Public Policy Statements - Budgeting and Financial Management

Extension of Federal Prompt-Pay Requirements to State and Local Governments

In 1982, the Federal Prompt Pay Act was passed in an effort to improve the federal government's bill-paying record. Federal legislation requiring payments to vendors on a timely basis was part of a management improvement effort intended to serve as an incentive for more vendors to do business with a federal government. In 1988, there was a proposal to modify the federal law to extend federal prompt-pay requirements to federally assisted state and local government grant and contract programs, but it did not pass because of a final-hour firestorm of criticism.

The timely payment of bills is an important financial management practice that can save governments money. By carefully timing payments so there are neither late nor early payments, a government can take advantage of discounts, avoid penalties, and maximize investment return on short-term investments. Furthermore, prompt bill paying reduces vendor costs which, in turn, reduces state and local procurement costs.

State and local governments have ample incentives to pay their bills on a timely basis if a contractor's performance is satisfactory and the work is complete and acceptable. Governments want to be reliable business partners, so they can retain vendors and reduce the cost of goods and services. Political accountability is also a factor in the prompt payment of bills.

State and local prompt-pay laws are relatively new and still evolving. According to the U.S. Office of Management and Budget, since the passage of the Federal Prompt Pay Act, 27 states have passed new prompt-pay laws and, in addition to this dramatic increase in new laws, states are also amending their existing prompt-pay statutes to strengthen language, increase interest penalties and eliminate loopholes.

The Government Finance Officers Association encourages state and local government efforts to improve government bill-paying performance and policy, regardless of the source of financing, and opposes federal regulation of the procurement practices of state and local governments as an unnecessary federal mandate.

Adopted: June 6, 1989 - Back to Top

State and Local Government Liability Under the Superfund Act

The goal of the Comprehensive Environmental Response, Compensation, and Liability Act, better known as the Superfund Act, is to clean up the nation's hazardous waste sites. Such a goal is clearly important, but its stringent liability provisions have placed unintended and potentially crippling liability on state and local governments. The statute makes any individual or group that has created, transported, managed or disposed of hazardous waste strictly liable for the cost of hazardous waste clean up, without regard to fault. Polluters who jointly contribute to a hazardous waste site's dangers are each potentially liable for the entire clean-up bill. When the federal government sues a party, that party acquires the right to sue its fellow polluters to share the clean up expense.

Landfills where industrial hazardous waste has contaminated ordinary solid waste now represent approximately 20 percent of the worst hazardous waste sites in the nation as listed by the Environmental Protection Agency (EPA). Private party defendants in Superfund cases have sued local governments and others to pick up a disproportionate share of the clean up expense. These actions represent a staggering financial burden for local governments, estimated at $25 million per site. While EPA has recognized and been responsive to these concerns, only statutory change will provide permanent relief to governments.

The Government Finance Officers Association urges Congress to adopt legislation that will bar third-party actions against state and local governments for the generation or transportation of solid waste, facilitate negotiated settlements with the federal government of potential state and local government liability, and enact other changes in the law to reduce litigation.

Adopted: May 4, 1993- Back to Top

Flexibility in Managing Federal Financial Assistance Programs

Federal assistance programs are an integral part of the intergovernmental partnership used to address national policy goals. However, the regulatory restrictions and administrative requirements attached to many federal grant and entitlement programs often needlessly consume money, restrict local flexibility, and impede the effective delivery of services. State and local governments are dealing with increasingly complex problems that require innovative and efficient delivery of services. The individual needs and growing diversity of our nation’s communities and the increase in demand for public services calls for greater flexibility in the design of federal policies and programs.

The current system of federal financial assistance impedes the ability of governments at all levels to address people’s needs in an integrated manner due to the multiplicity of programs dealing with single-issue areas. This fragmentation requires separate staff, offices and other additional supporting costs. Furthermore, federal laws and regulations attached to federal assistance programs often inhibit state and local governments from implementing federal programs because of costly and inappropriate requirements. Consolidation of programs and waivers of duplicative and unnecessary red tape would benefit the recipients of assistance, taxpayers, and federal, state and local governments. While the federal government should assure the fiscal and programmatic integrity of federal grants and contracts, in all cases, maximum state and local flexibility and authority should be preserved.

GFOA Position

The Government Finance Officers Association (GFOA) believes state and local governments should be afforded flexibility in spending and regulatory requirements in order to maximize the effectiveness and efficiency of federal financial assistance and supports legislative and regulatory initiatives that would:

  • facilitate the consolidation of federal grant programs and applications for grants;
  • promote more efficient use of federal, state and local resources through program flexibility and coordination between and among federal programs;
  • enable state and local governments to integrate federal grant programs to increase their effectiveness and adapt federal assistance to fit the particular circumstances of their communities where consolidation has not occurred;
  • eliminate duplication across federal programs;
  • authorize the waiver of statutory and regulatory program requirements that inhibit state and local governments from efficiently and effectively implementing federal programs; and
  • empower state and local governments to create innovative solutions to address national policy goals in ways that recognize the individual needs and diversity of our nation’s communities.

Adopted: May 21, 1996- Back to Top

Cooperative Purchasing for State and Local Governments

As part of the “Reinventing Government” initiative, Congress passed the Federal Acquisition Streamlining Act (FASA) of 1994. One provision of that law granted state, local, and Indian tribal governments and the Commonwealth of Puerto Rico access to federal prices for supplies and services through a cooperative purchasing program administered by the federal General Services Administration (GSA). This would allow state or local governments or their agencies to purchase a full range of merchandise and equipment from the Federal Supply Schedules (FSS), which in many cases represent substantial cost savings over direct commercial contracts. Participation in the program would be optional for any state and local government and for vendors who sell through the federal schedules program.

In 1996, Congress delayed implementation of this provision for 18 months. In the interim, Congress directed the U.S. General Accounting Office (GAO) to study the effects of including state and local governments in FSS cooperative purchasing on (1) small businesses and local dealers, (2) state and local governments themselves, and (3) other federal agencies. It also directed the GSA to submit recommendations to Congress prior to beginning the program.

GFOA Policy

The Government Finance Officers Association (GFOA) supports the cooperative purchasing program for state and local governments administered by the GSA. GFOA supports federal flexibility in implementing the cooperative purchasing program to allow state and local governments access to the federal schedules program in order to maximize the benefits or minimize the risks to all parties concerned.

Adopted: June 3, 1997- Back to Top

Retaining Budget to Actual Comparisons Within the Audited Financial Statements

Generally accepted accounting principles (GAAP) currently require that state and local governments present as part of their basic audited financial statements a budget to actual comparison statement for governmental funds with annual appropriated budgets. GAAP require that this budgetary comparison statement be presented on the budgetary basis of accounting to demonstrate legal compliance. If the budgetary basis of accounting differs from GAAP, as is often the case, GAAP further require that a reconciliation between the two bases of accounting be presented. This treatment has provided an invaluable link between the legal budget and GAAP financial reporting, which has served to enhance the credibility of both.

Recently, the Governmental Accounting Standards Board (GASB) has explored the possibility of removing the budgetary comparison statement from the basic audited financial statements, mandating instead that it be presented as "required supplementary information" (RSI). By definition, RSI does not fall within the scope of the independent audit of the financial statements, although auditors are required to perform certain limited procedures in connection with RSI.

There can be no question of the importance of the budget to a majority of a government’s stakeholders. Indeed, most of a government’s key decisions are based in one form or another upon the budget. Given the importance attached to the budget, it is essential that stakeholders be provided reasonable assurance that a government has maintained budgetary compliance. Until now, this assurance has been provided by the inclusion of the budget to actual comparison statement within the audited financial statements. Relegating budgetary information to the unaudited RSI, as is now under consideration by the GASB, would significantly weaken this important control, and would consequently diminish the confidence of the public and other stakeholders in the government’s budget, and even potentially in the government itself. This proposal also would diminish the importance of the Comprehensive Annual Financial Report (CAFR) to government managers and policy makers.

GFOA Position

GFOA opposes any move to reclassify the budget to actual comparison statement as RSI, thereby removing it from the scope of the audited financial statements. Instead, the GFOA urges the GASB to maintain the integrity of the historic link between the budget and GAAP financial reporting by continuing to include the budgetary comparison statement as an integral part of a government’s basic audited financial statements, as originally proposed in the GASB’s exposure draft Basic Financial Statements -- and Management’s discussion and Analysis -- for State and Local Governments.

Approved by the Committee on Governmental Budgeting and Management February 3, 1999- Back to Top

Endorsement of Public Risk Database Project's (PRDP) Liability Claims Data Standard

The Public Risk Database Project (PRDP), a nonprofit organization, has developed a national database facility to collect liability claims and other data from state and local governments. The database facility transforms the data into management information and serves as a tool to help public entities improve the performance of their risk-management programs, make better policy decisions, and control risk-financing costs. The database is used to perform financial and actuarial analyses, assess and compare performance, identify loss-control opportunities and best practices, and study other aspects of risk management.

Data is sent to the PRDP database from many different sources, including cities, counties, special districts, states and insurers and other private organizations. To be useful, data must be collected, coded and stored in a common or "standardized" way that is generally accepted by governments and their data management service providers. Working with public risk managers, PRDP has developed a Liability Claims Data Standard that identifies the core data elements that are needed to manage a risk program. It provides a standardized cause of loss coding system that identifies the conduct and conditions that lead to claims. The Standard serves as a model for structuring risk management information systems and facilitates the transfer of data to the PRDP database.

GFOA Position

The Government Finance Officers Association endorses the Public Risk Database Project's Liability Claims Data Standard and urges state and local governments to incorporate the Standard into their risk management information systems and support the development of the PRDP database by sending data in the Standard format to PRDP. Implementation of the Liability Claims Data Standard benefits state and local governments by improving the quantity and quality of information that is necessary to make decisions about risk-financing options, allocate resources to control risk, and assess risk program performance.

Adopted: June 13, 2000- Back to Top


Performance Measurement and the Governmental Accounting Standards Board (2002)

The Government Finance Officers Association (GFOA) has long been a zealous advocate of performance measurement in the public sector. Most recently, GFOA has undertaken a comprehensive strategic initiative designed to promote the expanded use of performance measurement by state and local governments.

GFOA routinely seeks opportunities to work with other groups to promote common goals; performance measurement has been no exception to this general rule. GFOA was a strong supporter, for example, of the National Advisory Council on State and Local Budgeting (Budget Council), which identified performance measurement as an essential component of a sound budgeting process. Likewise, GFOA has supported the research on performance measurement undertaken by the International City/County Management Association. GFOA, however, must go on record again (Service Efforts and Accomplishments Reporting (1993), opposing in the strongest possible terms the efforts of the Governmental Accounting Standards Board (GASB) to play a role in the development of performance measurement in the public sector.

To be effective, performance measurement must be thoroughly integrated into a government's budgetary process. This natural relationship between performance measurement and budgeting was underscored in the Budget Council's Guidelines, and can be briefly summarized as follows:

  • A government uses strategic planning to identify its broad organizational objectives, which it then translates into specific goals and objectives.
  • A government frames its budgetary decisions on the basis of results and outcomes that are directly linked to these specific goals and objectives.
  • A government uses performance measures to monitor actual results and outcomes.
  • A government compares actual and projected results and outcomes and uses this analysis as a basis for identifying any adjustments that are needed.

Consequently, to be effective, performance measures must be specific rather than generic. That is, a performance measure is only relevant to the extent it is clearly linked to the goals and objectives that a government has set for itself. Furthermore, inasmuch as goals and objectives reflect public policy, it is only to be expected that they will differ, sometimes substantially, from government to government.

GASB's involvement with SEA (Service Efforts and Accomplishments) is fundamentally incompatible with the understanding of performance measurement just described for several reasons:

  • Performance measures are inherently budgetary and managerial in character and clearly fall outside the purview of accounting and financial reporting, as those disciplines have traditionally and commonly been understood. The GFOA emphatically rejects GASB's attempt to assert its own self-imposed and ill-defined concept of "accountability" to justify the extension of its jurisdiction to virtually all aspects of public finance.
  • In the public sector, goals and objectives are the concrete realization and reflection of public policy. In a democracy, it is the unique prerogative of elected and appointed officials to set public policy. If GASB were to mandate the reporting of specific performance measures it would effectively be usurping this prerogative.
  • There is no such thing as a "neutral" performance measure. The selection of what to measure will inevitably drive performance. Therefore, it is unrealistic to believe that performance measures mandated by GASB would remain purely informational and somehow not have an effect on how governments manage their programs. Even were GASB to establish completely "voluntary" measures of performance for those governments that wish to use them, the very existence of benchmarks established by a national standard-setting body would put pressure on governments to conform their own performance measures to GASB's model measures.
  • GASB standards or recommendations would inevitably involve generic measures, which would break the crucial link between performance measurement and a government's specific goals and objectives.
  • The inclusion of performance measures as part of financial reporting inevitably would require at least some degree of involvement on the part of the government's independent auditor, resulting in additional audit costs. While we freely admit that data verification is essential if performance measurement is to be credible, we do not believe it should be necessary to involve independent auditors for this purpose. Internal auditing procedures should suffice.
  • GASB's expertise is limited to accounting and financial reporting. Expertise in accounting and financial reporting, while invaluable in many aspects of public finance, does not provide a sufficient basis for making decisions regarding how to measure the quality of services. Even if subject-matter experts were consulted, as the GASB promises, the fact remains that the ultimate decision would still be GASB's.

GASB's efforts ultimately will not succeed in helping the cause of performance measurement. Real progress must come from governments themselves and the organizations that serve them. GASB's efforts, however, could succeed at diverting scarce resources from the board's proper mission of improving accounting and financial reporting. GFOA believes that both performance measurement and accounting will best be served by the GASB returning to its proper role as an accounting and financial reporting standard-setting body.

Approved by the Committee on Accounting, Auditing, and Financial Reporting and the Committee on Governmental Budgeting and Management, January 30, 2002

Approved by the Executive Board, February 15, 2002 - Back to Top


State and Local Government Authority Over Communications (1995, revised 2006)

Fueled by new developments in cable, telephone, video and satellite broadcasting and the Internet, the
communications industry is undergoing rapid technological, legal and economic change and growth. Proposals
continue to be advanced to promote competition, encourage investment in the national information infrastructure
and foster widespread service.

State and local governments, which strongly support access to reasonably priced technological advances, must
guard against the unintended preemption of their Constitutional authority, including the power to regulate, tax,
and collect franchise and other fees from communications providers that operate in their jurisdictions. State and
local governments must retain these powers, regardless of the method of distribution of services, in a way that
encourages the growth and diversity of the industry, and fosters state and local economic development, while at
the same time assures state and local citizen and community control.

GFOA Position
The Government Finance Officers Association (GFOA) supports federal communications reform initiatives that

  • Preserving the right of state and local governments to manage their own public rights-of-way and to collect fees or fair market compensation for the use of public rights-of-way from communications providers without intervention from or preemption by federal authorities, including the right to collect differing fees from various communications providers. GFOA discourages the use of statewide or national franchising;
  • Allowing local governments to negotiate franchise agreements directly with communications providers using the public rights-of-way and to regulate and administer the franchise process, including ensuring local government access to communications services and facilities as part of negotiated franchise agreements;
  • Preserving state and local governments’ ability to enforce their land use and zoning authority;
  • Ensuring that any communication tax modernization initiatives protect the interests of local governments, including ability of local governments to:
    • Retain the authority to decide tax policy, including imposing taxes on providers of communications services,
    • Maintain current revenue streams from communications taxes,
    • Establish a broader tax base, which includes the ability to tax services not currently taxed such as satellite, internet access, voice over internet protocol and other services that may develop over time, and
    • Ensure that any centralized collection of communications taxes (at the state level or by a third party administrator) includes adequate safeguards so that revenues will be remitted to the local governments and that local governments retain the ability to audit communications providers for failure to pay taxes;
  • Safeguarding against Federal Communications Commission and congressional actions that would reduce local governments’ ability to collect revenues from communications services and providers;
  • Ensuring the ability of local governments to provide their citizens with access to communications facilities and/or services, including community broadband systems;
  • Supporting policies that promote universal and affordable access to communications services in states and localities, such as federal and state universal service funds and the E-rate program; and
  • Ensuring that states and localities have sufficient spectrum and funding to obtain interference free, interoperable emergency communications.

GFOA urges the federal government to respect the legitimate interests of local governments and their residents as it debates and considers communications reform initiatives. GFOA encourages reform that retains essential local authority to determine tax and franchising policies that are consistent with local needs and maintain adequate revenue, and addresses citizen concerns about the community impact of and access to current and emerging communications technologies.

Recommended for GFOA membership approval by the GFOA’s Executive Board, February 24, 2006.

Adopted by GFOA membership May 9, 2006- Back to Top

Health Care Reform Policy

[This Public Policy Statement combines three current Public Policy Statements – Health Care Reform (1993), National Health Care Reform (1994) and Health Care Cost Containment (2004)]

State and local governments have several roles in the health care arena. They are purchasers and providers of health insurance. They must negotiate with health insurance companies to secure adequate health benefits for active and, in many cases, retired employees and their families. At the same time, they must monitor the costs of purchasing and offering these benefits. In addition, state and local governments may also serve as a community safety net or health provider of last resort, providing health care services to the uninsured, the under-insured, and Medicaid recipients. Health care is now the fastest growing portion of state and local government budgets and governments have cited rising health benefit costs as one of the main contributors to budgetary pressure. These costs limit spending on other important public needs such as education, infrastructure and economic development.

Moreover, the impact of the disclosure provisions required by the Governmental Accounting Standards Board’s (GASB) Statement on Other Post Employment Benefits (OPEB), which mandates that state and local governments disclose their future health care obligations for retired employees and their families, will exacerbate these concerns. While national health care policy is set at the federal level, health care costs fall heavily on state and local governments. For this reason, federal policy should address state and local governments’ needs and concerns.

GFOA Position

The Government Finance Officers Association (GFOA) urges the Administration and Congress to work together with state and local governments on initiatives to reform the nation’s health care delivery system in order to contain the growth of health care costs and expand access to health care for all. GFOA encourages a federal approach that includes:

  • Expanded Health Care Coverage. Millions of U.S. residents are reported to have no health care coverage. The cost of uncompensated and under-compensated health care is ultimately shifted to employers who provide health insurance coverage as well as to individual purchasers of health insurance in the form of higher medical bills and premium increases. For public employers in particular, the coverage they provide to their state and local government employees makes this cost shifting especially onerous. In addition, locally funded public health systems must provide costly health care services to an increasing number of the uninsured. Expanded health care coverage would temper the effects of cost shifting. In order to effectively expand health care coverage, the federal government should promote a full range of financing and service delivery options.
  • Equal Consideration for All. Federal initiatives that offer health care cost saving mechanisms such as subsidies, reinsurance, purchasing cooperatives, and other options that might arise should be offered to employers, employees and providers in both the public and private sector.
  • Adequate Federal Funding. State and local governments shoulder a large share of the cost of the health care provided to Medicaid recipients and the uninsured. The federal government should maintain funding for Medicaid as well as Medicare. It should also permit states and local governments necessary flexibility in program design, including the coordination of benefits. In addition, the federal government should ensure that there is adequate federal funding to address costs associated with the health care provided to undocumented residents by state and local governments. 
  • Transparency within the Health Care System. The federal government should promote transparency in the health care system so that employers and consumers can be more knowledgeable and proactive. Transparency includes the ability for consumers to compare costs, quality, and suitability of different medical providers, hospitals, procedures, prescription drugs, insurance plans, and premiums. 
  • Health Care Education. Public education programs have proven successful in modifying behaviors that drive health care costs. All levels of government should work together to continue and expand these efforts.

Health Care Information Technology. The federal government should promote the use of information technology in the health care industry to simplify and standardize health care administration, improve health care coordination, and enhance patient safety, which will increase quality of care while reducing costs.

  • Performance Standards. Fewer errors, less duplication, and higher quality are critical components to more effective and less costly medical care. The federal government should promote the adoption and use of physician and hospital performance standards. Medical providers and hospitals should be required to report their performance compared to these standards. Employers and consumers can use these standards to compare the quality and cost of care provided throughout the health care system. 
  • Affordable Prescription Drugs. The federal government should encourage and support initiatives to reduce the rising costs of prescription drugs. These initiatives may include: allowing the federal government the authority to negotiate directly with pharmaceutical companies to reduce the costs of prescription drugs; permitting the safe importation of prescription drugs; and studying the possibility of reducing the time frame on prescription drug patents. 
  • Integrate Existing State and Local Government Programs with Federal Programs. State and local governments have taken a leadership role in developing and implementing many successful cost containment and coverage initiatives for both employees and the uninsured. These programs provide valuable models for federal initiatives. State and local government input should be solicited when these federal initiatives are considered.
  • Availability of Health Care Professionals. There are significant factors that impact the availability of health care. These factors include the opportunities and affordability of education and on-going training for health care professionals, the dramatic increase in demand for health care with an aging population and the exposure to medical liability. The federal government should address all factors related to the availability of health care professionals.

GFOA is committed to working with federal policy makers to develop and support the health care reform initiatives discussed above in order to expand access to quality care and control the growth of health care costs.

Recommended for GFOA membership approval by the GFOA’s Executive Board, February 24, 2006.
Approved by GFOA membership, May 9, 2006. - Back to Top

Taxation of Remote Commerce (1986 and 2008)

(formerly known as Taxation of Interstate Mail-Order Sales)

The Government Finance Officers Association (GFOA) is aware that governments have been seriously handicapped in their ability to collect legally-due sales and use taxes on interstate sales because of the 1967 U.S. Supreme Court National Bellas Hess and the 1992 U.S. Supreme Court Quill v North Dakota decisions.

These two decisions deny states and localities the legal authority to require the collection of sales and use taxes by remote sellers that have no physical presence in the taxing state. These decisions have resulted in a loss of millions of dollars in sales and use tax revenue and place local business and out-of-state retailers with a physical presence in taxing states at a serious competitive disadvantage.

State and local revenue losses and the competitive disadvantage of local brick and mortar businesses have been intensified in recent years because of the substantial growth in untaxed Internet or similar out-of-state sales. Many studies and projections demonstrate that e-commerce Internet sales and other types of remote purchases (e.g., booking online travel services which impact transient occupancy taxes, rental car taxes, and business gross receipt taxes) are accelerating at a rapid pace. Thus, uncollected or undercollected taxes could comprise a major share of all tax collection, rendering sales and use taxes ineffective. Ensuring that consumer paid taxes are collected and remitted correctly to the government is vital to maintain tax fairness and transparency.

GFOA Position
The GFOA supports legislation that would prevent continued tax revenue losses and remove the competitive advantage now enjoyed by remote sellers. Furthermore, federal legislation should stipulate that online retailers and businesses, just like brick and mortar retailers and businesses, must remit the appropriate local taxes based on the purchase price of the good or service. In developing this legislation, GFOA asks that all changes be prospective.

Recommended for approval by the GFOA’s Executive Board, February 22, 2008.
Approved by the GFOA’s membership, June 17, 2008.- Back to Top


Mandating Specific Technologies for Financial Reporting and Disclosure Purposes

The Government Finance Officers Association (GFOA) has long encouraged governments to demonstrate accountability and transparency by making financial information of the highest quality readily accessible to citizens and other interested parties. GFOA is aware of the developing technological advances toward the development of standardized financial information. However, GFOA is also aware of efforts to mandate the use of specific technologies for the purpose of reconciling and reporting financial information. Such a mandate imposes significant burdens on state and local governments including:

  • Unfunded mandate. Implementing a specific technology for the purposes of financial reporting would convey significant cost to state and local governments, including the costs required to equip the local governments with the technology, to train the employees of the local government in order to effectively use the new technology and to protect the information housed in the new technology. Additionally, due to the iterative nature of new technologies, they will also carry a high likelihood of continued maintenance or updates.
  • No viable taxonomy. While numerous small-scale efforts have been made to develop a taxonomy that incorporates necessary elements of GASB GAAP financial statements, there currently exists no viable taxonomy. The very substantial differences between the private sector and government make existing private sector taxonomies substantially unusable.  Moreover, the vast differences in structure and operations among and between general purpose and special purpose governmental entities makes the creation of a single, uniform taxonomy especially challenging. Efforts to limit the development of a taxonomy to only selected elements of financial statements will mean that only incomplete data – rather than the level of detail deemed necessary for GAAP reporting -- will be available.

GFOA opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.

Adopted: September 28, 2018 - Back to Top