Wednesday, 1:30 PM - 4:30 PM, Annex 114

Fred Thompson, X6228, H (503) 503-508-4229, FTHOMPSO@WILLAMETTE.EDU

Office hours: T/TH 9:30 AM to 12 noon, Mudd 401, or by appointment.

Course objectives: This course is about taxing, borrowing, and spending. It builds on the financial management skills acquired in the core and is designed to provide the basic tools of financial and budget analysis needed for career in finance or public management, including consulting, or for service as an appointed or elected official or a voluntary board member. This course is divided into two blocks of instruction:

1. Financial theory -- which is concerned with the sources and uses of funds, including taxing, borrowing, and the cost of capital, and cash budgeting.

2. Budgeting -- including the budget process, operational budgeting, and capital budgeting.

Description: This course is based on three fundamental premises:

1. A student of public management must understand where the money comes from and how it is raised;

2. Learning public financial administration necessitates running the numbers; and

3. Modern public fiscal administration borrows liberally from the tools and concepts of business management, but there are limits to this borrowing that grow directly from nature of public services. Governments exist to provide people services that business is unwilling or unable to provide: macroeconomic stabilization, income redistribution, and correction of market failures.

The first section of the course is concerned with Budgeting. It begins with a discussion of the logic of public choice and public spending. This is followed by an investigation of budget form, logic, and process. The course also looks at budget methods and practices, including management of budget execution, and selected reform techniques. The section ends with a preview of capital budgeting and program evaluation.

The next substantive topic we take up will be is taxing and user fees. We will look at different tax bases (income, wealth, consumption) from a variety of perspectives -- efficiency as well as equity -- tax administration, and pricing public services. You will learn to compute tax incidence and administrative cost, as well as the income and price elasticities of various tax bases. Using revenue data, you will compare and contrast the tax base in Oregon with other Western states and the nation as a whole. You will then evaluate the Oregon tax structure from the standpoint of equity and efficiency.

The last topics we consider are solvency, borrowing, debt administration and liquidity management.

Texts: John Mikesell, Fiscal Administration.

Grading: Homework (40 percent), Performance on homework will be evaluated primarily in terms of meeting due dates and completeness, neatness and accuracy also matter, but where you must exercise analytical judgment, I am more concerned to see the logic of your analysis than a perfect book solution -- some of the assignments merely require a careful reading of the text, there I will look for a book solution. Complete homework assignments will be graded "A," "B" or C. Late assignments will receive a maximum grade of B. PERMISSION TO TURN IN LATE AND MAKEUP ASSIGNMENTS MUST BE NEGOTIATED WITH THE TEACHER. Homework will be delivered and returned electronically via ClassTools as Excel or Word documents. Open GSM-632: Hand Ins; upload assignment to appropriate folder using no spaces in the document title. For example, if you were turning in a memo on options and derivatives, you would upload it to Section_1/_ as Options.doc. ClassTools will automatically recognize you, the sender, and log your identity and the date and time of submission. Your work will be returned using ClassTools' Handback function. Your grade will be in the document title. Comments and corrections will be on the document itself (you may have to compare your original with the corrected version to appreciate the corrections, but I will use another color to highlight the corrected figures).

Midterm examination. (20 percent)

Contribution to class discussion and presentation. (15 percent)

Class project/final. (25 percent)


January 19: Introduction. Read Chapter 1 of your text (Mikesell)

January 26: Budgeting. Read chapters 2 and 3 of your text. Also, please review Oregon's budget process overview, budget instructions and forms, governor's budget (Balanced and Revised), and the budget as enacted and Oregon's local budgeting information.

February 2: Please read chapter 4 of your text. Answer questions 4: 3 & 9, due February 1 (5%). Also, please read chapter 5 of your text and Responsibility Budgeting in the USAF Material Command.

February 9: Please read chapter 6 of your text and Capital Budgeting.

February 16: MIDTERM (in class)

Tax evaluation: Read chapter 7 of your text.

a. benefits received and/or ability to pay

b. horizontal and vertical equity

c. revenue production

d. collectability

e. distortions and other economic effects

Take home exercise, due April 29 (20% of class grade): evaluate Oregon's state and local tax system in terms of equity (who pays, fairness) and adequacy (revenue production and collectability). In performing this analysis consider the questions asked under 7: 1, but you decide how these questions ought to be answered. Explain your logic.

You can work on your findings and recommendations in groups. Be prepared to summarize your group findings and recommendations in class (ppt), Wednesday, May 4 (5 percent of grade).

(Data sources: Oregon Office of Economic Analysis: National Tax Association Links; State Government Finance Data, Oregon Forecast; State and Local data; Federation of Tax Aministrators; Oregon specific data and the statistical sections of the Oregon Comprehensive Annual Financial Report; ACIR's Book of the States and Oregon Tax Research provide data and comparisons; The John Locke Foundation in North Carolina provides an interesting comparative analysis of state fiscal policy, see also Thompson and Green and Blue Oregon on tax reform and repeal of Measure 5. The best overall source of analysis is the Brookings/Urban Institute Tax Policy Center.)

February 23: Tax types: Income. Read chapter 8 of your text. Be prepared to discuss Oregon's Personal Income Tax Statistics. Answer questions 8: 1, 3, 4, and 6, due February 22 (5%) -- you will need to download tax forms from the IRS or pick them up at the local post office.

March 2: Tax types: Consumption. Read chapter 9 of your text. Be prepared to discuss Oregon's cigarette/tobacco taxes. Answer questions 9: 3 & 5, due March 1 (5%).

March 9: Tax types: Wealth. Also property tax administration. Read chapter 10, Read Property Tax Statistics; skim Property Value Appeal Procedure.. Answer questions 10: 1, 3 & 4 (all six parts -- part e is the hardest), due March 8 (10%).

March 16: Tax Administration and Intergovernmental Aid. Read chapter 13.

March 30: Sale of services and user fees. Reread pages 1-15 of your text and skim chapter 11 and Cost Analysis.

April 6: Revenue volatility. Read chapter 12, also please skim Oregon Economic and Revenue Forecast and Looking into the Future with a Cloudy Chrystal Ball.

April 13: Debt administration. Read chapter 14, including Appendix A. Answer questions 14: 3 & 4, due April 12 (10%)

April 20: Cash flow cycle and basic bookkeeping. Preparation of basic financial statements. Differences between cash and an accrual basis of accounting -- how both differ from economic reality, logic of fund accounting, financial ratio analysis and the evaluation of financial condition. Read Mikesell chapter 15 and reread pages 56-60. Answer question 4.12, due April 19 (5%).

April 27: Liquidity Management (cont.) Read State cash budget -- macro view.

May 4: Project Presentations

Good online sources of analysis and data: Tax Foundation (moderately anti-tax, policy blog), Center for Budget and Public Policy (pro-tax website), Tax Tales (focuses on Illinois, pro Gross Receipts Tax), Consider the Evidence (serious, thoughtful analysis of income and tax issues), the Luxembourg Income Study (LIS) is a cross-national data archive located in Luxembourg, Emanuel Saez' papers and data (the best information available on the distribution of income and wealth in the US), and the Oregon Economics Blog (discussions of local policy issues)