National Edition

The dangers of financially illiterate politicians

Published: Monday, April 14 2014 4:20 p.m. MDT

In this January 14, 2014, photo, a senator discusses the national budget. There's a danger, though, in thinking that politicians always know what they're talking about when it comes to money. Just because people are voted or appointed into public positions that control budgets of millions of dollars doesn't mean they suddenly become financially savvy.

Susan Walsh, Associated Press

When the city of South Miami decided to build a new parking garage to the tune of $12 million, the officials behind the project undoubtedly meant well.

But in 2005, when they turned the project over to a private developer, they embroiled themselves in a financial deal that attracted the disapproving gaze of the Securities and Exchange Commission. After a long tussle with a jumble of financial regulations, critical regulators and angry investors that dragged on for years, what had seemed like a straightforward project had become a mess, with the city owing the IRS $260,345.

The story of what happened in South Miami, Fla., isn't that unique. In fact, cities all over the country have found themselves in hot water in recent years over public works projects that ran over cost or became boondoggles. And experts say that shouldn't come as a surprise to anyone. After all, government officials are not always financial wizards.

"I'm not being critical," says Scott D. Pattison, executive director of the National Association of State Budget Officers based in Washington, D.C. "You put a social worker as head of the department of social services, you don't put in a financial management person."

A governor might be expected, for example, to put in a highly regarded physician as the head of a state's health department — a physician who may or may not be familiar with government finances.

"I can understand that if you focus on substantive issues," Pattison says of government leaders, "you might not be tracking the numbers."

And that can lead to trouble.

The need to understand budgeting processes, spending procedures, fiscal years and other basics is something that all public officials, not just agency heads, need to understand. Public officials at the state and municipal levels bring a wide variety of skill sets to their positions — and even people familiar with money management may be daunted at some of the complex finances of things like conduit issuer bonds, revenue streams, federal grants and interest swaps.

Keeping track

"I was surprised," says Pattison, who was Virginia's budget director from 1997 to 2001, "at how often I would have to call some agency heads in early January and say, 'I just want to let you know, I hope you are tracking things, because we are only half way through the fiscal year, but you've spent 65 percent of your appropriation. So you don't have half of your money even though you still have half the year left. You need to try and manage that.’ ”

Public officials and agencies have finance and budget directors, auditors, governmental accountants or other financial officers. This means they can solve about 90 percent of the problems brought on by an official's lack of financial knowledge, Pattison says.

But not always.

For years, California's Department of Parks and Recreation underreported how much money it already had when submitting requests for more money from the state. The idea was likely to exaggerate the need for money so it would be easier to get what parks officials wanted. According to the state auditor, Elaine Howle, last year, the Parks Department's budget officer noticed this problem but was told by upper management to continue the practice.

"I have trouble speculating exactly why these problems happen," Pattison says. "Sometimes the boss overrules the finance person, or the finance person is reluctant to speak truth to power. I don't want to criticize those people, it is hard to say exactly why some things happen, but they do."

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