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6
Challenges for the Future
I
n carrying out its two missions of enhancing understanding of state
and local government organization and operations and measuring their
contribution to the national economy, the Census Bureau’s Govern-
ments Division has struggled to maintain a balance in its programs while
modernizing them over time. In the quinquennial Census of Governments,
there has been a loss of programs, such as the taxable property value survey,
because resources were devoted to key economic time series. With these
exceptions, the census describes individual state and local governments and
the relationships among them, and also provides detailed measures of their
economic activity. For the quarterly and annual programs, except for the
loss in detail in 2001 and 2003, the Governments Division has generally
managed to preserve the ability to provide needed data for key economic
time series, but has been forced to eliminate some value-added features, and
has reduced service to users of information on individual governments and
intergovernmental relationships. The reduction or elimination of analysis,
background information, and derived measures from data releases on the
Internet has undercut the usefulness of the information for a broad spec-
trum of users. At the same time, the division has recognized the need for
and begun a program of modernizing its data collection, processing, and
dissemination procedures.
At this time, the state and local government statistics program presents
significant challenges for leadership, not only at the division level, but also
the directorate and most senior management levels of the Census Bureau.
Among these challenges are the need to develop a strategic view of the
107
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108 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
future, the need to build the user community and respond to user demands
for data with which to understand important changes in state and local
governmental structure and operations, and the need to take account of
evolving standards for government financial accounting. These exist in a
resource-constrained environment that must also provide the means for im-
proving the quality and cost-effectiveness of data operations. Compounding
these challenges is that, unlike many other activities of the Census Bureau,
the state and local governments program involves voluntary data collection
from both state government respondents that are sovereign entities and the
local governments that are creatures of those sovereign entities.
STRATEGIC PLANNING
The state and local government statistics program is part of a larger set
of Census Bureau economic programs that establish their context. As part
of the Census Bureau’s Economic Directorate, the state and local govern-
ment statistics program functions within a well-defined set of practices and
rules for administration and data collection, including the requirement that
all parts of the economy are subject by law to a full-scale census every five
years. The government statistics program is small, representing only about
7 percent of the Economic Directorate budget for censuses and surveys each
year over the past 10 years.
Despite the importance of government statistics and all of the other
economic statistics programs, these programs, like many other federal
statistical programs, are facing increasing budget pressures. Compound-
ing the budget problem is the need to generate funds on a cyclical basis
to ramp up, and then back down, for the quinquennial Economic Census
and Census of Governments. At present the Economic Directorate requires
increased funds for the 2007 census cycle. To cope proactively with a dif-
ficult budget climate, the directorate is conducting a systematic review of
current programs to determine priorities. It is also seeking to streamline
programs to the extent possible and to facilitate more efficient and higher
quality reporting by better aligning data collection with government and
corporate accounting standards and practices.
Program Review by the Economic Directorate
Setting Priorities
The economic statistics programs have been ranked in terms of how
they relate to four areas. In order of priority from first to last, the four
areas are (1) benchmark measures, (2) principal economic indicators, (3)
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CHALLENGES FOR THE FUTURE 109
annual sectoral-level economic statistics, and (4) the remaining programs
and infrastructure.
The leadership of the Economic Directorate has stressed that meeting
the needs of the Bureau of Economic Analysis (BEA) for information to sup-
port the national income and product accounts (NIPAs) will always be the
top priority for the Census Bureau’s economic statistics programs. Bench-
mark measures include statistics from the Economic Census and Census of
Governments that are used in the national accounts and other composite
measures of economic activity, such as the index of industrial production,
productivity measures, and the producer price index. Principal economic
indicators, such as the source data for gross domestic product, closely fol-
low the benchmark measures in the priority ranking. The Annual Survey
of Manufacturers and the Annual Retail Survey are examples of the third
priority of annual sectoral-level economic statistics.
Rankings on User Feedback, Quality, and Cost
In addition to identifying priority areas, the Economic Directorate
is ranking 22 of the current economic statistics programs on six dimen-
sions—two each for user feedback, data quality, and cost efficiency. The
primary user feedback has come from BEA and the Federal Reserve Board
(FRB), which ranked almost all of the economic surveys as critically impor-
tant. The directorate has plans to expand feedback in the future to other
users, and the National Association for Business Economics has offered
assistance.
The Economic Directorate has formed a separate staff to carry out
quality audits of all of the economic statistics programs over a 5-year cycle.
It is expected that the Governments Division programs will be audited un-
der this new program. These Economic Directorate quality audits evaluate
how well the Census Bureau is following Office of Management and Budget
quality standards, whether the sample designs are appropriately probabi-
listic, and how well procedures and processes are documented. The audits
also determine whether there is adequate internal control of collection, pro-
cessing, and other procedures and whether a reliable tracking system exists
for verification and validation of data at each step of processing. Response
rates and standard errors are used to determine data quality. In essence, the
quality audits address most of the same key aspects of survey quality that
have been addressed in this report.
The directorate continues to refine the methodology to account for
issues that have arisen, such as the fact that newer programs have fallen
lower in rankings because, with start-up costs, they are not as cost-efficient
as more established programs. The audit program is transparent and avail-
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110 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
able to staff so they may learn from the review of other programs and im-
prove their programs before the audit process.
Representatives of the program being reviewed have an opportunity
to comment on the program’s evaluation, and continuous feedback on
changes is encouraged. Most importantly, at the end of the audit process,
program staff are asked to lay out what resources are needed for improve-
ments. The final piece of the Economic Directorate’s improvement plans
includes facilitating better reporting by following existing government and
corporate accounting practices. Directorate staff have examined what items
have the highest nonresponse and are working with accounting firms and
the certified public accountants on staff to determine what some of the col-
lection problems may be. Although cutting data items that are not being
maintained in corporate or government accounting standards may be an
unwelcome step for data users, such a step can potentially reduce follow-up
resources from being used to collect hard-to-obtain or unavailable data.
Program Improvement by the Governments Division
The Governments Division has been developing its own strategic plan
under the general rubrics outlined above for the Economic Directorate and
addressing three areas for improvement: project management, documen-
tation management, and knowledge management. The Census Bureau
reports that project management training among the division’s managers
has been completed, and the division has begun to offer that training to
other staff. Documentation management—that is, managing materials that
staff need to access on a regular basis— has begun to improve. Knowledge
management is a special challenge.
As the division, like many government agencies, faces high rates of staff
retirement, it has begun to address how knowledge will be passed from one
generation of employees and managers to the next. The division is tackling
knowledge management issues with a three-pronged approach.
First, the division evaluated its data storage and repository process
and requirements for archiving documents and other materials related to
the program using a web-based application, called the Document Manage-
ment System, that supports project management, knowledge management,
and cross-training. Second, the division reviewed its repository for storing
programming code and, using a new tool called the Information Technol-
ogy Repository, took steps to ensure that code is in a specific place and is
quickly accessible to all staff. Third, the division is moving to the use of
Stephanie Brown, chief of the Governments Division, discussed the history and future plans
of the division and addressed its strategic plan and the relationship to the planning process for
the Economic Directorate at the panel’s first meeting in January 2006.
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CHALLENGES FOR THE FUTURE 111
electronic records as a one-stop repository for its interagency agreements,
budget documents, and similar materials. This step was given priority in
part because the Census Bureau, in moving to a new headquarters building,
has been reducing paper and increasing use of electronic records across the
board.
In addition to these steps, the division provides training opportunities
for newer staff. Also, it has developed a skills database to identify staff
holding key knowledge and a division-specific wise elders program based
on the Census Bureau-wide wise elders program. This program involves
seminars on topics of interest given by retirees or employees with long
experience.
As the division moves closer to meeting its goals in the areas of project,
documentation, and knowledge management, the next step is to finalize its
strategic plan. The division branch chiefs have developed branch-specific
business plans that articulate the goals and objectives for each branch, and
these will be linked back to the strategic plan. The division-wide strategic
plan adopted five of the six goals from the Economic Directorate, which
include improving the relevance, timeliness, and usefulness of its data; in-
creasing the use and accessibility of the data; reducing burden and simpli-
fying reporting; improving data processing systems; and undertaking staff
development. A sixth Economic Directorate goal—promote innovative use
of microdata—addresses microdata release for research purposes that are
under confidentiality restrictions and does not apply to the Governments
Division programs, in which all microdata are released. The strategic plan
includes a section on marketing the division’s data to improve visibility
and accessibility, increase the division’s sponsor base, promote the products
among influential users, and develop relationships with educational institu-
tions and think tanks. This initiative should help expand the reach of the
Governments Division to fulfill the needs of users other than BEA and FRB
for detailed data below the national level.
Conclusion and Recommendation
The panel supports the Governments Division’s actions to improve
project, documentation, and knowledge management and the Economic
Directorate’s across-the-board initiatives for all of its programs to obtain
user feedback, undertake quality audits, and better align reporting systems
with respondents’ accounting practices. There is much work to be done to
modernize aspects of data collection, processing, and estimation for the
Governments Division census and surveys.
The panel also supports the strategic planning efforts of the Gov-
ernments Division and the Economic Directorate more broadly. We are
concerned, however, that the directorate’s, and therefore the division’s,
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112 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
planning efforts are driven too much by the negative factor of constrained
resources and the likelihood that resources will continue to be constrained.
While pressures on budgets may indeed continue and may result in at
least real—and possibly even nominal—cutbacks, the panel thinks that the
Governments Division must develop and articulate a strategic plan that has
two tracks: one for the situation of constrained resources and the other on
the premise that increased awareness of the importance and usefulness of
its data may result in additional resources becoming available. Without
increased resources, the Governments Division cannot continue to provide
as much of the rich detail on individual state and local governments that is
needed for the many important research, policy making, and public under-
standing purposes. Moreover, constraints on such detail can adversely affect
the ability to maintain the quality of the high-priority data that are needed
to inform key economic time series produced by federal agencies.
In this sense, the Governments Division is at a crossroads. It can con-
tinue down the path of cutting back, not only on data series, but also on
explanatory material and derived measures to accompany data releases on
the Internet. Continuing to follow this path may cause users to turn to other
data series of lesser quality and respondents to become even less willing
to answer the division’s inquiries. The end result could be to undercut the
division’s key role and stellar past performance as an honest broker that
is the only source of consistent, comparable data for comparative analysis
among governments and over time.
Alternatively, the Governments Division can begin to think construc-
tively about ways to enhance its data series and the information it provides
to users on the Internet. A welcome step in this direction is the inclusion
in the division’s strategic plan of an initiative to market its data so as to
increase their visibility and increase the division’s user base. For the divi-
sion to take positive steps along these lines and in other ways to increase
outreach to and feedback from users, it will need the wholehearted support
of the Economic Directorate.
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 structure
and operations of governments.
The panel reiterates its recognition of the necessity of high-quality ag-
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CHALLENGES FOR THE FUTURE 113
gregate estimates of state and local government finances and employment to
feed the NIPAs and other key economic time series that are generated by the
federal government. It cautions, however, that too narrow a focus on this
use not only slights other important uses that require detailed information
with which to understand the operations and finances of individual state
and local governments along with the financial flows among governments at
different levels, but also runs the risk that not enough detailed information
will be collected to validate the key economic aggregates.
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
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.
BUILDING THE USER COMMUNITY
AND OBTAINING USER INPUT
The panel has identified three high-priority interests of users of the
Governments Division’s data: timeliness is the highest priority, followed
closely by maintaining time series and providing more detail in areas in
which important changes are occurring in the provision of services, sources
of revenues, types of expenditures, and types of operations of state and lo-
cal governments. The panel recognizes the impossibility of satisfying all of
the specific requests of users for additional data and recommends that the
division develop a working paper of options and solicit input over the next
2–3 years from users to identify preferred options to implement with the
next Census of Governments in 2012 or before, if resources permit.
Given constrained resources, the options spelled out in the recom-
mended working paper are likely to include a mixture of new detail and
cutbacks in traditionally collected detail on topics that appear to be less
relevant. It is also likely that, in providing their input, users will make a
case for much more new detail than existing detail. In its assessment of user
needs, the division will have to take practical account of resource limita-
tions. In the end, the goal should be to identify a few areas that could be
included in budget initiatives to put forward to the Census Bureau, the De-
partment of Commerce, and the Office of Management and Budget. Simply
the process of working with users should help build a base of support that
can be helpful in justifying and obtaining resources for these initiatives.
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114 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
In addition to the recommended working paper, the panel thinks that
the division should go even further by developing a continuous process
of identifying, evaluating, and following through on the most important
needs of its users in both the short and longer terms. Not only can such a
process help guide the division’s program in the most beneficial way, but it
can also help increase the user base for the division’s data and build support
for additional budget resources. The division should not be diffident about
seeking to build its base of users; by so doing, it will increase the return on
taxpayer dollars that are invested in data collection and production.
Central to the division’s ability to reach out to and obtain input, not
only from major federal users with whom it is in close contact, but also
from public interest groups and research users, is to establish an ongoing
advisory group. The Governments Division does not have its own advisory
group. Instead, it must rely on the Census Bureau Advisory Committee of
Professional Associations—consisting of members of the American Eco-
nomic Association, the American Marketing Association, the American
Statistical Association, and the Population Association of America—or the
Federal Economic Statistics Advisory Committee, which the Census Bu-
reau sponsors along with the Bureau of Labor Statistics and BEA. Neither
of these advisory committees has membership drawn from the domain of
public administration, public accounting, or financial policy. (The advisory
committee to BEA has two public finance experts.)
Although topics related to government statistics can be vetted with
either one of these two committees, the record shows that such vetting has
rarely been done. The Federal Economic Statistics Advisory Committee,
which was established in 1999, has never discussed the Governments Divi-
sion program, and the long-standing Census Bureau Advisory Committee of
Professional Associations has discussed the Governments Division program
on only two occasions since 1995:
• In 1996, the division presented a paper to the advisory commit-
tee that described the major aspects of the program and discussed
briefly four possible areas for the committee to consider regarding
future data needs for the public sector: contracting out, devolution,
downsizing, and acquisition of capital goods. There is no indica-
tion that the committee discussed the paper in open session.
• In 2000, a Governments Division staff member presented a plan
to the advisory committee for temporarily restructuring the an-
nual finance survey. The plan suggested developing a more limited
sample of local governments for 2001 and 2003 that would pro-
duce only national totals instead of the normally larger sample that
yielded local government totals by state. The advisory committee
concurred with the plan to gather only national totals as a useful
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CHALLENGES FOR THE FUTURE 115
way of saving resources with a small compromise in data quality,
provided that the switch would be only temporary, for a specified
definite duration (U.S. Census Bureau, 2000b, pp. 32-33, 83).
It is not surprising that the Census Advisory Committee of Professional
Associations has had little time to devote to state and local government
statistics, given that it lacks members with relevant subject-matter expertise,
that it meets only twice a year, and that it must of necessity focus on the
major Census Bureau programs, such as the decennial census, the Economic
Census, and the American Community Survey.
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.
The Governments Division needs a committee that is dedicated to
its special issues and subject matter. The process of establishing federally
chartered advisory committees is governed by the Federal Advisory Com-
mittee Act (FACA). FACA guidelines limit new advisory committees to
“the minimum necessary” and indicate that they must be “essential.” The
Department of Commerce guidance echoes FACA, stipulating that advisory
committees must be “essential to the conduct of the Departmental busi-
ness.” It would be difficult to establish a new government statistics advisory
committee under FACA, but there are other ways to accomplish the same
goal. For example, some statistical agencies, such as the Bureau of Justice
Statistics and the Energy Information Administration, have small groups of
experts, constituted under the auspices of the American Statistical Associa-
tion, who meet periodically to review their programs.
The Governments Division could follow this model by asking an in-
terested professional association or other body, such as the Section on
Intergovernmental Administration and Management of the Society of Pub-
lic Administration or the National Academy of Public Administration, to
establish a committee of experts in government administration and finance
to meet regularly with division staff. Meetings at least twice a year would
be needed to provide continuity and develop good working relationships
between the division staff and the committee members. Under this model,
the sponsoring organization establishes the committee with funding from
the statistical agency for travel and meeting costs.
In addition, the Census Bureau could have the American Economics
Association component of the Census Advisory Committee of Professional
Associations add one or two experts in finance and plan to hear from the
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116 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
Governments Division periodically. The Census Bureau could also have
the American Statistical Association (ASA) component establish a regular
schedule for considering methodological issues from the Governments Divi-
sion. The ASA component has members whose expertise in survey design,
reducing nonresponse, adjusting for nonresponse, estimation, and other
methodological topics is relevant to the division’s surveys, even though the
members may not be familiar with the particular subject matter.
Recommendation 6-2: The Census Bureau should empower the Gov-
ernments Division to organize a committee of experts in public admin-
istration and state and local government finance under the auspices of
a relevant professional association or consortium of organizations. The
committee should meet regularly to review the division’s program. In
addition, the Census Bureau should ensure that methodological issues
for the Governments Division program are regularly brought before
the American Statistical Association component of the Census Advisory
Committee of Professional Associations and consider adding one or
two experts in public finance to the American Economic Association
component of that committee.
ROLE OF STANDARDS
Several sets of standards and guidelines currently exist for report-
ing financial and other information on state and local governments. The
International Monetary Fund and the United Nations set international
standards for classifications and functions of governments which provide
a template for BEA to use in developing gross domestic product estimates.
At the national level, the Government Accounting Standards Board (GASB)
produces standards and guidelines that state and local governments follow
in reporting financial information and promulgates them in two standards
that have direct bearing on the record-keeping practices of the reporting
governments: GASB Statement 34 and Statement 44. The GASB standards
and their impact are discussed in this section.
Although not covered in this section, the standards set by other federal
agencies also influence the ability to standardize data between the Census
Bureau and the other agencies. Users have reported difficulty in relating
Department of Education K-12 finance information to that reported by
the Governments Division, despite the fact that the division collects much
of the education data for the Department of Education. Similar lack of
standardization affects the ability to directly relate Governments Division
data on health and social services spending to information about Medicaid
and Temporary Assistance for Needy Families that are provided by other
departments.
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CHALLENGES FOR THE FUTURE 117
These standards that are set by outside bodies pose a challenge for
the Governments Division and for the Economic Directorate as the Cen-
sus Bureau seeks to determine the appropriate role for its staff to play
in coordinating with standards-setting bodies, influencing their decisions,
adopting their guidelines, and adjusting their collection and compilation
procedures.
International Standards
The Government Finance Statistics Manual (GFS Manual) prepared by
the International Monetary Fund (IMF) provides a comprehensive concep-
tual and accounting framework for analyzing and evaluating fiscal policy of
the general government and public sectors. The framework is harmonized
with the corresponding international accounting standard to the extent
consistent with the goal of supporting fiscal analysis. These accounting
standards are the System of National Accounts 1993, the Balance of Pay-
ments Manual, 5th ed., and the Financial Statistics Manual. The GFS
manual also draws heavily on the United Nations Classification of Func-
tions of Government (COFOG).
COFOG, a classification system developed by the Organisation for Eco-
nomic Co-operation and Development and published by the United Nations
Statistical Division, is primarily used in the U.S. government by BEA to
organize the government consumption expenditures and gross investment
estimates in the national income and product accounts. COFOG can be ap-
plied to government expenses and the net acquisition of nonfinancial assets.
Its three levels of detail are divisions, groups, and classes. The divisions can
be considered as the broad objectives of government, and the groups and
classes detail the means by which these broad objectives are achieved. BEA
uses the COFOG classifications to organize the Census Bureau state and
local government data into nine basic functions.
To date, the Governments Division has not made use of the IMF or
COFOG standards in its data collections. The Center for Medicare and
Medicaid Services has indicated a desire for the division’s surveys to recog-
nize the detailed COFOG classifications in the area of public health. While
the panel was not able to investigate the COFOG classification scheme in
depth, it seems that the Governments Division should investigate the extent
Available: http://unstats.un.org/unsd/sna1993/introduction.asp
Available: http://www.imf.org/external/np/sta/bop/BOPman.pdf
Available: http://www.imf.org/external/pubs/ft/gfs/manual/.
Available: http://unstats.un.org/unsd/cr/family2.asp?Cl=4.
For further information on COFOG, see United Nations Statistical Division (2007).
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118 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
to which COFOG categories should be recognized in the Census of Govern-
ments and annual surveys and at what level of detail.
GASB
The most important U.S. standards-setting body for classifying and
accounting for state and local government finances is the GASB, which is a
nongovernmental organization that has assumed responsibility for issuing
standards for public-sector accounting. GASB is changing the nature of
state and local government reporting, as governments increasingly look to
it and want to be in compliance with generally accepted accounting prin-
ciples (GAAP). GASB is one of three bodies that set such standards. The
two other bodies designated by the American Institute of Certified Public
Accountants to disseminate generally accepted accounting principles are the
Financial Accounting Standards Board for the private sector and the Federal
Accounting Standards Advisory Board for the federal government.
GASB’s mission is “to establish and improve financial reporting stan-
dards for state and local governments that they would use in their general
purpose external financial reports, the objective of which is to provide in-
formation that meets the needs of the users of those financial statements.”
GASB follows generally accepted accounting principles to set standards for
state and local government financial reporting, which have the potential
to help the Governments Division with issues of classification at a broad
level.
GASB users—those who prepare, audit, and use state and local govern-
ment financial statements—fall into three groups: (1) the investor-creditor
community; (2) executive, legislative, and oversight bodies; and (3) the
citizenry, its representatives, and intermediaries, such as the media. Since
GASB began in 1984, it has issued 47 statements, 6 interpretations, and 3
concept statements. Statements 34 and 44 pertain to financial reporting.
GASB Statement 34
Statement 34 is a recent and dramatic new statement that overhauls
many of the principles for external reporting of financial condition by state
and local governments. It encourages governments to make the transition
from the traditional fund-based accounting model to an accrual-based
The National Center for Education Statistics establishes accounting standards for school
district financial reporting.
At the panel’s June 2006 workshop, Ken Schermann, representing GASB, provided an
overview of its role in setting standards for local and state government financial statements,
specifically the roles of Statements 34 and 44.
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CHALLENGES FOR THE FUTURE 119
model, while also retaining the traditional reporting. Statement 34 newly
requires a government-wide statement and also that results on this state-
ment be prepared on a full accrual basis. Prior to Statement 34, full accrual-
basis reporting was used only for business-type activities of governments.
This method adds new information while preserving the elements of the
older model, including fund-based statements prepared on a modified ac-
crual basis, recognizing revenues when they become available and measur-
able and expenditures as they are made. The full accrual basis of accounting
recognizes revenues as soon as they are earned and expenses as soon as a
liability is incurred, regardless of the timing of related cash inflows and
outflows, If the Governments Division were to adopt the full accrual basis
used in the new government-wide statement, rather than the modified ac-
crual approach used in the fund statements, the Governments Divisions
state and local government finance data would change dramatically The
Governments Division is concerned that the burden placed on governments
to provide data in this format might be enormous, because all governments
would not necessarily have full-accrual data at the level of detail required
by the Governments Division.
In the process of developing Statement 34, GASB conducted user stud-
ies, sponsored academic research, and followed due process, which included
three standard proposing documents, task force meetings, 25 public hear-
ings and user focus groups, and field tests in 20 state and local governments
to develop the statement and the new financial reporting model. Statement
34 lays out the minimum requirements for a state or local government’s
basic financial statements to be in compliance with generally accepted
accounting principles. The new reporting method adds government-wide
statements and a requirement to include the Management’s Discussion and
Analysis (MD&A). The Comprehensive Annual Financial Report (CAFR)
typically includes much more information than this required minimum,
including required supplementary information and optional information.
The data that state and local governments provide to the Governments
Division in annual surveys and 5-year censuses are drawn from the same
record-keeping systems that the CAFR draws on, but there are many differ-
ences between the ways in which the CAFR summarizes, supplements, and
presents this information and the ways in which the Governments Division
summarizes, supplements, and presents the information.
The MD&A is unlikely to be a producer of data for statistical purposes;
however, the government-wide statements, which focus on the government
as a single economic unit rather than as a collection of independent funds
with varying fiscal years, and on costs of services rather than expenditures,
will affect data classification and collection by the Governments Division.
The statement of activities and the statement of net assets use the economic
resources and accrual-based measurements to provide the background in-
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120 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
formation for these government-wide statements, offering a longer term
perspective than the traditional reporting methods.
The statement of activities, or operating statement, is the centerpiece
of the new model. The model starts with expenses rather than revenues
and uses the net cost format, which shows the cost of services and how the
government pays for them. The expenses are broken down by function or
program rather than by fund, allowing comparison across governments re-
gardless of the different fund accounting systems. Revenues are divided into
four categories: charges for services, operating grants and contributions,
capital grants and contributions, and general revenues, with a provision
to identify special increases from transfers or other one-time sources. The
statement of activities matches costs incurred to program-specific revenues
raised, and the balance is the net cost, which is paid for through general
revenues. Although this methodology involves more work on the part of a
state or local government, GASB has found that the users of the financial
statements are obtaining long-awaited information.
The statement of net assets is the new balance sheet, and it focuses on
the residual difference between the government’s assets, including infra-
structure, and liabilities. Although the historical component of infrastruc-
ture is still inexact due to a lack of records, GASB expects this number to
become increasingly accurate as older assets are replaced.
The Governments Division agrees that Statement 34 adds some in-
formation without taking away what was already included in previous
versions of CAFRs. The division has considered how to use some of the
information as indicators to estimate other variables, given that some gov-
ernments historically have chosen to send their financial documents rather
than fill out the division’s surveys. If all 87,000 governments sent all of
their financial documents, the division would have a great deal of informa-
tion but also a tremendous workload in parsing out needed data from the
reports, especially if they are in paper form. Furthermore, while these data
might hold out the promise of helping to estimate national totals for total
expenditures and total revenue, it is highly unlikely that they could provide
any information on details, such as spending by function or revenue by
major category. The division is also making an effort to determine if there
is useful information from the government-wide statements that it is not
currently collecting. For example, BEA is interested in the valuation of as-
sets, which the division does not collect but which is included in Statement
34 requirements.
One major difference between GASB and Governments Division finan-
cial reporting is that the former relies more on accrual accounting. This
difference does not present a problem, however, because all accounting
systems, including accrual-based systems, include detailed cash flow state-
ments. The division makes use of the underlying cash data and largely
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CHALLENGES FOR THE FUTURE 121
ignores the accrual-based overlays. BEA may have some interest in the
full-accrual measures in the future—for example, it is studying increasing
the use of accrual accounting for the national income and product accounts
(U.S. Bureau of Economic Analysis, 2005).
Like the Governments Division, GASB has the objective of standardiz-
ing the accounting of funds and enforcing consistency across governments.
However, a major difference between the two is in the detail collected. The
division collects data on more detailed functions than is required by GASB.
Reliance solely on GASB classification would result in virtually complete
elimination of detail, which would severely erode the quality of BEA es-
timates and make Governments Division finance data nearly worthless to
many other users. With that said, there are reasons for the Governments
Division to coordinate with GASB and to seek changes that would serve
both organizations (see below).
Insofar as it affects state central collection programs, GASB’s Statement
34 holds both potential promise and peril for the Governments Division
data collection efforts. The promise is the availability of a wealth of new
data on capital valuation; the peril is that, as the GASB standard increas-
ingly defines the data that are available at the state and local level, there
could be a loss of detail, primarily at the functional level, that would jeop-
ardize the historical continuity and limit the usefulness of the Governments
Division data (Wulf, 2005, p. 15).
GASB Statement 44
Statement 44 outlines requirements for optional reporting of a statisti-
cal section of a government’s financial statement. The statistical section is
composed of five parts: financial trends, revenue capacity, debt capacity,
demographic and economic data, and operating information. Financial
trend information typically comes from 10-year comparative financial state-
ments and includes information on net assets, changes in net assets, fund
balances, and changes in fund balances. Information on a government’s
most significant own-source revenue is captured under the revenue capacity
category. Four types of information that are comparable over the historical
period are reported: revenue base, direct and overlapping rates, principal
real property taxpayers (top 10 taxpayers), and levies and collections. Debt
capacity information includes ratios of total debt outstanding, ratios of gen-
eral debt outstanding, overlapping debt, debt limits, and pledged-revenue
coverage. Two types of information are included in the demographic and
economic data section and are generally obtained from other federal statis-
tical sources: demographic and economic indicators and principal employ-
BEA, Response to Committee Questions, July 26, 2006.
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122 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
ers. Finally, government employment, operating indicators (demand or level
of service), and capital asset indicators (such as volume, usage, or type)
make up the operating information.
While GASB develops the standards, compliance is voluntary, and
GASB has no method for enforcement. The enforcement of these standards
comes from the users of the financial statements, such as state govern-
ments and municipal bond rating organizations. GASB has commissioned
an academic survey to find out how many and which states require GAAP
reporting by which levels of government. Statement 44 is not required for
GAAP compliance, but it is a requirement for a full CAFR. The CAFR is
the bond rating community’s primary tool for determining the ability of the
borrowing government to repay the debt.
Census Bureau Coordination with GASB
In view of the apparently growing influence of the GASB standards as
the defining standard for the development and maintenance of state and
local government financial records, it is important that the Governments
Division stay in communication with the GASB rule-making process and
play an active role to the extent possible. The body that ensures advisory
representation in the GASB process is the Governmental Accounting Stan-
dards Advisory Council (GASAC). The GASAC is responsible for consult-
ing with GASB on technical issues on the board’s agenda, project priorities,
matters likely to require the attention of GASB, selection and organization
of task forces and such other matters as may be requested by GASB or its
chairman. The council has more than 25 members who are broadly rep-
resentative of preparers, attesters, and users of financial information. The
federal government is officially represented on the GASAC by the Govern-
ment Accountability Office. The assistant division chief of the Governments
Division currently serves in an at-large seat on this body. It would be very
helpful for the Governments Division to have a permanent seat as an orga-
nizational member of the GASAC.
Recommendation 6-3: The Census Bureau’s Governments Division
should continue to stay engaged in the Government Accounting Stan-
dards Board standards-setting process in order to ensure maximum
consistency between the GASB and Census Bureau definitions. To
ensure close coordination with this activity, the division should seek to
obtain status as an organizational member of the Governmental Ac-
counting Standards Advisory Council.
The panel discussed the role of GASB in standards setting at length
and how much benefit the GASB standards could offer the Governments
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CHALLENGES FOR THE FUTURE 123
Division. In the short term, GASB rules do not appear likely to provide
the division with much opportunity to streamline its data collection. One
important reason for this is that GASB does not specify which spending
functions governments should list in their CAFRs, and when governments
do publish information by functions, GASB does not specify how those
functions should be defined. Governments generally publish the categories
they choose to, and they define them the way they think makes sense for
their purposes. Consequently, there is neither uniformity nor comparability.
The requirements for functional reporting in GASB Statement 34, as noted
above, are in terms of very broad categories.
Still, having a standards-setting body with considerable prestige, if not
outright authority, could create enormous opportunities for streamlining
the Governments Division data collection over the longer term, particularly
if GASB defines or suggests definitions for expenditure categories. There
are many problems that would result from simply turning over definition-
making authority to a third party, but that concern should not deter the
Governments Division from exploring possible opportunities. If at some
point in the future, it were possible to combine GASB and census catego-
ries with technical methods that would allow governments to “tag” their
data with these definitions when they first create them, delivery of data to
the division in a form that is useful might become nearly automatic. The
obstacles to this would be great, but the benefits would also be great.
Recommendation 6-4: The Census Bureau’s Governments Division
should lead a long-term research effort, with the Government Account-
ing Standards Board, the Government Finance Officers Association,
and other organizations as appropriate, to explore the development of
advisory guidelines and data definitions in a way that would allow the
collection of reasonably uniform detailed finance data from a very large
number of state and local governments on a regular basis.
CONCLUSION
The Governments Division’s data collections play a critical role not
only for the national income and product accounts and other economic
indicators, but also for important research and policy analysis uses that re-
quire detailed, consistent, and comparable data for individual governments
over time. Constrained resources have compelled the division to cut back
progressively on its data collections and valuable background information
for users. On the positive side, the division has begun to modernize its op-
erations, improve its website, and develop systems for project, documenta-
tion, and knowledge management. Moreover, the Economic Directorate of
which the division is a part has undertaken welcome initiatives to evaluate
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124 STATE AND LOCAL GOVERNMENT STATISTICS AT A CROSSROADS
all of its programs, to apply best statistical practices throughout the direc-
torate, and to require strategic planning.
At this critical juncture, the Governments Division is poised to take
either a limited view of its future or, as the panel strongly recommends,
a proactive, positive view in which it seeks opportunities to build its user
community and respond to user needs for more timely, relevant, and higher
quality data. The division will require the unstinting support of the senior
Census Bureau management and, in particular, the leadership of the Eco-
nomic Directorate to move forward. Senior management should charge the
division to develop a two-track strategic plan—one track that plans how
to adapt to a constrained resources environment in the most cost-effective
and user-responsive manner and a second track that looks to opportunities
to develop grow the division’s program for the future. Senior management
should also empower the division to establish an advisory group for con-
tinuing user input and should encourage it to work proactively with stan-
dards-setting bodies. These steps are critical to keep the division’s data in
the mainstream of international and national thinking and to maintain the
division’s well-earned reputation as honest broker and provider of impec-
cable information for measurement of state and local government activity.
Finally, 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 government
statistics program.
Progress toward implementing a forward-looking, opportunity-seeking
strategic plan for the Governments Division may of necessity be slow and
halting. Nonetheless, it should begin so that the federal agencies and the
policy and research communities have the information they need to track
the economic contributions of state and local governments and their chang-
ing structures, operations, and relationships and how these affect the nation
and its people.
