Fixing Public Sector Finances: The Accounting and Reporting Lever

UCLA Law Review, Vol. 62, No. 3, 2015

Harvard University John M. Olin Center for Law, Economics, and Business Discussion Paper No. 814

50 Pages Posted: 8 Mar 2015

See all articles by James P. Naughton

James P. Naughton

University of Virginia, Darden School of Business

Holger Spamann

Harvard Law School; ECGI

Date Written: March 1, 2015

Abstract

The finances of many states, cities, and other localities are in dire straits. In this Article, we argue that partial responsibility for this situation lies with the outdated and ineffective financial reporting regime for public entities. Ineffective reporting has obscured and continues to obscure the extent of municipal financial problems, thus delaying or even preventing corrective actions. Worse, ineffective reporting has created incentives for accounting gimmicks that have directly contributed to the dramatic decline of public sector finances. Fixing the reporting regime is thus a necessary first step toward fiscal recovery. We provide concrete examples of advisable changes in accounting rules and advocate for institutional changes, particularly Securities and Exchange Commission involvement, that we hope will lead to better public accounting rules generally.

Keywords: GASB, municipal finance, municipal accounting, municipal bond market, Tower amendment

JEL Classification: H83, K22

Suggested Citation

Naughton, James P. and Spamann, Holger, Fixing Public Sector Finances: The Accounting and Reporting Lever (March 1, 2015). Harvard University John M. Olin Center for Law, Economics, and Business Discussion Paper No. 814. Available at SSRN: https://ssrn.com/abstract=2574308

James P. Naughton

University of Virginia, Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Holger Spamann (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States

ECGI ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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