On Being Right and Being Flexible

I submitted grades for my public financial management class last night. I told my students there are two critical takeaways from this class. The first is that if you need to make an assumption about inflation, growth, or anything else in the economy, you should pick two percent. The second is that when creating budgets, financial statements, or anything else like this, a huge part of being correct is convincing me your are correct.

This is an important and understated point. Especially at the lower levels. When journalling a transaction, how a split occurs is largely at the discretion of the person entering the transaction and prior practice of the organization. In other words, consistency is more important than clarity, in some cases. Frequently, it is feasible to deviate from the norms provided there is a good explanation and you document the explanation. This is all subject to conforming to legal and ethical requirements, but there is usually enough wiggle room that most any reasonable thing that can be done is permissible.

Also, the first takeaway is a subset of the second. Select something different from two percent only if you know a good reason to pick something else.

This kind of flexibility dominates many professional fields. In my EA and data science work, I often review documents, proposals, and recommendations with the words, “Well, I wouldn’t do it that way…but it’s not wrong.” And by that, I mean I would have picked a different approach. And for good reason. But someone could legitimately pick another approach also for good reason. They are not wrong. Just different.

Unless, of course, they are wrong; then all bets are off.

Image by SNIJLAB Rotterdam.

Stunt Budgeting in Howard County

While Hogan is criticized for illegally transferring money from the capital to the operating budget, we can see the same thing here in Howard County. New Howard County blogger, Jurgis Rudkus,1 addresses something similar here in Howard County:

Kittleman’s proposed budget takes $5 million in revenue from the sale of a piece of property and uses it to pay for operating expenses, half of it in the school budget of all places. That’s not fiscal responsibility; it’s the height of irresponsibility.

Property is purchased with capital funds. The proceeds from the purchase need to return to the capital budget, or go to paying off capital bonds. Stunt budgeting is the first sign someone ran for office, over-promised, and is now desperately trying to cover it at the expense of the voters.

Image by frankieleon.

  1. This is the best you could come up with, there, Clark Kent?

Economic Effects of the Ex-Im Bank

Last summer, a debate over the Export-Import Bank of the United States (Ex-Im Bank) simmered over and went mainstream. Ex-Im received a temporary reprieve, but it was only that and the debate is kicking up again as the temporary reauthorization is kicking up. Delta and Boeing are leading the fight, with Delta opposed to the Ex-Im Bank and Boeing in favor.

That’s a lot to swallow right there, since Delta and Boeing have been doing business together for decades. Boeing argues in favor of the Ex-Im Bank because non-American flag carriers use the loan guarantees to purchase Boeing aircraft. Delta is opposed to Ex-Im because a government agency is propping up foreign carriers at the expense of Delta.

This has spilled over into the mainstream political sphere. Here’s just a few articles against reauthorization:

And here are a few in favor:

This debate over a really obscure agency prompted PBS to produce a story called “Stop pretending you know what the Export-Import Bank is,” and I wrote a brief primer on Ex-Im last year. Then I got this sponsored tweet:

So how many American jobs are we talking about? In 2014, the Ex-Im bank made about $20B in loans (supporting about $27B in exports). Billions of dollars sounds like a lot, but some context is important. In 2014, the United States’s GDP was $17.4T. Trillion…with a T. Had the Ex-Im Bank not made those loans, it is unknown how much exports would be reduced by. Let’s assume the full amount of the loan value, which is reasonable enough for benefit-cost purposes. A $20B hit in the overall economy is negligible and probably not noticeable. This is true for each year since 2006, the first year for which loan data is available from Ex-Im through their data service:

YearEx-Im LoansGDPPercent of GDP
200712.6 14,477.60 0.0869%
200814.8 14,718.60 0.1007%
200921.2 14,418.70 0.1468%
201024.6 14,964.40 0.1645%
201132.7 15,517.90 0.2110%
201235.8 16,163.20 0.2214%
201327.6 16,768.10 0.1643%
201420.5 17,418.90 0.1175%

The peak value, in 2012, is the Ex-Im Bank at 0.22% of GDP. If GDP shifted by less than a quarter point, nobody would even report it. And that’s the peak. The average is 0.15% of GDP. That’s a few jobs, but only a few and a lot of the loan money is going to non-US companies, despite how the Post wants to spin things.

From a benefit-cost perspective, other important questions come up. The Ex-Im Bank does return a profit, and that is good. That profit goes straight to the Treasury and offsets other government funding sources such as taxes and borrowing. Also, it is likely the competition Delta worries about is healthier for the economy.

A complete benefit-cost analysis would probably benefit policymakers. CBO did one in 1981, and it could certainly stand an update. I might write this up given the chance.

Image by Glyn Lowe.

Nonprofit Project at the End of the Semester

This is the end of the semester write up on the nonprofit project in my financial management class. Two weeks ago, we were frustrated that we had not yet gotten any feedback from the city parks department about adopting the greenspace. Since the space we were interested in was half a block from the building our classroom was in, we walked over to it one day. We might have done this sooner, but don’t judge us.

And this is what we saw:

That's some fine greenspace right there (James Howard / University of Baltimore)
That’s some fine greenspace right there (James Howard / University of Baltimore)

As you can see, this is a very well kept space. They have no need for us. I personally think the apartment complex in the background does not realize they don’t own the space and are providing care and maintenance. Or, it is just a better business decision to take it over and they silently adopted the space. Either way, there is no problem here.

But if you turn around, you see this:

That's probably not a rat right there... (James Howard / University of Baltimore)
That’s probably not a rat right there… (James Howard / University of Baltimore)

We don’t know who owns this space. Basic research failed us and it needs some love and care. But it’s not on the city’s list of available spaces for adoption. We do have a second adoption request in, the backup request. I don’t have ground level imagery, but here’s satellite imagery of the site:

There's a lot of greenspace needing help here (City of Baltimore)
There’s a lot of greenspace needing help here (City of Baltimore)

If this is accurate, it does need the help. So we decided to wait on the results of the adoption process. Then this happened:

Where does one find a gas mask in Baltimore, anyway? (Algerina Perna / The Baltimore Sun)
Where does one find a gas mask in Baltimore, anyway? (Algerina Perna / The Baltimore Sun)

Without addressing the underlying social, political, and economic issues here,1 the events of the end of April completely disrupted the semester and the project. We lost a week of class. I do not expect the city was processing this sort of routine applications during this period, either.

Last night was the last class session and we still have not heard from the city. I asked who was interested in continuing the project. There was a tepid response, generally, but 2-3 students wanted to carry on. And that’s fantastic. We are going to keep waiting on the city and plan to have a meetup for the 3-4 of us in late May or early June. Hopefully, we will have gotten our greenspace adoption in order by then and we can start planning a fundraiser.

For my own part, the critical lesson I learned is about organizing the project in the classroom. Student feedback leaned heavily in the direction of picking the project for them (or a short-list). I really wanted to avoid this because I did not want to place the students into service of my vision, but instead their own. But that may be unavoidable. We wasted the first several weeks just trying to figure out what to do and that burnt us overall. So if I teach this class again, we will have a short-list or possibly a predetermined project.

  1. Which are important and the reasons I originally specified the nonprofit had to benefit Baltimore.