Transparency Reveals Inner Workings of Organizations

While the topic seems to be limited to campaign finance and attempting to shine light on relationships of officials to money-making related to functions of government, the most important aspects of transparency are missing.

Transparency comprises two parts: financial and procedural openness.

Financial openness is something we demand of businesses. We demand they issue the 4 classic reports every year (and sometimes with quarterly data).

Balance Sheet
Income Statement
Cash Flow Statement
Budget Plan

In business other reports can be issued like Equity Statement, and the previous approved Budget is often laid down next to Actual figures in a report to judge performance.

We need a Budget Plan that has no more than 200 items, each with a responsible person in charge, who will go to jail if the numbers are deceptive.

The Balance Sheet should show all assets and all liabilities. Our ‘equity’ belong to the people of Texas. Not more than 200 summary items should be in the assets and another in the liabilities. We need to identify whether Texans hold these liabilities (bonds) or foreigners. We can’t forget ‘off-book’ items, too, like leases and son.

For the Income Statement we need to show income by all sources and into what account they flow. It should show all expenses, divided by department. All expected expenditures should be included and what account they will flow out of. If the budget can’t have more than 200 items, then no more than 200 departments are shown broken down.

Cash Flow is about short-term borrowing to meet cash needs during the budget year (2 years in Texas). If ending cash, including short-term borrowing that is paid back, ends with a non-negative balance, the budget plan was successful.

Long-term borrowing should be done only to acquire long-term assets whose durable life is expected to exceed the payback period of the borrowing. Typically we refer to these as capital assets and match payback term with asset life. They’re never intangible assets.

Paying back long-term borrowing has to be committed to long term. A plan for what is to be taxed at what rate and how that relates to the asset being acquired. Basically the asset has a purpose to meet objectives imposed by the persons or things being taxed.
For example, if we tax residences to install sewer lines, we understand the connection. The payback from real property taxes over decades makes sense, but we also must take account of maintenance costs.

Operating costs do not belong in long-term borrowings. If the same sewer lines need short-term financing to meet cash flow needs, fine, but not to finance operations into the development work. A separate mechanism to fund the operating costs is needed.

Budgets should be built from the bottom up. Each low-level department must construct a set of capital items, expenses and income in budget form to meet its goals. Performance shall be measured by how accurate budgets are, but savings shall not be penalized, because that “profit” is our money, not to be squandered.

Frequently, money is squandered to protect the department’s budget. If all monies are not spent, the next year’s budget will be reduced. This is the wrong approach and encourages wasteful last minute flushing of money down the toilet.

Corporate approaches to accomplishing goals while saving money is to return a portion of the savings as bonus to employees. We know something like that is misused in government today. Bloated budgets can easily have savings, and thus bonuses. This is wrong.

A twist on Sarbanes-Oxley will be that “CEOs” of government departments must sign off on budgets that they contain no waste and will accomplish the goals for the department. Naturally, ‘waste’ is another word for contingencies or even fraud. It will be difficult to differentiate between padded budgets, identifiable contingencies, and fraud; but we must try.

Please take a moment to consider the concept of making officials accountable, under criminal penalty just like Sarbanes-Oxley. And consider making the same FASB reports required for every branch, department or bureau, whether headed by a political appointee or a civil service employee, and published for all the world to see.

The second aspect of transparency is procedural. Every process should be open to scrutiny (except for litigation or privacy matters). We need to build that thinking into every aspect of governance. FOIA is a reasonable way to assure nothing is hidden. But the mechanism needs to built into every process.

We need to demand transparency at all levels of government, not just the state, but all ISDs, all cities, all counties, every board, agency and commission, both financial and procedural transparency.