The 7 Deadly Sins of Public Finance

Source: Liz Farmer, Governing, June 2014

This is part of the ongoing Finance 101 series that breaks down the basics of public finance for public officials.

There’s no sure-fire way to get fiscal policy right. But there are a few simple ways to get it disastrously wrong.

The temptation of the quick fiscal fix has seduced just about every lawmaker at one time or another. Scraping pennies together to balance the budget? Perhaps skipping a contribution to the public employee pension plan is the best way to get through the year. Can’t afford to pay for building maintenance? Push some of it off into the following year’s liabilities. Governments have been using these and other money-shuffling tricks since balanced budgets and municipal financing were invented. But in the aftermath of the Great Recession, short-sighted gimmicks like these became more common as governments looked for any solution to combat dwindling revenues. Revenue is back up now in most places, but some of the fiscal trickery has hardened into common practice….

What follows is Governing’s list of the most tempting financial schemes that can severely weaken a government’s fiscal future when practiced as a matter of course. Although the consequences aren’t necessarily lethal, those that make heavy use of these 7 Sins of Public Finance find that they only succeed in digging deeper financial holes.

1. Balancing the Budget with One-Time Fixes ….
2. Ignoring the Long-Term Consequences of a Deal ….
3. Taking on Too Much ….
4. Misapplying a Temporary Windfall ….
5. Shortchanging Pension Obligations ….
6. Making Unrealistic Projections About Rate of Return ….
7. Ignoring Financial Checks and Balances ….