budget & Evaluation Officers. Individuals seeking to become a Certified Budget & Evaluation Officer must possess a certain level of professional experience, must take four courses, and must pass three exams. I am writing this blog to respond to some of the most common questions associated with the certification, with the goal of promoting the certification program among budget and evaluation professionals.

Where can I obtain information on the certification program?

The website (www.nclgba.org) of the NCLGBA contains information on how to become certified, the benefits and values of certification, the upcoming courses and exams, and the list of certified budget & evaluation officers.

Do I have to be a member of the NCLGBA?

Yes. Individuals must be a member of the NCLGBA, including the association’s listserv.

How many years of professional experience do I need before seeking certification?

Individuals must have eight or more years of professional experience in local government budget and evaluation. This number decreases for individuals who possess more formal education. For example, individuals with an undergraduate degree need five or more years of professional experience and individuals with a master’s degree need three or more years of professional experience.

Do I have to complete my professional experience before taking the courses and respective exams?

No. In fact, individuals are encouraged to complete the courses and exams while obtaining the necessary years of experience.

How many courses do I have to take?

You must take four courses in the areas of budgeting, capital finance, performance measurement, and evaluation.

Where can I take the courses?

The School of Government offers courses in these areas on an annual basis. Another possibility is courses offered by the Government Finance Officers Association.

The 2017 courses are:

Budgeting in Local Government: 11/7-10 in Chapel Hill

Capital Financing in Local Government: 8/2-4 in Asheville

Performance Management in Local Government: 10/19 in Chapel Hill

Introduction to Program Evaluation for Budget and Management Analysts: 7/11-12 at NCLGBA’s Summer Conference

Practical Analytic Techniques for Local Government: 9/8 in Chapel Hill

While these are the dates for 2017 they are the approximate dates for these courses every year.

Do I have to take all four courses if I have taken related courses in pursuing my master’s degree?

Yes. Master-level courses cannot be substituted for continuing educational courses associated with the certification program.

How many exams must I take and what constitutes a pass?

You must take three exams in the areas of budgeting, capital finance, and performance measurement and must successfully answer 80 percent or more of the questions on each exam (there is not an exam related to the evaluation course).

Do I have to wait until I have taken all the courses before taking the exams?

No. In fact, you are encouraged to take the respective exam for each course as soon as you have taken the course to increase the probability of success.

How many times can I take an exam?

There is not limit on the number of times an individual may retake the exam.

Is a study guide available for the exams?

Yes. It can be found on the NCLGBA’s website.

What else should I do to prepare for my exams?

Of course you should look at the guide, but even better would be to go through your notes, readings, and slides from your coursework that you took to meet the requirements.

When are exams offered?

Exams are only offered twice a year in conjunctions with the summer and winter conferences of the NCLGBA.  This is the only opportunity to take the exams and they are only offered once per conference. There are no exceptions.

How do I become certified once I have completed the certification requirements?

You must complete the certification application form, which can be found on the NCLGBA’s website.

When will I receive my certification?

You will receive a letter from the president of the NCLGBA once your application has been approved. You will receive the actual certificate at the following conference of the NCLGBA!

Let’s play “Who’s Paying That Tax?”

In my last blog I talked about the limitations that we all have on decision making and how we satisfice and make decisions based on incomplete information.  That is all true, but it does not mean that we should not strive to have a more robust understanding of the landscape we are working in.  To that end, I am going to be devoting some of my blogs to topics that are both interesting and important to understand for those working in government, especially those in budget and finance positions.  This week: tax incidence!

 

Hopefully I have not lost you already.  Tax incidence is just the fancy way of saying “who pays the tax” or “who bears the burden of the tax.”  As you may have already guessed who pays and who bears the burden may not be the same person (or party).  These are actually the two types of tax incidence: statutory incidence and economic incidence.

Statutory incidence is determined by who actually remits the tax to the government or who pays the tax.

Economic incidence is who bears the burden of the tax or in econ-speak whose resources (money mostly) are affected by the tax.

So let’s use a quick example to make this a bit clearer.  Let’s look at property taxes.  Imagine you have a small home in your community that is owned by the Smiths and occupied by renters, the Baldwins.

 

The Smiths are the ones who write a check to the county every year for property taxes—so they bear the statutory incidence of the property tax.  Does that mean that they bear the burden of the tax though?  Not necessarily.  Under the right conditions the Smiths may be able to charge a high enough rent that they are pushing the burden of the tax onto the Baldwins. In that case the Baldwins may be bearing (or a portion of) the economic incidence.

 

 

Hopefully that makes intuitive sense to you.  For those of you who like visual aids (or graphs!) let’s go back to the microeconomics you took in school.

  This is the standard graph used to teach economic incidence (which I will just be referring to as incidence from now on).  What you can see is that the consumer is now paying more (the difference between P and P1) for the good and the producer is now receiving less money for the good (the difference between P and the lower line).  AND there is less of the good being consumed.

The pink and green rectangles are the tax revenue.  The pink rectangle is the portion of the tax paid by consumers (or in the example of property taxes the renter) and the green rectangle is the portion of the tax paid by producers (or in the example of property taxes the owner).  You can see that the incidence is shared by both groups.  This is the expected outcome for most goods.

***Note: the white triangle to the left of the tax burden (between the Q1 and Q lines) is what is called in econ-speak dead weight loss.  This means that the tax has created a loss for both consumer and producers that the government does not get in revenue.  This is bad and we want to minimize this loss as much as possible.***

However, it should not be assumed that most taxes are split evenly.  This goes to the idea of elasticity.  I am not talking about the importance of elasticity in your sweats after the holiday season is over, but instead the elasticity of the supply and demand of goods.  In normal (non-econ) speak this just means how sensitive you are to changes in price of a good.  ***Inelastic means less sensitive to changes in price and elastic means more sensitive to changes in price.***  So if consumers are very sensitive to the change in the price of the good then more of the burden will be shifted to the producer.  If the consumer is less sensitive to the price (i.e., they will buy it at similar rates even when it costs more) then more of the incidence will be passed to them.

Here you can see that the demand line (D) is more up and down.  This means that no matter the price most consumers that were going to buy it before the tax was imposed are still going to buy it.  Under this inelastic demand (not sensitive to price) consumers will end up paying more of the tax burden, thus the pink box is bigger.  In the property tax example, this may mean that there are a lot of people looking to rent a home and not buy.  So the Smiths can charge a higher amount because of the insensitive or inelastic demand for rental properties, leaving the Baldwins with higher rent.  The opposite would be true if there were a lot of rental properties and not many prospective renters.  Then renters/consumers would be sensitive to changes in price and property owners would be less sensitive and bear the larger portion of the tax incidence.

This issue of elasticity is the heart of tax incidence.  The question of who is most sensitive to price is what determines the incidence.  It is natural to ask “what if both groups are sensitive to price” is a fair question.  The answer is that the amount consumed of that good will drop a lot, not much tax revenue will be generated, and there will be a lot of dead weight loss.  The burden will still be greater on the more sensitive one though.  The flip side is what if neither party is sensitive to price?  Well then there will not be much dead weight loss (yay!) and as always the less sensitive party will bear greater burden.

So what if we want to tax one group (let’s call them Team A) more than another group (Team B)?  Well, then you have to find a good that Team A is less sensitive to changes in price than Team B.  This may be different in different jurisdictions.  It is not as simple as shifting the statutory incidence because it does not matter which side of the market you tax, the burden will end up on the same party either way.

 

There are almost no universal rules about who bears the burden for normal (typical) goods.  There are exceptions of course.  The classic being cigarettes.  Cigarettes are addictive and therefore the demand for them by the consumer is not very sensitive to changes in price.  Therefore the cigarette tax falls largely, if not completely, on consumers.

 

 

Are you thinking, well my community is going to depend on property taxes and it does not really matter if the burden is being passed on to renters or staying with property owners (or businesses/their employees).  Fair enough, but if you are living in a community and you believe that the burden is being passed on to one group, you may be able to change other fees and taxes to not disproportionately affect the same group.  It is also always valuable to understand how your taxes affect your citizens and if they affect different populations unequally.

In brief: What do you need to know about tax incidence?

  • That the person who remits the tax may not be the person who bears the burden of the tax.
  • The person who is least sensitive to changes in price is going to bear a greater portion of the tax burden.
  • The side of the market that the tax is imposed on (e.g., producer versus consumer) does not affect who bears the burden.

 

 

 

Planning for success (Part 2)

Last month, I started the discussion with Part 1 of this topic. Near the conclusion of Part 1, I hoped for some questions and what-ifs. I got ‘em, and I hope this month’s post will provide some insight.

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It is Going to Cost HOW Much to Retire It??

Everyone is well aware, or should be, that the cost of retiring is escalating almost by the minute.  There are financial advisors and estate planners who solely focus on enabling us to have a shot at a decent retirement, relatively free of financial concern.  Employers in both the public and private sectors are recognizing mammoth liabilities for the pension resources they are holding in trust for their employees.  But, are employees all that are going to retire from a state or local government?  Is that the only long-term cost that a governmental entity is going to be liable for (above and beyond normal indebtedness)?  The answer is obviously no or I would not be writing this post.

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Planning for Success (Part 1)

In a previous post, I mentioned objective and subjective data along with the NCDOR’s new reappraisal standards. That information will be helpful when reading this post. The new reappraisal standards have been in development for over two years and have involved committees with members from the NCDOR, UNC School of Government, and NCAAO. In August, the NCDOR emailed a draft of those standards to all assessors for review and comment. Some comments from local tax officials have been related to the need for additional staff in order to meet the new standards. Chapter 5 of Assessment Administration. Chicago, IL: IAAO, 2003 is a well written chapter detailing the management tasks needed for an assessment office to meet requirements and goals.  This post focuses on how planning well includes an effective justification of the assessor’s need for staff and resources. Understand first that we all engage in planning almost every day. It’s either done formally or informally. So if we’re going to plan anyway, we should plan well and be exposed to the best practices. Regarding planning, Albert Einstein is rumored to have said, “If I had 20 days to solve a problem, I would take 19 days to define it.” Our objective in this post is really to turn staff and resource concerns into math problems, without requiring Albert Einstein’s help for the solution.

These new reappraisal standards, if followed, will alter your goals and plan objectives. For example, checking and updating property characteristics data at a designated level of accuracy is an example of a plan objective tied to the goal of meeting the NCDOR reappraisal standards. That objective requires specific activities. Activities require people and resources. We hope all local tax officials desire to do quality appraisal and reappraisal work for the public they serve. Our taxpayers deserve competency, fairness, and equity. No doubt, high standards are needed and the NCDOR should be applauded for issuing them. NCGS 105-273(10a) defines a local tax official as including a member of a county board of commissioners. And while all local tax officials most likely desire to do a good job and meet standards, raising standards undoubtedly can require more staff or other resources, which in turn requires adequate funding.

“[T]he budget becomes an expression of public policy in terms of the resources a government is willing to allocate for equitable property taxation. The budget is also a reflection of how much political support exists for accurate and equitable assessments. Legal and administrative responsibilities cannot be met if resources are inadequate.”  Assessment Administration, 119.

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Yay!! I’m Certified!!  Now What?

certified-stamp1 In my previous post, Are You Certifiable?, I reviewed the North Carolina Finance Officers’ Certification program, sponsored by the North Carolina Government Finance Officers Association (NCGFOA).  As was probably clear in the post, the process is challenging but certainly doable, and those that become certified finance officers in North Carolina should definitely be proud of their achievement.  But after the months (or years) of classes, studying, and testing, what happens after the success?  Is the certification permanent (just like an appointment on the United States Supreme Court)? Does it expire? DO I HAVE TO TAKE THE TESTS AGAIN?? This blogpost will summarize the “post-certification” years and how certified finance officers must continue maintaining the high standards that got you where you are in the first place.

Getting the Results

As a quick review, once one passes all four exams and has completed all educational and work experience requirements, they are eligible to apply for certification.  The certification itself is not “automatic”, though admittedly at this point, the application serves as a final “checks and balances” to ensure that all requirements have been met. Otherwise, the actual certification is relatively assured.  With the final successful results letter, the individual will receive an application for certification.  It is to be completed and remitted as instructed on the form.  The  form is then returned to the UNC School of Government for processing, along with a check for $50, made payable to the North Carolina Finance Officers Certification Program.

Once the application is approved, the individual will be considered certified as of the following January 1st.  Certification is for a five-year period which begins on the January 1st following the successful completion of the certification and approval process.  The certification expires on December 31st of the fifth year.

While the term for certification begins on January 1st, new certifications (as well as renewals, but that will be discussed later) are recognized publicly at the NCGFOA Spring Conference, typically held in early March.  Thus, the actual certificates themselves will be available a few months after the actual certification period begins.

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The Certification Period

As has been noted numerous times (and yet the question will still be raised!), a certification period lasts for five years.  Thus, individuals have to renew their certification at the end of each five-year period, assuming they have met and continue to meet all the necessary requirements.  Be assured, however, the renewal does NOT involve testing (there is still some humanity left in the world!).

To be eligible to successfully renew one’s certification, the following requirements must be met:

  • The individual must continue to be employed in an eligible position (see Are You Certifiable?).
  • The individual should be a member of the NCGFOA.
  • The individual must be have accumulated at least 100 hours of professional training during the five-year certification period just ended.

These requirements are relatively self-explanatory (or at least they should be).  However, the third requirement listed above, related to the professional training requirement, does raise questions, so let’s explore that a bit further.

Professional Training Requirements

During the certification period, one is expected to continue to remain up-to-date about the governmental finance profession by attending and/or taking relevant live and self-study courses, conferences, webinars, etc. that are available from many different venues, such as, but certainly not limited to:

Certainly, taking relevant courses during the certification period in community colleges, undergraduate, or graduate degree programs would count toward this requirement as well. In addition, professional service contributions, such as service on professional association boards or presenting at training events, courses, or conferences may count for up to 25% of the total hours required to be accumulated during the five-year period.

Often, the question is raised as to what is considered “relevant”.  Actually, the standard for this is quite flexible.  While training in governmental accounting and financial reporting is always recommended, at least to a certain degree, training related to management and leadership, information technology, and other similar topics are also considered relevant and often necessary in today’s financial management environment.

As for the 100-hour professional training requirement, the “industry” standard is 1 professional training hour per 50 minutes of instruction.  This is the same standard that is used for continuing professional education (CPE) standards for Certified Public Accountants.  Thus, when attending any courses or conferences that advertise the number of CPE hours being offered, that number would apply exactly the same way for the certified finance officer requirements.

Finally, individuals should maintain their own records supporting the number of hours of professional training that they have accumulated during each five-year certification period.  While the NCGFOA does not require that copies of “certificates of completion” be submitted when applying for certification renewal, the applicant is required to provide a listing with the renewal application that includes:

  • Nature of course, conference, webinar, etc. taken during the five-year period
  • Date(s) taken and location (if applicable)
  • Number of professional training hours for each event
  • Grand total of professional training hours for the five-year period

There may be circumstances where an individual has been unable to meet their professional training requirements during their certification period.  While the certification may not be renewed then, once the number of required hours have been met, they may apply for renewal at that time.  Assuming all other requirements have been met, the renewal will be approved and the new certification period will begin the following January 1st.

Currently, there are no provisions for professional training hours to “carryover” to the next five-year period.  Thus, if one accumulates more than 100 hours in one period, they may not apply the overage to the next period.

Lapses in Active Service

Occasionally, a certified finance officer ceases to work in a position eligible for certification, most commonly when they leave local government service altogether or move out-of-state (even if they still remain in local government).  At that time, their certification status is considered inactive (or suspended).  The certification is not revoked and can potentially be reactivated, depending on the following potential scenarios:

  1. If one re-enters eligible government employment in North Carolina during their inactive five-year certification period, they may reactivate their status, assuming they are able to meet the three requirements for renewal (referenced earlier in this post).
  2. If one re-enters eligible government employment during their inactive five-year certification period but is unable to meet the professional training requirements within that period, they have two years (from the date of eligible employment reinstatement) to complete the requirements. If they re-enter eligible employment after the original certification period has ended, they also have two years to meet the requirements to renew the certification.

It should be noted that qualifying professional training may have been accumulated even during the period of time that the certification was inactive.  While those training hours may be counted, at least 40 hours of the total must have been accumulated during the most recent two years leading up to the renewal/reactivation date.

Use of Professional Title

Currently, there are no committee guidelines on how the title of certified finance officer may be used.  I am often asked what letters one could put behind their names for business cards, bios, resumes, etc.  After I resist the urge to say things I should not, I advise that the most common combination that I see is CLGFO (Certified Local Government Finance Officer).  This is not required, nor is it discouraged.

Who you gonna call? A lawyer.

So I joke that when I get calls it is almost always someone wanting to see what the law says about the implementation of some revenue related issue.  To which I respond you need to talk to Chris, Kara, or Frayda.  The legality of government’s actions and the scope of the law are critical, but that is not what I am going to be able to help you with.

So what should you call me about?  Oh, the good stuff of course! In the next few blog posts I am going to discuss some of the non-legal issues surrounding financing government at the local level.  I will be blogging on issues like tax incidence (i.e., who is paying the tax), some of the perhaps unintended consequences of the policy, criteria that we should be using when we think about tax policy, revenue forecasting, and more!  Also, if there is something you would like to see discussed please let me know!

Before getting in to any one of those topics I want to open up a dialogue about why we need to talk about some these issues.  I think there is a temptation to be very pragmatic, which is not a bad thing, and to focus on what we have control over and what we can do.  I believe this largely explains why so many of the questions folks have are with regard to the legality of actions.  Budget officers, finance officers, managers, etc are tasked with difficult jobs—to find a way to provide the services their constituents want and need with limited resources.  Often this means that we have to get creative and think outside the box (so we ask “can we do this?”) and it always means saying no to some requests.  Unfortunately, there is no one right way to make those decisions once we move past the legality of them.  In 1940 V.O. Key asked his fellow economists how we can decide to spend money on activity A rather than activity B?  This question is still posed in every budgeting class in public administration courses.  We still do not have a scientific rational answer.  There are a lot of considerations, possibilities, and concerns that need to be weighed and they are often very value laden.

Can we think of all of them? Nope.  Not to immediately get too academic with you all, but I would say the budget process is an exercise in bounded rationality.

 

Bounded rationality is an economic theory that simply says that people are not able to make completely rational decisions.  This is because we are constrained by incomplete information, limited time, and frankly our brains cannot process all the relevant data, figure out all the alternatives, and calculate the potential outcomes of different decisions.

I can’t get no satisficing

Therefore we do something called satisficing.  Satisficing leads us (humans) to outcomes that are good enough.  “Good enough”, hmm.  That does not sound great, but it is actually not an inherently bad thing as long as people are considering some of the most relevant information and alternatives.

I suspect you can already see why this is potentially an important topic for budgeting.  We CANNOT consider every possible expenditure item, cut, consequence of our actions… So we live in a bounded rationality and satisficing world (like everyone else).

Imagine trying to create a budget for your community.  Imagine that you have a budget office of 2 or 3 people.  Now imagine trying to understand every EVERY single possible option for appropriations.  Completely eliminating certain areas, increasing property taxes and increasing expenditures, creating new programs, overhauling departments, etc.  I cannot even imagine all the ways you could do it!  Imagine how hard it would be to make the list of possibilities.  Now imagine how hard it would be to evaluate them all—including the ridiculous ones!  Think of the man power, the time, the resources that an exercise like that would require.  It is completely infeasible and foolish!  We do not want to live in that reality.  Bounded rationality and satisficing are our friends, the trick is to consider the right information, alternatives, and consequences.

**If you want to see an outcome that I was not considering, look at what you get when you google images of satisficing ridiculous.**

This series is going to highlight some of the information that is relevant and should be a part of the satisficing exercise.  That does not mean that you have control over some of these issues.  It does not mean that this knowledge will ultimately change what you choose or are able to do.  Many of these topics are out of your control, but by understanding them hopefully you will be able to foresee some problems, understand how these choices effect your community, and help you to discuss finances with elected officials, managers, departments, and citizens.

This series will be a mix of practical knowledge that impacts revenues and budgeting and hopefully thought provoking considerations involved in how we pay for government.  I am exciting about this series and hope that you will continue to pop on over to Death & Taxes over the next few months to see the next few installments.

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