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Executive Summary T he U.S. Census Bureau’s Governments Division provides informa- tion on the revenues, expenditures, employment, and operations of the 50 states and the District of Columbia, as well as more than 87,000 local governments—counties, towns and townships, cities, school districts, and special districts. Together with the federal government, on which the Governments Division also provides data, these state and local jurisdictions collectively make up the enduring and complex U.S. system of government. The data collected in the division’s quinquennial Census of Governments and annual and quarterly surveys serve two major user com- munities: (1) federal agencies that produce key economic time series, such as the contribution of state and local governments to the gross domestic product, and the many public and private sector decision makers and ana- lysts who use these time series and (2) researchers, analysts, public interest groups, the media, and the public who want information on individual state and local governments to understand their functioning, the relationships among them, and their impacts on people and communities. The Governments Division and the Census Bureau’s Economic Direc- torate, of which the division is a part, are engaged in strategic planning activities and initiatives to modernize data collection and processing proce- dures. These efforts are being conducted in an environment of constrained resources, which, over the past 15 or more years, have resulted in cutbacks in data collection and dissemination by the division. The Census Bureau asked the National Research Council, through its Committee on National Statistics, to establish a panel of experts to review the division’s core pro- 

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 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS grams and to recommend priority areas for research and development to move the government statistics program forward in ways that are cost- effective and responsive to users. The panel concludes that the Governments Division is at a crossroads. One path is to continue to cut back on its data series, which could erode state and local government response to requests for information and user support of its programs. The other path is to plan for ways to improve survey efficiency; build its user base; enhance the timeliness, relevance, and quality of its data series; and add back valuable explanatory material and other assistance to public- and private-sector users. The panel strongly supports moving forward in a positive direction, which will require the unstinting support of senior Census Bureau management. In the panel’s view, the best approach is to develop a two-track strategic plan. We recommend that senior management of the Economic Directorate should charge the division to develop one track that plans how to adapt in the most cost-effective and user-responsive manner to an environment in which resources may remain constrained and a second track that looks for opportunities to build the division’s user community and develop its program for the future. Senior management of the Economic Director- ate should also empower the division to establish an advisory group for continuing user input and should encourage it to work proactively with standards-setting bodies. Furthermore, the Economic Directorate should continue to strengthen its efforts to bring modern survey design, data processing, and statistical estimation methods to all of its programs, including the state and local gov- ernment statistics program. The statistical methods underpinning state and local government surveys require continuous attention and the commitment of scarce human, technological, and financial resources. In this report, the panel has outlined some steps that can be taken in the near term to shore up the statistical infrastructure for the state and local governments pro- gram that are not excessively resource-intensive and that could well have an immediate payoff. These steps are critical to keep the division’s data in the mainstream of international and national thinking and to maintain its well-earned reputation as an honest broker and provider of invaluable information for measurement of state and local government activity. MAJOR CONCLUSIONS AND RECOMMENDATIONS The panel’s major conclusions address:   Findings and recommendations are numbered by chapter (3-1, 3-2, etc.).

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EXECUTIVE SUMMARY  • The value of the state and local government statistics data. • The consensus among users that the data represent the highest stan- dard for consistent comparable analysis of governmental finances across governments and over time. • The benefits to users when the program provides both aggregate statistics and information based on the analysis of micro-level data. • Users’ priority needs for more timely data, additional data to track important changes in governmental financing and expendi- ture structures, and avoiding gaps in basic time series. The panel’s major recommendations address: • A process for working with users to evaluate and agree on opti- mal changes to the Governments Division data to improve their relevance. • The necessity to maintain basic time series and the use of methods to bridge transitions when data contents are modified. • Research on the effects of periodic survey redesign and changes in sample size on the accuracy of the data, especially for measures of changes. • Priority research on improving timeliness by releasing partial data or preliminary estimates, or both. • Adding value to the data that are released on the division’s website through the addition of explanatory and analytical materials and other means. • A two-track strategic planning process, in which one track postu- lates continued constrained resources and the other track outlines a path to build support for the state and local government statistics program that, over time, will enable it to serve the full range of user needs. Some of these recommendations may be implemented in the near term with relatively low costs, such as recommendations for documentation of nonresponse and improvements in imputation, and they should be consid- ered “low-hanging fruit” in a research and development program leading to program improvements. Others, such as research leading to improving timeliness, must proceed on a more deliberate basis, supported by advice from expert and user groups, and within the structure of the strategic plan that we recommend.

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 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS Value of State and Local Government Statistics Conclusion 3-1: The data on state and local governments from the Census Bureau’s Governments Division are of broad national interest and importance. • The data serve a democratic nation built on principles of decentral- ization and local control by maintaining a comprehensive source of information on state, regional, and local governments that assists those institutions and public interest organizations—and through them, the public—to understand how individual governments com- pare with other governments on such important measures as tax burdens and expenditures on education, security, health, and other public services. • The data are necessary for comparative research and policy analy- sis of levels and trends on a wide range of important topics, such as the changing nature of local and regional government institu- tions, including the emergence of new forms of local governance; intergovernmental grants and transfers of funds; the layering of governmental functions among types of governmental units; the effects of changes in the economy on revenues, expenditures, and government borrowing and indebtedness; and the burdens of prop- erty and other taxes. • The data are essential for economic time series that are widely used for public- and private-sector decision making, such as the national income and product accounts, the regional accounts, the flow of funds accounts, and the national health expenditure accounts. Conclusion 3-2: Virtually all users of the Census Bureau’s Governments Division data, including federal agencies, public interest groups, and academic researchers, view the data as authoritative and valuable be- cause of the unsurpassed consistency of the data over time and across governments and the use of carefully specified standards and definitions for classifying governments and governmental activities. Conclusion 3-3: The Census Bureau’s Governments Division data serve two main communities: users of aggregate estimates (macrodata) for key economic time series, which include the federal agencies that pro- duce these time series, primarily the Bureau of Economic Analysis and the Federal Reserve Board, and users of data for individual state and lo- cal governments (microdata) for research, policy analysis, and compar- ative rankings. While these two groups of users differ in some respects

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EXECUTIVE SUMMARY  in their views of priority needs from the division, both groups benefit when the full range of needs is considered in establishing priorities. Conclusion 3-4: Users are in broad agreement about priority improve- ments they would like made in the Census Bureau’s Governments Di- vision data on state and local government finances and employment. Improving the timeliness of the data is of the highest importance, fol- lowed closely by improvements in the detail provided and in the clas- sification structure and avoidance of gaps in time series. Relevance and Historical Continuity Recommendation 3-1: Over the next two to three years, the Govern- ments Division should seek input for and widely circulate a working paper that describes potential improvements to the detail and classifica- tion of the division’s data on state and local government finances and employment, the issues that each may raise, and the pros and cons of changes. Based on feedback from users, the division should develop a plan with well-justified priorities for improvements to be made in the 2012 Census of Governments and subsequent annual surveys. This would be a large undertaking involving considerable effort by the Governments Division and by many users, but the benefits could be substantial. Recommendation 3-2: The Governments Division should give priority to maintaining basic time series on state and local government finances and employment. It should avoid gaps and interruptions in basic time series, which undermine the ability of users to make consistent com- parisons over time and across jurisdictions. When new or modified content is introduced, the division should use such methods as over- lapping series or bridges between new and old series to assist users in making the transition. Data Quality and Statistical Methods Recommendation 4-1: With respect to future modifications of its meth- odologies, the Governments Division should conduct research to deter- mine the effects of any redesigns of its surveys or changes in sample sizes on the accuracy of the data, especially the accuracy of measures of change. The division should provide information to users, including

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 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS standard errors and confidence intervals, to help them assess the effects of redesigns and changes in sample sizes on the accuracy and usefulness of time series. Timeliness Recommendation 5-1: The Governments Division should give high priority to a program of research on the benefits and costs of adopt- ing earlier release procedures for the annual finance survey and other surveys by such methods as releasing preliminary estimates or releasing estimates as they are compiled. The research should include evaluation of the ability of preliminary releases to replicate prior-year data and analysis of preliminary-to-final differences attained by using different estimation techniques. Data Dissemination and Analysis Recommendation 5-3: The Governments Division should add value to the data that are released on its website by providing simple derived measures, such as per capita expenditures and taxes, more explanatory material, and comparative contextual analyses—for example, of trends by type of government and region. The division should also facilitate wider dissemination of its data by regularly issuing press releases that include statistical comparisons with previous data. Strategic Planning Conclusion 6-1: The current strategic planning for the Census Bureau’s Economic Directorate is predicated on the likelihood of continued constrained budget resources and the need to give highest priority to providing data to support the national income and product accounts and other key economic time series. Consequently, the Governments Division is compelled to give priority to the publication of aggregated data on state and local government finances over the analysis of data on individual governments, intergovernmental relations, and the struc- ture and operations of governments. Recommendation 6-1: The Governments Division should include two tracks in its strategic plan: one track that plans for an environment of constrained resources and a second track that identifies ways to build

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EXECUTIVE SUMMARY  support over time for enhancing the division’s data series and the infor- mation provided to users on the Census Bureau website. The Economic Directorate and, by extension, senior Census Bureau management, should support the Governments Division’s planning efforts in this re- gard and should make available some resources to begin implementing one or more aspects of the second track of the division’s plan. OTHER CONCLUSIONS AND RECOMMENDATIONS Additional conclusions and recommendations of the panel, most of which are summarized below, address the following issues: • The need to revisit methods to collect information on taxable property values in a cost-effective manner, given the importance of property taxes to local government finances. • The accuracy and transparency of the Governments Division data, needed improvements in methods and documentation for aspects of data collection and processing, and methodological issues for the redesign of the quarterly tax survey. • The need for continuous improvement of the Governments Divi- sion website (currently under way). • The establishment of an advisory group for the Governments Divi- sion to provide ongoing input to its programs. • The importance of close coordination with the increasingly impor- tant work of the Government Accounting Standards Board. Taxable Property Values Recommendation 3-4: In view of the importance of consistent, com- parable, objective data on property tax valuation and other features of property taxation by state and local governments, the Governments Division should carry out a program of research and testing to explore conceptually sound and cost-effective means of collecting these data, which could be in conjunction with, or independent from, the Census of Governments. Data Quality and Statistical Methods Summary of conclusions: The panel reviewed the coverage of the uni- verse of general governments in the Census of Governments and annual and quarterly surveys and found that it appears to be complete for virtually all analytical purposes. However, the panel concluded that the documentation

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 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS of nonresponse, particularly item nonresponse, in Governments Division surveys is inadequate to inform users or to help the division plan effective means to increase response and improve accuracy of the data. Summary of recommendations: In addition to Recommendation 4-1 for a program of research to determine the effects of the periodic redesign of its surveys and changes in sample sizes on the accuracy of the data, especially the accuracy of measures of change, the panel recommends the following: • An evaluation of data received from states that have central col- lection to ensure that high response rates are associated with high accuracy of the data. • More complete documentation of unit and especially item nonre- sponse for the Governments Division censuses and surveys of state and local governments. • The publication of unit response rates that are weighted by a mea- sure of size, such as total expenditures, in addition to unweighted rates. • Research on barriers to response to the division’s Census of Gov- ernments and annual and quarterly surveys, such as differences in accounting systems among governments and from the definitions used by the division. • A review of the procedures used by other agencies that have con- ducted nonresponse analysis to determine their applicability to the state and local government statistics programs. • Experimental studies of nonresponse bias. • A review of the programs for editing and imputation of data to determine their costs and benefits compared with other methods. • An evaluation of the effectiveness of a model-based approach or other method of borrowing strength in yielding improved estimates for small domains from state and local government surveys. • The provision of information that users need to correctly calculate the precision of estimates of change between specific pairs of years from the division’s surveys. • A review of revision policies and regular reporting of typical re- vision levels when initial data are released from the division’s surveys. • Assessment of the results of the cognitive redesign of the 2005 annual finance survey to determine the cost-benefit trade-off of conducting a similar labor-intensive pretesting process for other questionnaires. • The utilization of the redesign of the quarterly tax survey as a test- bed for developing a probability sample of local governments based

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EXECUTIVE SUMMARY  on property tax values, for streamlining questionnaires, and for developing cost-effective variance estimation, editing, and imputa- tion procedures. Further details on these findings and recommendations are provided in Chapter 4. Data Dissemination and Analysis Summary of recommendations: In addition to Recommendation 5-3 on adding value to the data that are released on the Governments Division website, the panel recommends that the division should continue to give high priority to the redesign and continuous improvement of its website and provides specific suggestions for desirable features to be added. Working with Users and Standards-Setting Bodies Conclusion 6-2: The Governments Division lacks vehicles for obtaining continued input from data users and methodological researchers with relevant experience and expertise. Such input is necessary to guide the development of statistical programs that are intended to provide data for public use. Summary of recommendations: In addition to Recommendation 6-1 for a two-track strategic plan, the panel recommends that the Census Bureau empower the Governments Division to organize a panel of experts in public administration and finance under the auspices of a relevant professional association or consortium of organizations that would meet regularly to review the division’s program. In view of the increasing importance of the work of the Government Accounting Standards Board, the panel recom- mends that the Governments Division seek to obtain status as an orga- nizational member of the Governmental Accounting Standards Advisory Council.

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