IAAO Course Prerequesites

Let’s go over them.

Continue reading

It was an (im)perfect illusion: Fiscal Illusion and You

Fiscal illusion, sounds catchy doesn’t it?  Does it sound more like something you would read about on an ophthalmology website than a blog on taxes?  Well, that is where you are wrong.  Fiscal illusion is a hypothesis surrounding the notion that citizens systematically misunderstand their true tax burdens and the benefits they receive from government-provided services. In other words, they do not understand how much they pay in taxes or the value of the services that government provides.

At the start of the last century, economist Amilcare Puviani hypothesized that the ruling class designs public tax and expenditure policies to minimize resistance from the dominated class. To do this, the ruling class intentionally overstates the benefits that the dominated class receives and tries to obscure the tax burden so that this dominated class will underestimate it. In democracies, this is usually born out when public officials try to make tax burdens appear lower than they actually are. Figure 1 shows what happens when citizens underestimate the cost of government and how much they pay for it.

As Figure 1 shows, if citizens are paying P1 for government and they know that P1 is their cost, then they demand X1 of services, landing them at point a.  However, if there is a fiscal illusion in place and they incorrectly believe that services cost P2, they will demand X2. Citizens believe they are on their demand curve at point c, but in reality they are off of their demand curve at point b.  Outcomes off the demand curve are suboptimal and inefficient.

Figure 1 – Fiscal illusion and demand for public services

Source: Wagner, 1976

Okay, so let’s translate that again.  Citizens think that their services cost less than they do.  Why does that matter?  Well, it matters because we consume more if it costs less-think groceries.  In this case, if we think government costs “P2” which is less than “P1” then we will demand more of it.  Think about this in practical terms.  If your government could add additional covered bus stops at a cost of $10,500 you may say let’s add four more.  However, if they really cost $17,000 you would likely add fewer and may not add any at all.  While citizens may not have an exact price in their mind, it is the same idea.  They do not understand the cost of government and leads to irrational and suboptimal preferences.

The literature generally finds that elected officials have in fact created, intentionally or not, fiscal illusions that cause citizens to underestimate their tax burdens and demand more public services than they would if they had a more accurate perception of their true cost. One primary cause of fiscal illusion is the high cost to citizens of compiling accurate information on their tax burdens and of government expenditures. This is especially true with less visible and indirect taxes; an oft-used example involves property taxes versus excise taxes. Property taxes are highly transparent. The amount that must be paid is clear, and citizens are able to easily understand their burden. In contrast, excise taxes (like gasoline taxes) are included in the cost of goods, and taxpayers may not know what portion of the price the tax constitutes or even that they are being taxed at all. Also, the overall expense of an excise tax is harder to track, as these taxes are paid over time in small increments.  This in part explains why property taxes are so much less popular than excise taxes, because people truly understand their burden.

Another contributing factor in fiscal illusion is that since a citizen’s tax burden is spread out through the entire year and over multiple tax instruments, it is difficult to keep track of the costs and therefore challenging to get a true sense of overall burdens. For example, today’s typical citizen pays income taxes (monthly/state and federal), sales taxes (daily/state, county, and municipal), excise taxes (weekly/federal and state), property taxes (annually/county, municipal, and school district), Social Security and Medicare (monthly/federal), and other taxes (e.g., inheritance taxes, user fees, license costs).

These underlying factors help to obscure the true tax burden of citizens and lead to an inefficiently high level of government expenditures. As a result of fiscal illusion, citizens pay more in taxes than they realize and would be willing to if the illusions did not exist. Tax burdens that are too high lead to excessive government expenditures.  This is why scholars offer fiscal illusion as an explanation for the dramatic expansion of the public sector during the twentieth century.

The disturbing trends identified by academics who study fiscal illusion are echoed by public opinion.  Despite there being more data available to citizens today on government activities than at any other period in history, trust in government is nonetheless at a record low (19 percent), while citizens increasingly believe that their government spends too much (76 percent) and that the tax system needs a major overhaul (72 percent). Results like these suggest that government is systematically providing a level of services that is not in keeping with citizens’ preferences. But while numerous tax policies and structures currently in place create and exacerbate fiscal illusion, there are actions that citizens and elected officials can take to improve the situation. 

What to do? Over the long run, lawmakers may attempt to reduce the amount of fiscal illusion by simplifying the tax code, reducing deductions and exemptions, relying on more visible tax instruments, and mandating that different levels of government use particular sets of tax instruments. Not all of these actions are politically or economically feasible, however, and each would take time to implement. In the meanwhile, increasing transparency by providing citizens with information on governmental operations, policies, and management is a critical step toward rebuilding trust and promoting an efficient level of government. To be transparent, government must inform citizens as to (1) the scope of its services, (2) the reasons it provides those services and what their benefits are, and (3) how much those services cost and how they are financed. Such knowledge allows citizens to make well-informed decisions about their desired level of taxes and services.

Transparency and citizen education are not simple tasks, and there are no universal solutions. It is clear that merely “dumping data” will no longer suffice, and as a result governments are experimenting with better ways to relay information and engage taxpayers. Citizen academiestaxpayer receipts, partnerships with Code for America, and interactive tools like Budget Hero, are innovative examples of attempts at citizen engagement in an age where citizens appear averse to fiscal issues and fiscal illusions are pervasive in modern American tax policy and law. Continued development of such tools will go a long way in changing citizens’ views about the benefits and costs of their governments’ approach to taxes and services.

This article is based on the paper, ‘Fiscal Illusion in State and Local Finances: A Hindrance to Transparency‘, in State and Local Government Review and portions of it are taken from A lack of transparency is leading to a fiscal illusion where citizens underestimate their tax burdens and the cost of government that was written for the London School of Economics’ American Politics and Policies blog.

Communicating and Sharing Information

As this year’s North Carolina Association of Assessing Officers (NCAAO) President, I’ve tried to make good communication one of my priorities. Across North Carolina, we have received appeals from common taxpayers. There are a lot of them. We can call them multi-jurisdiction taxpayers and define them as individual taxpayers with real and personal property in more than one jurisdiction. It only makes sense for that taxpayer to keep track of how each of us responds to appeals. Which of us concede easily? Which of us have accurate data and can defend our values? Are there any counties that do not have the financial or other resources available to defend values? We know they care about keeping track of us because when those appellants contact us, they’ll let us know right away, “You do know that Durake County dropped their value to $47 per sq ft and New Catamance dropped their value to $52 per sq ft. Don’t you think $90 is a little high”? So to this end, we’ve established a Data Sharing Committee to research the best way we can share information before we get that appeal. Wouldn’t it be better for the counties at $47 per square ft to know other counties are much higher, and why? Wouldn’t it be better for our commercial appraisers to have a contact person in each county to talk with about the numbers, techniques, and resources? This certainly isn’t a game, we’re targeting fairness and equity, not “winning”. But we believe this is a way for our employees to be more proactive instead of feeling like we’re playing defense. If you would like to learn more about the Data Sharing Committee, please contact one of the committee members. A list of committee members can be found on our website here. https://www.sog.unc.edu/resources/microsites/nc-association-assessing-officers/officers-and-committees

Another communication focal point needs to be PTAX. PTAX has been one of our best communication tools since our tax offices, in whole, began widespread use of email. Joe Hunt and his resources at the School of Government introduced us to the idea of the PTAX listserv in 1999, so we’re getting close to 20 years using this same tool that allows one person’s idea or question to be shared with over 1,700 members with the click of a button. At times, either the School of Government or the NCAAO have needed to pull the reins back on PTAX usage. We’ve seen nice poetry and inspirational messages, and we’ve sometimes seen less than kind comments about legislative ideas. All of those things may have a place, but it’s not PTAX. Our NCAAO and NCTCA Legislative Committees and the NCDOR work hard to keep healthy lines of communication in place with legislators and the NC Association of County Commissioners. PTAX isn’t a forum for grumbling. When the send button is pressed, it becomes a public record. If we review the official description of PTAX, it’s technically for assessors and collectors to communicate with each other, but the list is open to all property tax officials, their staffs, and members of the NCAAO and NCTCA. But obviously resources for commercial appraiser and delinquent collector discussions are important too. We’re thinking we need to narrow the focus when using a “PTAX-type” communication tool. So to that end, we’ve already created a listserv limited in membership to the 100 appointed assessors, the NCDOR, and the SOG. It is called assess@listserv.unc.edu. The stated purpose is to create a forum to discuss management level assessment issues open only to the appointed assessor in each county, the School of Government, and North Carolina Department of Revenue. If you are one of the 100 assessors, you’re already a member. Instructions will be sent soon. The creation of a listserv only for appointed collectors is also in the works. While doing this, it’s worth mentioning whether the SOG needs to be involved in the listserv management business anymore, or even if listservs are in our future. Kirk Boone at the SOG has volunteered to be the assessor listserv manager for now, but is it necessary? A listserv list can be managed from a number of web-based email providers for free. And, regardless of where a listserv is managed, it’s still a public record. If an email is made or received in connection with the transaction of public business, it is a public record. It doesn’t matter if it’s on a private server or sent from a private email address.

So what about the future of “ptax-type” communication for all of us? I’m talking from assessors, appraisers, and data collectors to the appointed collector and delinquent collection clerks. Certainly individual listservs are easy and free and we can do it ourselves. But there’s one more new resource out there that has been well received and it completely replaced the NC Finance Officers listserv. It’s called NC Finance Connect, https://www.sog.unc.edu/resources/tools/nc-finance-connect

NC Finance Connect was launched around the beginning of 2017 in response to the vision of School of Government faculty and due to the 1,400-member finance officers listserv sometimes overloading email inboxes with questions and comments not directly related to their specific area. Members also found it difficult to find previously posted discussions and documents. Sound familiar? NC Finance Connect attempts to limit these problems, narrow discussions, plus add new features. There are already property tax discussion topics and I understand from the SOG that other categories can be created. We’ll need to go slow with this tool. There is a learning curve. But check it out. Could this replace PTAX and other listservs?

I hope all readers will continue to communicate, and even increase communication, about assessment and collection. We have some of the best tools ever to do this among jurisdictions. But please don’t forget to communicate internally first. Go to your supervisor. If you are the supervisor, go to the assessor or collector. If you are the assessor or collector, consider asking a colleague from another jurisdiction whether it would be appropriate on PTAX. If any of you need answers to assessment and collection questions, there should be a resource there in your jurisdiction to help. Let’s use PTAX with care and restraint. If there’s any thought about whether a PTAX post might be improper, slow down first. Proceed with caution. But please know that your question or comment is important. Let’s all work together to find the best forum for it.

Appraisal and Reappraisal. Just Do It?

In late 2014, just after joining the SOG, the NCDOR included me in the initial discussions among assessors about North Carolina’s reappraisal standards. This blog post includes some of the thoughts and questions that I shared with the group at that time. Please keep in mind that this post is written informally, from my perspective during late 2014. I was discussing with the committee, mainly through emails, whether the assessment system our taxpayers deserve was being delivered. On the other side of an inadequate reappraisal, I wasn’t sure our lawmakers in Raleigh would accept an excuse of, “We weren’t given the needed resources”.  I’ll refer again back to this related blog post on ways to request what is needed.

Continue reading

You Are Doing WHAT to the Governmental Funds?? – Part 3, The Long-Term Approach

Yogi Berra said it best.  “It’s déjà vu all over again.”  That is what should come to everyone’s mind upon reviewing the third measurement focus and basis of accounting proposal from the Governmental Accounting Standards Board’s (GASB) recent Invitation to Comment (ITC), Financial Reporting Model Improvements – Governmental FundsAs was noted in the previous blog post You Are Doing WHAT to the Governmental Funds?? –  Part 2, the Short-Term Approach, each proposal is moving further and further away from the current financial resource measurement focus and the modified accrual basis of accounting currently used in the governmental funds.  Well, this is an all-out retreat!!  In fact, it is also being referred to as the total financial resources approach.

Continue reading

Crowdsourcing for Local Governments: Research Review

Research Review is a place for me to bring you academic research that I think might be of interest or relevant to you all.  It is not necessarily the Cliff notes of the paper, but it will present some key findings or insights from the paper.

In this installment of Research Review I am going to talk to you about crowdsourcing government services via the paper “A Framework for Using Crowdsourcing in Government” (Clark, Zingale, Logan, and Brudney 2016).

So first things first, what is crowdsourcing?  The authors define it as: “Crowdsourcing is a general term used to describe a variety of ways that organizations, particularly in the for-profit sector, take advantage of the thoughts, inputs and ideas of the public” (pg 57). These days that usually means through the internet and/or phone.

The authors characterize crowdsourcing as being less organized and focused than typical workgroups and that they tend to be used for gathering lower level ideas and suggestions—not to say that they are not important, just not necessarily “big picture.”  Of course the crowd matters too. There are times it makes sense to involve everyone, there are times that it does not.  One advantage is that there can be some internal policing and vetting of ideas amongst the participants which can help eliminate biases.  Biases that professional and technical training may inadvertently create or those that may be driven by experiences or status.   While this policing may happen naturally, effective crowdsourcing will also require an administrator (or moderator) of the platform and information.  This administrator will need to understand the issue at hand, have some technical expertise, and what sort of information and input is desired from the crowdsourcing endeavor.

One of the success stories of crowdsourcing is through 311.  There have been some great examples of where online platforms or even webapps have allowed citizens to report problems like potholes or dead trees in the street.  For example, “New York City residents can now take advantage of an innovative Internet platform that combines the instant effects of crowdsourcing with a hobby that many residents like to do – complaining” (full article).

Am I the only who is thinking of Pokémon Go for local governments?  Find three potholes and earn the road warrior badge!  Ride the public bus five times and earn a pine tree hugger badge, ride it 25 times and you can evolve it into a redwood hugger badge!  This is what people like my husband (i.e., nerds) would call gamification and it is pretty popular right now too!


But I digress.  These 311 apps have been a great way for helping local governments monitor outages, the need for repairs, and  other problems.  While someone on the government side still needs to sift through all the reports and data and then have a crew go address the problem, it has been successful at identifying needs.

Crowdsourcing is beginning to be implemented by local governments, but there is still room to do more.  The question is how and when and WHAT.  That is where this paper is helpful.  It presents a basic framework to begin to think about these issues.

They develop a framework based on the type of problem, then translating it into what sort of process and feedback you might want to solicit, and then some of the issues with that process.  Once that is laid out, they go into brief case studies to illustrate the points.

This first figure is how they present their initial framework.  It allows for you to identify whether you have a complex or simple problem and the level of expertise you need and the diversity of thought you want.

They further flesh it out through this typology.  You can see under the column labeled “Our Analytical Framework” how this second figure corresponds to the first.  What is SO helpful about this second figure is that it gives a quick and dirty guide to ways in which an organization can crowdsource and some of the issues you should consider.

This all sounds great right?  Well it can be, but the paper highlights numerous issues.  I will highlight one here, transaction costs.  “Transactions costs, in the economic tradition, are the costs of finding partners, negotiating with them, and enforcing the contract you have agreed to. Each interaction between citizen and government incurs a cost on either or both parties. The higher the transaction cost is, the more difficult it will be for citizens and government to collaborate. In government crowdsourcing all three types of transaction costs are present: search and information costs (finding partners/collaborators/information), bargaining costs (negotiating the relationship), and policing and enforcement costs (assuring the contract is carried according to the negotiations)” (page 59).  These costs may not always be obvious and the first that are considered when government begins the process of exploring crowdsourcing—but they are critical.

What are the primary takeaways? They conclude with three themes they believe will help government understand and implement effective crowdsourcing.

  1. Lower the transaction costs. Yup, back to this one. They specifically identify lowering the costs to participants (though government matters too).  One way to do this is to take more complex problems and make them into smaller more discrete pieces.  Let citizens easily navigate themselves to the problems where they want to help and feel like they can help.
  2. Make sure you say thank you to participants. You need to acknowledge their contributions with a thank you and some visible evidence that their feedback is being used. So if you are playing Pokémon Go and they find potholes, then let them know when they have been filled and thank them for their assistance! 
  3. Recognize and emphasize that crowdsourcing does not replace what government has been doing, it adds to it.  You still need your experts and there are places where that expertise trumps all outside input.  That does not mean encouraging skepticism, the authors point to evidence that the wisdom of the crowds can be high quality and useful to government.

Thoughts?  Have you all tried any crowdsourcing?  How did it go?  What problems did you encounter?  What successes did you have?  Please comment and share.  Let’s crowdsource this conversation!




Benjamin Y. Clark, Nicholas Zingale, Joseph Logan, & Jeffrey Brudney. (2016) “A Framework for Using Crowdsourcing in Government.” International Journal of Public Administration in the Digital Age, 3(4): 57-75.


Crowdsourcing is a concept in which the crowd is used as a source of labor, idea generation, or problem identification. Crowdsourcing originated in the private sector; though with any good private sector practice it is increasingly being utilized in government. This paper provides an overview of the concept of crowdsourcing, gives examples of its use in the private and public sectors, and develops a framework for how governments can begin to strategize and think about crowdsourcing to solve problems when engaging with citizens. The authors’ framework is illustrated with a number of cases from current or past uses of crowdsourcing in government. They conclude with important considerations about how governments should strategize their crowdsourcing efforts.


Training Opportunity: Local Government Federal Credit Union FELLOWS

I know we typically only talk taxes and finances here on Death & Taxes, but I wanted to take the opportunity and let you all know about a dynamic and engaging leadership development opportunity through the School of Government.  The Local Government Leadership Credit Fellows program focuses on personal and organizational leadership skills and aims to develop the next generation of local government leaders.

Participants graduate with a deeper understanding of their individual leadership strengths, skills for improving their organizations, and a renewed passion for public service.

Image result for leading for results fellows

The program is designed for managers, assistant managers, department heads, supervisors, and the like.

Applications are due May 19 and the program’s tuition is covered by scholarships from the Local Government Federal Credit Union.

For more details and directions on how to apply please visit the course page: https://www.sog.unc.edu/resources/microsites/leading-results-lgfcu-fellows.

I hope you will consider applying!




You Are Doing WHAT to the Governmental Funds?? – Part 2, The Short-Term Approach

In our last chapter, You Are Doing WHAT to the Governmental Funds?? – Part 1, The Near-Term Approach, we explored one of the three new measurement focus and basis of accounting (MFBA) options being considered for the governmental funds.  These approaches are presented in the Governmental Accounting Standards Board’s recent Invitation to Comment (ITC), Financial Reporting Model Improvements – Governmental Funds.  And you thought it was a scary chapter!?? The suspense continues with the second MFBA proposal – the short-term (or working capital) approach.  One spoiler alert (but it is for your own good) – each approach goes further away from the current resource measurement focus and modified accrual basis of accounting currently used by the governmental funds.  (Just wait until you read Part 3….)

Continue reading

Are you a Tax Administrator or a Tax Supervisor? Of course you aren’t

Try this online exercise. Go to Chapter 105 of the North Carolina General Statutes. Here’s a link. Once there, most browsers will allow a search feature. A common way to search in many software applications is to press the <Ctrl> key +F. Now search all of Chapter 105 for “tax administrator”. It doesn’t exist. But there are lots of tax administrators in North Carolina, right? Now search all of Chapter 105 for “tax supervisor”. The tax supervisor is referenced 9 times in the Machinery Act. And if you read the context of those references, there are a few important roles involved there. How many counties have a tax supervisor to fulfill these roles?


Continue reading

You Are Doing WHAT to the Governmental Funds?? – Part 1, The Near-Term Approach

In my previous post, Invitation to Comment – or Invitation to Disaster?? The Long Slog to a New Financial Reporting Model Begins!, I provided a fascinating overview of the Governmental Accounting Standards Board’s (GASB) new financial reporting model project.  As was noted, the actual Invitation to Comment (ITC), Financial Reporting Model Improvements – Governmental Funds is a first step in the long due process of developing a new GAAP standard.  As is the case here, an ITC usually provides an opportunity for the GASB to solicit feedback on various proposal considerations.  A significant aspect of the reporting model project is the reconsideration of the unique measurement focus used in the governmental funds (current financial resources).  The ITC details three new measurement focus approaches to consider – the near-term approach, the short-term approach, and the long-term approach.  This post, focusing on the near-term approach, is the first in a series that will provide (hopefully) a clearer insight into the plotting that is occurring in Norwalk.

Continue reading

« Older posts

© 2017 Death and Taxes

Theme by Anders NorenUp ↑