FINANCING OVERNMENTS IN THE ST C...FINANCING GOVERNMENTS IN THE 21ST CENTURY: INTERGOVERNMENTAL COLLABORATION CAN PROMOTE FISCAL AND ECONOMIC GOALS Valerie A. Lemmie,Chair of the Board

A Summary Report from an Intergovernmental Forum of the

NATIONAL ACADEMY OF PUBLIC ADMINISTRATION

NATIONAL ACADEMY OF

PUBLIC ADMINISTRATION

July 2006

1100 New York Avenue, N.W. Suite 1090 EastWashington, DC 20005Phone: (202) 347-3190Fax: (202) 393-0993Web: www.napawash.org

NATIONAL ACADEMY OF


INTERGOVERNMENTALCOLLABORATION CAN PROMOTEFISCAL AND ECONOMIC GOALS

FINANCING GOVERNMENTS IN THE21ST CENTURY:

CENTER FOR INTERGOVERNMENTAL RELATIONS

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THE ACADEMY

The National Academy of Public Administration

is the preeminent independent, non-profit

organization for public governance. Established

in 1967 and chartered by Congress, the

Academy has become an independent source of

trusted advice for every branch and level of

government, Congressional committees and

civic organizations. The Academy works

constructively with government agencies to

improve their performance and management

through problem solving, objective research,

comprehensive analysis, strategic planning, and

connecting people and ideas. The Academy is

led by its elected membership of more than 600

distinguished Fellows.


A Summary Report from an Intergovernmental Forum of theNATIONAL ACADEMY OF PUBLIC ADMINISTRATION

FINANCING GOVERNMENTS IN THE 21ST CENTURY:INTERGOVERNMENTAL COLLABORATION CAN

PROMOTE FISCAL AND ECONOMIC GOALS

Valerie A. Lemmie, Chair of the BoardG. Edward DeSeve, Vice Chair

C. Morgan Kinghorn, PresidentFranklin S. Reeder, Secretary

Howard M. Messner, Treasurer

The views in this report are based on the discussion at the Forummeeting and research by Academy staff. They do not necessarily

represent the views of the Academy or the Forum Principals.

National Academy of Public Administration1100 New York Avenue, N.W.

Suite 1090 EastWashington, DC 20005

www.napawash.orgFirst published July 2006

Printed in the United States of America: ISBN 1-57744-133-8

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THE INTERGOVERNMENTALFORUM ON REVENUE SYSTEMSAlthough governments at all levels have become increasinglyinterdependent, limited opportunities exist for officials to meetand discuss common problems and potential solutions acrossthe boundaries of the intergovernmental system. TheIntergovernmental Forums, convened by the National Academyof Public Administration in concert with a consortium oforganizations representing state and local officials, seeks to fillthat void.

Bringing together federal, state and local leaders to discuss sharedchallenges, the Forums are designed to reinstitute a neutral forumfor informed dialogue in a manner that disappeared with thedemise of the Advisory Commission on IntergovernmentalRelations (ACIR) more than a decade ago. The IntergovernmentalForum on Revenue Systems was the first in the series ofIntergovernmental Forums convened by the Academy.

This summary report captures the major themes, challenges andsolutions shared among the forum participants over a ten-monthspan, from May 2005 to March 2006. The Academy will issue amore extensive final report in late summer 2006.1

RECOGNIZING INTERGOVERNMENTALREVENUE PRINCIPLES

How much revenue should be raised? How should revenue beraised? These questions are as old as government itself. Electedofficials and administrators at all levels of government devoteenormous amounts of time and energy figuring out how to payfor services and activities that the economy needs and the publicvalues. The source is taxes, which nobody likes to pay and whichthemselves influence economic activity.

1A list of individuals involved in this effort and the approach used is detailedin a section at the end of this Summary Report.


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Looking forward, officials can expect to devote even more timeto these questions. Revenue issues are an integral part of themounting pressures for change that affect society and fiscalaffairs at every level of government.

When deliberating about revenue systems, it is generallyacknowledged that tax policy should be based on itsconformance to principles of sound taxation.2 Raising revenuessufficient to support the level of government desired by thepublic is fundamental. However, taxes do more than raiserevenue. They affect economic decision making, change thedistribution of income and impose compliance and administrativecosts on tax filers. Tax policy also is expected to meet andattempt to balance other criteria or principles, including:

• economic efficiency • equity • transparency/simplicity• administrability

These principles suggest that a sound tax system raises sufficientrevenues; makes administrative sense in a way that taxpayers andadministrators can understand; provides fairness in terms of howburdens are distributed; and does not inappropriately distorteconomic decision-making. All told, policymakers face a difficulttask; compromises and accommodations are necessary tobalance sometimes competing principles.

This summary report not only highlights these classic revenuesystem principles. It also encourages policymakers,administrators and the public to think about them from anintergovernmental perspective. Ultimately, it is the design of theentire tax system of all governments—not just the federalgovernment—that determines whether the revenue system as awhole achieves the goals embodied in these principles. Themagnitude of this challenge requires officials at all levels tobecome more thoughtful about revenue systems to ensure thatthey keep pace with the times and are not harmful to theeconomy and society or a barrier to change.

2An Issue Brief on Sound Principles of Taxation can be found in an Appendixto the forthcoming Forum report. The brief, prepared for the Principals ofthe Forum, includes a bibliography of resources that offer in-depthexplanation of experts’ views on these principles and ways to balance them.


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USING FORESIGHT TO ANTICIPATECHANGES

The Intergovernmental Forum on Revenue Systems identifiedmajor economic and social forces that are generatingunprecedented pressure on revenue systems and publicfinances.3 They include:

• globalization• advancing technologies • shift to a knowledge-based economy• aging of the population• structural fiscal imbalances

These forces already have consequences for the tax bases andspending programs at all levels of government. Globalizationmakes most taxes more difficult to enforce. For instance, multi-national corporations can exploit different tax rates and rules byallocating their income and assets across jurisdictions for taxplanning reasons. Technologies, such as the Internet, havechallenged tax officials to apply traditional sales taxes totransactions that easily cross geographic and jurisdictionalboundaries. Further, a greater proportion of consumption occursin services now than in the 1960s with much of it not reached byretail sales taxes.4 A greater share of business balance sheets iscomposed of intangible, knowledge-based assets that are moredifficult to value for purposes of income and property taxes. Theshifting base of the adapting economy should trigger governmentsto consider adapting their revenue systems, as well.

An aging population includes both a higher number of retireesand a lower number of workers available to finance the socialinsurance costs of retirees. This population will slow the growthof specific revenue sources as the elderly have lower income(affecting the revenue productivity of income taxes); consumeless goods and services (affecting sales tax productivity); and

3Numerous reports and papers have commented on forces at work in theUnited States and their implications for public finance, including Governance inthe New Economy, Raymond C. Scheppach and Frank Shaffroth, NationalGovernors Association,Washington, DC, 2000.Also Toward a System of PublicFinance for the 21st Century, National League of Cities, 2000.4According to the Bureau of Economic Analysis (BEA) National Income andProduct Accounts, the percentage of personal consumption spent on servicesgrew rapidly from January 1959 to January 2003 (from 39.7 percent to 59.3percent). See Table 2.8.5, Personal Consumption Expenditures by Major Typeof Product, last revised June 30, 2006.


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often are exempted from portions of the property tax throughlocal “circuit breakers” (affecting property and wealth taxation).Most important, a slower growing workforce is expected toinhibit economic growth and tax revenues at the very timewhen government spending is projected to explode due tothese same demographic changes.5 Aging populations and risinghealth care costs are the single largest drivers of longer-termspending pressures on federal and state governments. Theseshifting economic, demographic, technological and political forceshave rendered fiscal affairs increasingly unsustainable. Simply put,current revenue systems are unable to generate sufficientrevenues to meet spending needs.

U.S. Government Accountability Office (GAO) models showthat, absent policy changes on the tax and spending sides of thefederal budget, federal deficits could balloon over the next threedecades to levels exceeding 20 percent of Gross DomesticProduct (GDP). At current levels of taxation, the federalgovernment would be able to finance little more than paymentsto the elderly and their doctors. An Academy committeerecently concluded that fundamental changes are necessary onboth sides of the budget; revenue and spending policies must bereexamined to restore the federal government’s finances to asustainable footing.6

These fiscal trends are not confined to the federal level. Theyaffect society and the entire economy and leave a lasting imprinton every level of government. For example, aging populationswill exact a fiscal cost for state and local governments, throughboth the accrued pension and health care obligations owed totheir employees and retirees and the growing share of statebudgets devoted to health and long-term care. Reflectingincreasing interdependence among levels of government, states’matching share for the Medicaid program has become thelargest single spending item in their budgets. Given suchintergovernmental linkages, state and local governments’ fiscalaffairs are more vulnerable to actions taken by the federalgovernment to right its own fiscal imbalance.

5The Congressional Budget Office (CBO) projects that the workforce alreadyis growing slower, with a decline from an average growth rate of 1.6 percentin the preceding 50 years to a level of 0.6 percent during the next decade.The Budget and Economic Outlook, Fiscal Years 2007 to 2016, January 2006.6Ensuring the Future Prosperity of America: Addressing the Fiscal Future, NationalAcademy of Public Administration,Washington, DC, 2005.


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INSTILLING INTERGOVERNMENTALCOOPERATION

Public service delivery has become increasingly intertwined overthe past several decades. State and local governments nowimplement a growing array of programmatic efforts that arenationwide in character. Employing nine times as manyemployees as the federal government, they have become the realworkhorses of public governance, vital partners in implementingmost major federal programs, including welfare support, healthcare and environmental protection. Federal reliance on stateand local capacity has accelerated in the past five years asformer bastions of state and local autonomy—electionadministration, fire departments, education quality and motorvehicle licensing, among others—have been integrated in new,federally-devised efforts.

Yet this level of intergovernmental interdependence has notextended to revenue systems.To the contrary, intergovernmentalconflict and tension threaten to undermine state and localrevenue bases that are the underpinning for their roles in thesystem. Intergovernmental competition over tax and fiscal policywill intensify in the coming years. Federal and state governmentsshare a common income tax base while federal policymakerseye the states’ command of consumption. Meanwhile, localgovernments increasingly seek sources of revenue beyond theproperty tax to finance growing responsibilities.

Competition and tension need not be destructive. In fact, theyoften have resulted in important innovations and efficiencies.Each government uses such tools as better services, improvedefficiencies and lower tax burdens to gain advantages in vying forstronger economies and taxpayers.7

Nonetheless, intergovernmental cooperation is more vital thanever to enable governments at all levels to effectively cope withchanging economic and demographic forces. As economictransactions flow more easily across boundaries, fragmented andinconsistent tax systems increasingly will undermine economic

7“A pure theory of local expenditures,” Tiebout, C.M., in Journal of PoliticalEconomy, vol. 64, no. 5, 416-424.


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productivity and growth. Intergovernmental cooperation iscritical if governments are to effectively employ revenuemeasures intended to reach increasingly mobile economicactivities. This is especially true of the sales tax, but it alsoapplies to the taxation of capital which can easily be moved bytaxpayers seeking lower tax rates, often using technologicalmeans. Globalization makes corporate taxation more complexas multi-national firms can succeed in eluding revenue authoritiesthrough complex transfer pricing schemes. In short, the opennature of the U.S. economy and globalization means that there isgreater economic interdependence. This should elevate theimportance of intergovernmental cooperation in the design andadministration of the revenue system of the United States.

EXACERBATING INTERGOVERNMENTALCONFLICT THROUGH POLICY ACTIONS

Intergovernmental cooperation is extraordinarily critical whendeciding tax and spending policies. The partnerships that are sonecessary to implement most domestic policies on the spendingside can be undermined when unilateral policy actions constrainthe fiscal flexibility and capacity of governmental partners.Spending programs and mandates and revenue policies typicallyare decided in separate committees and venues.

Recent tax legislation has resulted in unilateral federal changes totax bases shared by the states. These changes, whether pertainingto depreciation schedules or the estate tax, have caused manystates to decouple from federal tax bases. Decoupling has beenconsidered necessary to maintain state revenues, yet the unravelingof shared tax bases complicates the tax system, increases burdensfacing taxpayers and unwinds a tax administration andenforcement partnership that took years to develop.

The pace of federal preemptions of state and local taxation hasaccelerated in recent years. For instance, as corporate incomehas become more global in nature, the federal government hasacted to prohibit states from imposing business taxes on out-of-state companies with limited nexus. Federal courts have


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constrained the scope of state sales taxes by excludingcollection of taxes on goods produced by remote sellers notlocated within the state. And, Congress has banned states fromtaxing access to the Internet.

States’ competition for economic development has underminedintergovernmental cooperation among state and localgovernments, as well. Many states have chosen not to extendtheir sales taxes to services and very few have taxed intangibleassets in their property tax systems.8 In an effort to gain aneconomic advantage, some states have effectively become taxhavens for multi-state enterprises by taxing each unit of thesefirms independently rather than on a combined basis, thusenabling the firms to shift income to states with little or notaxation of particular units or lines of business.

Tax systems have become less integrated across governments,but there are several examples that illustrate well-conceivedinitiatives to forge tax policy changes in a collaborative manneracross governments and economic sectors. State and localgovernments have made efforts to recast tax policy applying toremote sales and taxation of mobile telephones. Thecollaboration among states has brought progress in recasting taxpolicy in these two volatile areas, but the results are a work inprogress subject to continuing challenges by various factors andeconomic interests.

UNDERSTANDING THE IMPLICATIONSOF FEDERAL TAX REFORM INITIATIVES

Given the current and longer-term structural imbalances facing thefederal budget, it is likely that fundamental changes in tax policieswill become a regular feature of federal policy debates. Tax reformproposals will, in all likelihood, have significant consequences forstate and local governments, becoming a perennial source ofvolatility for state and local revenue systems. Ideally, such initiativesrepresent windows of opportunity to reform tax systems from a“whole-of-government” perspective that could strengthenrevenues and the economy alike for the entire system.

8Federalism at Risk, Multistate Tax Commission,Washington, DC, 2003, p. 44.


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Changes in federal tax policy can affect state and localgovernments in various ways:

• changes to federal tax subsidies intended to supportstate and local fiscal affairs. Examples include thedeductibility of state and local taxes and exemption forinterest on state and local bonds.

• changes in shared tax bases. The broadening ornarrowing of the federal income tax base for individualsand corporations will affect the tax bases of states thatcouple to the federal definitions.

• changes in federal tax rates for shared taxes. Tax ratechanges at the federal level may indirectly affect state orlocal taxes by affecting the available “tax room” for thoseshared areas.

• shifts to a new base. Shifts can crowd out the flexibilitycurrently enjoyed by other governments occupying this base.

• federal regulation of state or local tax policies.Federal preemptions have increasingly influenced theapplicability of state and local taxation.

• indirect influences. Several proposed provisions haveinteractive effects with state and local revenue systems.For instance, a proposal to cap the mortgage interestdeduction may reduce property tax revenues if itsucceeds in curbing housing sales and price escalations.

The President established an Advisory Panel on Federal TaxReform which issued a report in late 2005. The panel wastasked with considering revenue neutral approaches to abolishthe Alternate Minimum Tax, yet the report addressed a widerange of reform proposals. Although the Forum did not take aposition on these reforms, it did acknowledge that they do havesubstantial impact on intergovernmental revenue systems. Theimpact on national savings, business, real estate and health care


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industries has been extensively analyzed, yet the Forum remainsconcerned that the intergovernmental effects have not receivedsufficient visibility or attention, either in the Advisory Panelreport or in subsequent debate.

The Intergovernmental Forum considered several federal taxchanges highlighted by the Advisory Panel, including:

• the proposed elimination of the federal income taxdeductibility of certain state and local taxes which couldindirectly increase the “price” that affected state and localtaxpayers would face

• the proposed exclusions of significant portions of savingsand investments which would narrow the tax base andaffect the state and local bond marketplace, as well asproposals to broaden the base through limitations ondeductions and exclusions for mortgages and health care

• shifts to consumption taxation which would havesignificant consequences for tax regimes, depending onthe design and implementation of federal proposals

Further consideration of the Advisory Panel’s proposals is notlikely to happen in the short term, but they are reflective of thekinds of tax reform initiatives that will continue to surface infuture debates. Many of these proposals may have salutaryeffects on the federal budget and economy; these deserveserious consideration. But, such review and deliberation shouldbe done from a whole-of-government perspective, taking intoaccount how the changes would affect revenue systems acrossall levels of government. This is particularly important becausetax subsidies are the primary vehicle used by the federalgovernment to deliver general fiscal assistance to state and localgovernments—not spending, where funds are targeted tospecific federally-proscribed purposes. These subsidies includethe income tax deductibility of state and local taxes and thefederal income tax exemption for state and local bond issues.


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CONCLUDING OBSERVATIONS

The Intergovernmental Forum on Revenue Systems concludesthat all levels of government will face a continuing need to revisetheir revenue systems to respond to the fast-paced changes ofthe 21st Century. They must recast and update tax systems tobe better aligned with trends in a rapidly globalizing and changingeconomy and to better meet expanding spending pressuresstemming from an aging society.

A process of reform and renewal should be done on the whole-of-government basis. Decisions on broad tax policy should bebased on a truly collaborative process with all governments havinga seat at the table. State and local governments must be viewedas more than “just another interest group;” indeed, they must berecognized as vital partners with primary roles for addressingpublic needs and implementing national programs withintergovernmental dimensions. To be sure, the federal governmentmust be a key player in bringing about tax collaboration, yet stateand local governments also must substitute cooperation forcompetition in the interests of pursuing greater harmonization oftheir own tax systems, be it sales taxation of remote sellers orbusiness taxes on multi-state enterprises.

A certain level of intergovernmental conflict is expected in anyfederal system; interests and values held by each level ofgovernment often differ as they reflect varied politicalconstituencies and responsibilities. However, the overarchinginterests of every actor in our system can be more effectivelyadvanced through active collaboration on fiscal policy.

The stakes of this process are high. Informed tax policy canbetter ensure that revenues are appropriately matched withexpenditure responsibilities. A more coordinated andcooperative tax system also could generate dividends foreconomic efficiency and productivity. The federal tax system isthe primary vehicle for the federal government to provide fiscalassistance to the state and local levels. Because of this, it isimportant to consider the intergovernmental fiscalconsequences of changes in the federal system.


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Notwithstanding the need for intergovernmental collaboration,an institutional framework does not currently exist topromote effective dialogue and partnerships. The dialoguebegun by this Forum must become institutionalized throughthe establishment of a neutral focal point to convene all levelsof government periodically to engage in dialogue, deliberationand consensus building. Such a process should have a researchand information collection function to ensure that the dialogueis robust and well informed.

Improved research and information will help, but it is critical thatthe information be more readily available for decision makersand the public at key points in the process. The President’sbudget does not include significant discussion of keyintergovernmental fiscal issues nor does it highlight theintergovernmental implications of budgetary proposals beyond achapter on intergovernmental grants. In addition, Congressneeds more transparent information highlighting the whole-of-government consequences of proposed legislation. TheUnfunded Mandates Reform Act has established a useful process,anchored in the Congressional Budget Office, for estimating thecosts of mandates on the state and local sector. However, thestatutes do not include many federal tax policy changes or grantconditions in its purview.

The Forum concludes that states must work more collaborativelywith their local governments to achieve the goals ofintergovernmental tax policy reform. As legal creatures of thestate, local governments often face the brunt of state mandateson a wide range of issues. Indeed, states have more control overof sub-state governments’ tax and budget policies than thefederal government does over the states’. The states’ partnershipin tax administration extends to collecting taxes on behalf of localgovernments and returning them to the source. Accordingly,states should become better informed about unfunded mandatescreated by statute and policy, including restrictions on localgovernment revenue systems, and conduct studies that considerthe impact of these mandates on local governments.


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RECOMMENDATIONS

The Intergovernmental Forum on Revenue Systemsrecommends the following broad principles to guide the taxpolicy actions at all levels of government:

• Policymakers should adopt a whole-of-governmentperspective when developing and considering taxreform proposals.

• Policymaking partnerships are particularly criticalfor changes to shared tax bases. One strategy thatshould be considered to promote federal policyobjectives with shared tax bases would be to adopttax credits rather than deductions or exclusionssince credits would not shrink state tax bases.

• State and local governments should work morecooperatively to harmonize and modernize taxbases, including collective arrangements to reachmobile tax sources and extend sales taxes to agreater portion of the service economy. Wherepossible, Congress should facilitate and supportinterstate compact initiatives by the states.

• Federal and state governments should observeforbearance when considering preemptionproposals affecting revenues and taxes. In general,there should be a presumption againstpreemption by national and state policymakers,but rather support for more cooperative andcollaborative tools of governance.

• When considering new tax sources, such asconsumption taxes, federal policymakers shouldcarefully consider the implications for state andlocal tax systems. Should a national consumptiontax be considered, ample consideration should begiven to ways to mitigate the impact on state andlocal sales tax regimes. Opportunities for


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conformity and shared administration with statesshould be encouraged.

The Forum also makes the following recommendations topolicymakers at all levels of government.

• Congress and the President should establish apermanent, independent organization to serve as aneutral convener to bring together officials from alllevels of government to discuss common issues ontax and other intergovernmental fiscal issues.Financial support should be provided to supportresearch on intergovernmental tax and fiscal issues.

• The President’s budget should include a report onthe status of the intergovernmental fiscal system.The report should have discussion of theprospective consequences of new revenue andspending proposals as well as recently enactedchanges affecting all levels of government,including accounting for preemptions andunfunded mandates.

• Congress should amend the Unfunded MandatesReform Act to include the intergovernmentalfiscal effects of federal tax law changes asmandates. This would permit members ofCongress to raise a point of order if such coveredmandates exceed certain cost thresholds.

• All levels of government should provide supportfor collaborative tax policy initiatives. Specifically:

� States and Congress should support completionof the Streamlined Sales Tax Project.�The federal government should enact legislation

to support the taxation of mobile sources bystates.� State and local governments should expand

their participation in the Sales Tax initiative.


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The Academy intends to monitor the whole-of-governmentapproach as it unfolds across the United States. Working inconjunction with the Forum Principals and other leaders, theAcademy will:

• Convene periodic meetings to discuss these issues and follow up on this report.

• Promote a research agenda that can berecommended to federal and state agencies,universities and public policy organizations.

• Continue to work with federal, state and localofficials and others to improve publicunderstanding and discourse onintergovernmental revenue issues.


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BACKGROUND ON THEINTERGOVERNMENTAL FORUMS

ESTABLISHING AN INFORMEDDIALOGUE

In February 1962, President John F. Kennedy wrote in supportof the new federal Advisory Commission on IntergovernmentalRelations (ACIR). He and others noted the “growinginterdependence of national life” and the “strains placed ontraditional governmental” policies.9 This generation of nationalleaders identified the need to bring representatives together toconsider common problems and “to encourage discussion andstudy at an early stage of emerging public problems that arelikely to require intergovernmental cooperation” (Public Law 86-380).10

A new generation of leadership has come together to re-focusattention on the strains placed on government policies and thegrowing interdependence influenced not only by national life, butglobal forces and other powerful trends, as well.

With the sponsorship of the National Academy of PublicAdministration,11 a demonstration Council on IntergovernmentalCooperation was established in late 2004 to help guide theForum process. The Council had a formative role in choosingthe topic and determining the rules governing selection ofForum participants and the conduct of meetings. The Councilwas composed of membership from the Academy andorganizations representing state and local governments. Theorganizations were the Council of State Governments,International City/County Management Association, NationalAssociation of Counties, National Conference of StateLegislatures, National Governors Association, National League ofCities and U.S. Conference of Mayors. The federalAdministration, representatives of the Congress and others alsohave participated in this effort.

9John F. Kennedy, letter to Frank Bane, Chairman,Advisory Commission onIntergovernmental Relations, February 26, 1962.10ACIR closed its offices when Congress did not appropriate funds for it in 1996.11The Academy is a non-partisan, non-profit organization chartered by Congressto improve public governance and the performance of public institutions at everylevel. It is led by a Fellowship of more than 600 distinguished leaders in publicadministration.They include current and former Members of Congress, Cabinetsecretaries, governors, legislators, city and county executives and others knownfor their contributions to improving public administration.


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FIRST INTERGOVERNMENTAL FORUM

More than one dozen topics were reviewed as potential choicesfor the first Intergovernmental Forum. The council oforganizations chose something that President Kennedyrequested as an agenda item for the ACIR’s second term: theRevenue Systems of the United States.

The Intergovernmental Forum on Revenue Systems has allowedleaders from all levels of government to bring anintergovernmental perspective to this critical topic. Its findingsand statements will offer guiding principles and an opportunityto better prepare the nation’s governments to meet the trendsand powerful forces at work on society.

FORUM LED BY PRINCIPALS SELECTEDBY THE COUNCIL

The Council members designate public administration leaders asPrincipals for the Forum. They also designate other experts withdeep knowledge of the forum’s topic. A representative from thefederal Administration and congressional staff are involved asprincipals of the Forum.

“The rising costs of Government at all levels, coupled withthe growing interdependence of national life, has called newattention to the strains placed on traditional governmentaltaxing practices. We must improve Federal, State, and localcoordination of tax and fiscal practices and policies toachieve equitable taxation, increase administrative efficiency,and make it possible for our taxpayers to pay their taxeswith a minimum of confusion and administrative burden.Equitable and reasonable intergovernmental tax policies willfacilitate the free flow of trade among our States and willcontribute to our economic growth.”

John F. Kennedy, February 26, 1962


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The Council asked Academy Fellow Paul Posner to chair thisfirst Intergovernmental Forum because of his deep expertise inintergovernmental relations and his understanding of fiscal andbudget issues. Professor Posner is a member of the faculty ofGeorge Mason University.

The Intergovernmental Forum on Revenue Systems waslaunched in May 2005. The Forum held its public meeting onJanuary 11, 2006 where the Principals discussed the key issuesfrom their differing perspectives. Staff performed a literaturereview, conducted interviews, authored issue briefs and workedwith an Experts Group formed to provide advice to the Forum.This report is based on the Forum meeting, as well as theconsiderable research conducted by staff and deliberations ofthe Expert Group convened earlier to discuss the issues. Theviews in this report are based on the discussion at the Forummeeting and research by Academy staff. They do notnecessarily represent the views of the Academy or theForum Principals.

The report was provided in draft in late May to all of thePrincipals, experts, selected Academy Fellows and other interestedparties. The draft was revised considering these comments.

RULES ADOPTED FOR THE FORUMS

Several basic yet critical agreements have governed theIntergovernmental Forums:

• Principals selected for any Forum come to it asindividuals, though they may represent organizationalviews when they want or are asked to do so.

• A Forum can address statements to all levels ofgovernment, and to other stakeholders.

• A Forum will be stakeholder and research informed asmuch as practicable. Also, it will bring anintergovernmental perspective to the chosen topic.

• A Forum is intended to be “solution-oriented” withconsideration of alternatives.


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National Academy ofPublic Administration

National Association ofCounties (NACo)

National GovernorsAssociation (NGA)

National Conference ofState Legislatures (NCSL)

Council of StateGovernments (CSG)

National League of Cities(NLC)

Paul Posner, Chair, IntergovernmentalForum on Revenue Systems—Chair,Standing Panel on the Federal System,National Academy of Public Administration;Professor and Director, MPA Program,Department of Public and InternationalAffairs, George Mason University.

Dr. Natwar M. Gandhi, Ph.D.—ChiefFinancial Officer, District of Columbia.

Honorable Kathleen Gaylord—Commissioner, Dakota County, Minnesota.

Honorable Glen Whitley—Commissioner,Tarrant County,Texas.

Honorable Bob Wise—President,Alliance for Excellent Education; FormerGovernor,West Virginia.

Honorable Ken Svedjan—Representative,North Dakota Legislative Assembly.

Bill Marx—Chief Fiscal Analyst, HouseFiscal Analysis Department, Minnesota.

Honorable Jay Rising—Treasurer, Stateof Michigan.

Ed Maley—Chief of Staff and GeneralCounsel to Connecticut Senate Pro Tempore.

Honorable Brian Murphy—Councilor,Cambridge, Massachusetts; Chair, PublicFinance Panel, National League of Cities.

Honorable Keno Hawker—Mayor, Cityof Mesa,Arizona; Second Vice Presidentand Chair, Finance,Administration andIntergovernmental Relations Committee,National League of Cities.

Bill ShieldsVice President National Academy of PublicAdministration1100 New York Avenue, N.W.Suite 1090 East Washington, DC 20005(202) 347-3190Fax: (202) [email protected]

Tom Goodman Public Affairs Director National Association of Counties440 First Street, N.W.Washington, DC 20001(202) [email protected]

Jodi OmearNational Governors Association (202) [email protected]

Bill WyattNational Conference of StateLegislatures444 North Capitol Street, N.W.Suite 515Washington, DC 20001(202) 624-5400Fax: (202) [email protected]

Jack Penchoff2760 Research Park DriveLexington, KY 40511(859)[email protected]

Sherry AppelDirector of Media RelationsNational League of Cities1301 Pennsylvania Ave., N.W.Washington, DC 20004(202) [email protected]

Council MemberOther Source

Person Designated Point of Contact forCommunications


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International City/CountyManagement Association(ICMA)

U.S. Conference ofMayors (USCM)

Council onIntergovernmentalCooperation

Executive Office of thePresident

U.S. Senate

U.S. House ofRepresentatives

Christopher McKenzie—ExecutiveDirector, League of California Cities.

Suzette Denslow—Deputy Director,Virginia Municipal League.

Honorable Mick Cornett—Mayor,Oklahoma City, Oklahoma; Chairman,Urban Economic Policy Committee,United States Conference of Mayors.

Ronald A. Pearlman—Professor of Law,Georgetown University Law Center,Georgetown University.

Harley Duncan—Executive Director,Federation of Tax Administrators.

Thomas S. Neubig—National Directorof Quantitative Economics and Statistics,National Tax Department, Ernst & YoungLLP,Washington, DC.

Honorable Katherine Baicker—Member, Council of Economic Advisers,Executive Office of the President.

G.William Hoagland, Policy Advisor,Office of the Senate Majority Leader,U.S. Senate.

Mason Alinger—Deputy LegislativeDirector, House Government ReformCommittee, U.S. House of Representatives.

Scott DeFife—Senior Policy Advisor,Office of the Democratic Whip, U.S. Houseof Representatives.

Elizabeth K. KellarDeputy Executive DirectorInternational City CountyManagement Association(202) 962-3611http://icma.org

Elena TempleDeputy Director ofCommunicationsU.S. Conference of Mayors 1620 I Street, N.W.Washington, DC 20006(202) 293-2352Fax: (202) 861-6719 [email protected]

Bill ShieldsVice President National Academy of PublicAdministration1100 New York Avenue, N.W.Suite 1090 East Washington, DC 20005(202) 347-3190Fax: (202) [email protected]

Geanie MnanoDirector of Media AffairsExecutive Office of the President(202) 456-6238

Becky DaughertyProtocol Officer(202) 224-8139S-151, Capitol BuildingWashington, DC [email protected]

Rob White Press SecretaryU.S. House of Representatives(202) 225-5074

Council MemberOther Source

Person Designated Point of Contact forCommunications


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EXPERTS GROUP An Experts Group was formed to provide advice to the Forum. It met three times, twice inperson and once via teleconference. E-mail was exchanged among the members of the groupand with Forum staff. The commentary offered within this report should not be attributed toany individual member of the group or to the group as a whole.

Katherine BaickerMember, Council of

Economic AdvisersAdministration’s designated

Principal to the Intergovernmental Forum

David BrunoriExecutive Vice President of

Editorial OperationsTax Analysts

Robert J. ClineQuantitative Economics

and StatisticsErnst & Young LLP,Washington, DC

Harley T. DuncanExecutive DirectorFederation of Tax

Administrators

Robert EbelSenior Fellow,Tax

Policy CenterUrban Institute

Timothy T. FirestineDirector of Finance and

Chief Financial OfficerMontgomery County,

Maryland

William F. FoxWilliam B. Stokely

Distinguished Professor of Business and Professor of Economics

The University of Tennessee,Knoxville

Joe HuddlestonExecutive DirectorMultistate Tax Commission

Iris J. LavDeputy DirectorCenter for Budget and

Policy Priorities

Douglas L. LindholmPresident and Executive

DirectorCouncil on State Taxation

Charles McLure Jr.Senior FellowHoover Institution

Joseph J. MinarikSenior Vice President and

Director of ResearchCommittee for Economic

DevelopmentFellow, National Academy

of Public Administration

Thomas S. NeubigNational Director of

Quantitative Economics and Statistics

National Tax DepartmentErnst & Young LLP,Washington, DC

Ronald A. Pearlman Professor of Law, Georgetown

Law CenterGeorgetown University

Kim Reuben (alternate for Bob Ebel)Senior Research Associate

Urban InstituteAdjunct Fellow, Public Policy

Institute of California

Sally WallaceAssociate Professor

of EconomicsGeorgia State University


23

CONSORTIUM ANDFORUM LEADERSHIP

C.Morgan KinghornPresidentNational Academy of Public Administration

Larry NaakeExecutive DirectorNational Association of Counties

William T.PoundExecutive DirectorNational Conference

of State Legislatures

Raymond Scheppach, Jr.Executive DirectorNational Governors Association

Robert J.O’Neill, Jr.Executive DirectorInternational City/CountyManagement Association

Donald J.BorutExecutive DirectorNational League of Cities

Daniel M.SpragueExecutive Director,Chief Executive Officer

Council of State Governments

J.Thomas CochranExecutive DirectorU.S.Conference of Mayors

PLANNING COUNCIL FORINTERGOVERNMENTALFORUM PROCESS

Ed FergusonDeputy Director,Director,CSD

National Association of Counties

Jacqueline ByersResearch DirectorNational Association of Counties

Michael BirdSenior Federal Affairs CounselNational Conference of State Legislatures

John ThomasianDirector,Center for Best Practices

National GovernorsAssociation

Elizabeth KellarDeputy Executive DirectorInternational City/CountyManagement Association

Paul PosnerFellow and Chair, StandingPanel on the Federal System

National Academy of Public Administration

Jim FrechDirector,Center forIntergovernmental Relations

National Academy of Public Administration

Bill BarnesDirector for Research andMunicipal Programs

National League of Cities

Jim BrownGeneral Counsel and OfficeDirector,Washington DC


Larry JonesDeputy DirectorU.S.Conference of Mayors

CONSORTIUM AND FORUM LEADERSHIP AND STAFF WORKING GROUPThe Intergovernmental Forum was established through a consortium of organizations with theparticipation of the Administration and senior congressional aides.The individuals listed belowhad key roles in providing leadership and staff support to the consortium and Forum process.


24

STAFF WORKINGGROUP ONINTERGOVERNMENTALFORUM ON REVENUESYSTEMS

Jim FrechDirector, Center for

Intergovernmental RelationsNational Academy of

Public Administration

David TumblinDeputy Director, Center for

Intergovernmental RelationsNational Academy of


Eric LandauCongressional AffairsAssociateNational Academy of


Shirita TurnerResearch AssociateNational Academy of


John E. AndersonSenior Economist, Professor,

University of NebraskaCouncil of Economic Advisers,

United States

Jackie ByersResearch DirectorNational Association

of Counties

Alysoun McLaughlinAssociate Legislative DirectorNational Association

of Counties

Harley S. DuncanExecutive DirectorFederation of Tax Administrators

Susan GaffneyDirector of Federal LiaisonGovernment Finance

Officers Association

Kristi GuillorySenior Policy Analyst andAssistant Counsel


Chris HoeneResearch ManagerNational League of Cities

Janine Jones-SmithLegislative AffairsNational League of Cities

Larry JonesDeputy DirectorU.S. Conference of Mayors

David QuamDirector of Federal RelationsNational GovernorsAssociation

Molly RamsdellState-Federal Relations,Washington, DC

Ron SnellDirector of Economic and

Fiscal Affairs, Denver Office

Steve SwaimFiscal ConsultantOffice of the Chief Financial

Officer, District of Coumbia

Bert WaisanenSenior Policy Specialist Fiscal Affairs, Denver Office

National Conference of State Legislatures


THE ACADEMY

The National Academy of Public Administration

is the preeminent independent, non-profit

organization for public governance. Established

in 1967 and chartered by Congress, the

Academy has become an independent source of

trusted advice for every branch and level of

government, Congressional committees and

civic organizations. The Academy works

constructively with government agencies to

improve their performance and management

through problem solving, objective research,

comprehensive analysis, strategic planning, and

connecting people and ideas. The Academy is

led by its elected membership of more than 600

distinguished Fellows.


A Summary Report from an Intergovernmental Forum of the

NATIONAL ACADEMY OF PUBLIC ADMINISTRATION

NATIONAL ACADEMY OF


July 2006

1100 New York Avenue, N.W. Suite 1090 EastWashington, DC 20005Phone: (202) 347-3190Fax: (202) 393-0993Web: www.napawash.org

NATIONAL ACADEMY OF


INTERGOVERNMENTALCOLLABORATION CAN PROMOTEFISCAL AND ECONOMIC GOALS

FINANCING GOVERNMENTS IN THE21ST CENTURY:

CENTER FOR INTERGOVERNMENTAL RELATIONS


Documents

FINANCING OVERNMENTS IN THE ST C...FINANCING GOVERNMENTS IN THE 21ST CENTURY: INTERGOVERNMENTAL COLLABORATION CAN PROMOTE FISCAL AND ECONOMIC GOALS Valerie A. Lemmie,Chair of the Board