Teaching at IU
SPEA-V 186: Introduction to Public Budgeting and Finance
October 4, 2022 meeting of V186
This course is a required component of the Bachelor of Science in Public Affairs (BSPA) curriculum at the O'Neill School of Public and Environmental Affairs.
The plurality of enrolled students are sophomores that pursue BSPA majors related to nonprofit management, human resource management, arts management, policy analysis, law and public policy, or public financial management (see details here), while others do not yet have declared majors. Therefore, most students that enroll in this class are not actively pursuing a public finance career, and many have not directly engaged with tax and budget systems at any level of government. According to feedback collected from students early in the semester, it is not clear to most of them why this is a required course. If the purpose is not clear, there is little reason to expect students to be motivated to do their best work.
The argument I impart upon my students through the semester is that the course should accomplish two major objectives (other than those specified in the syllabus):
The class should enable students to think rigorously about solving complex problems - in this case, how the financing of public goods requires taxation and collective decision making, and why this approach differs from the sale of private goods.
This class should prepare students to understand their role as citizens, voters, taxpayers, and as the beneficiaries of public goods. For example, does the quality of a school district and/or its property tax levy influence where people want to live? Would higher marginal income tax rates affect your labor market supply decisions? Are public budgets transparent and easy to understand? Does a sales tax exemption on groceries or clothing make the sales tax more equitable despite the cost of lost revenue?
In recent semesters, I found that emphasizing these points establishes a sense of purpose and motivates students to engage with the topics in this course.
Module 1: Introduction
Public goods, externalities, public choice, and justification for a public sector
Public versus private production and provision
Module 2: Budgeting
Origins of public budgeting (motivates how changing economy after Industrial Revolution inspired advances made in early 20th century at New York Bureau of Municipal Research which laid the groundwork for the 1921 Budget and Accounting Act)
Why transparency in budgeting is crucial for democracy
The federal budget process
Mandatory and discretionary spending
Issues related to infrastructure and capital budgeting
Budgeting processes and institutions at the state and local levels
Module 3: Revenue
Principles of sound tax policy
Behavioral responses to taxation
Individual income tax, including reform debates
Sales and use tax, including recent developments related to Wayfair and remote sellers
Excise taxes, including tax exporting to nonresidents (i.e., hotel and car rental taxes) and sin taxes (i.e., cigarettes and alcoholic beverages)
Spending through the tax code
Voluntary tax compliance
Grants and intergovernmental transfers
User fees and fines, including the use of traffic enforcement and its role in fostering fiscal illusion
Module 4: Debt and Deficit
The national debt debate
Module 5: Financial Reporting and Accounting
Cost benefit analysis using time value of money
Understanding the components of financial condition as reported in Annual Comprehensive Financial Reports
GASB accounting standards, fund accounting, etc.
Examples of Active Learning Used in V186
Most students that take V186 appreciate the opportunity to discuss and solve problems with their classmates during class time. This is especially true after the AY 2020-21 year was held online.
A widely-held view is that students' attention cannot be held with a 75 minute PowerPoint, which leaves them as passive receivers of information. I believe that using class time to do group work to actively solve and discuss problems is a more realistic depiction of how their time will be spent professionally after graduation.
Below is an example of a lesson plan by which students act out the state budget process and collect taxes from "taxpayers" to finance the state budget. Modifications are introduced to complicate the tax code during this exercise to demonstrate how departures from broad-based taxes introduce compliance costs on taxpayers (see Indiana Tax Code document below).