Thad Calabrese

Book review of Ian Murray, "Charity Law and Asset Accumulation: Maintaining an Intergenerational Balance".

In Classical Music: Contemporary Perspectives and Challenges. Edited by Michael Beckerman and Paul Boghossian.

Grading schemes are an increasingly common method of quality disclosure for public services. Restaurant grading makes information about food safety practices more readily available and may reduce the prevalence of foodborne illnesses. However, it may also have meaningful financial repercussions. Using fine-grained administrative data that tracks food safety compliance and sales activity for the universe of graded restaurants in New York City and its bordering counties, we assess the aggregate financial effects from restaurant grading. Results indicate that the grading policy, after an initial period of adjustment, improves restaurants’ food safety compliance and reduces fines. While the average effect on revenues for graded restaurants across the municipality is null, the graded restaurants located geographically closer to an ungraded regime experience slower growth in revenues. There is also evidence of revenue convergence across graded and ungraded restaurants in the long term.

Government and Not-for-Profit Accounting highlights the dynamic nature and constant evolution of the field and the intellectual challenges it presents.  Designed to assist both preparers and potential users of financial reports, this book emphasizes concepts over rules and regulations to help students think critically and consider the effectiveness of alternate methodologies. Real-world examples demonstrate the similarities and differences between the public and private sectors—and how each might approach the same issue—and complete coverage of relevant reporting standards and practices aligns with the latest GASB, FASB, and AICPA changes. 

A central goal of this text is to make students aware of the reasons behind the guidelines and standards, and consider their strengths, limitations, applications, and alternatives. Much more than simply an invaluable preparation resource for the CPA and CGFM exams, this book lays the intellectual foundation that allows the students of today to become the leaders of tomorrow: the members of the standard‐setting boards, partners of CPA firms, government and not‐for‐profit executives, legislative and governing board members, and more.

The public budgeting literature has a long and rich tradition that examines the role of budget stabilization funds as fiscal stabilizers for state and local governments during periods of declining revenues and deteriorating economic conditions. Similarly, nonprofit organizations may accumulate operating reserves that allow them to smooth out annual imbalances between revenues and expenses, especially when facing a fiscal shock. Agency theory, on the other hand, indicates that managers might use these reserves to enrich themselves at the expense of the organization. This article is a step toward addressing a gap in our knowledge by analyzing the implications of reserves on nonprofit spending in general and also on particular functions (program versus overhead spending). Using a long panel of data from 1995 to 2011 and controlling for sample selection bias, the empirical results suggest that operating reserves held by nonprofit organizations do reduce expense gaps during downturns, but the effect is small. The results also suggest that nonprofit managers value current spending more than reserving funds for the future. Further, operating reserves are not associated with agency problems as predicted by theory. The empirical results suggest that the current rule of thumb—that nonprofits ought to hold up to 6 months of operating reserves—is inadequate if these pools of savings are intended to maintain all spending at trend during poor fiscal times. If, however, reserves are intended to only offset trend deviations partially while alternative strategies are sought, then the current rule of thumb may be sufficient.

Accounting Fundamentals for Health Care Management is ideal for an introductory course in financial accounting in both undergraduate and graduate programs. With a focus on basic accounting in health care management, this essential book contains the vocabulary of and an introduction to the tools and concepts employed by finance officers. Students will learn how to assess financial information, ask the appropriate questions, and understand the jargon-laden answers.

The Third Edition reflects the changes since the enactment of health care reform. It also brings the book in compliance with recent and near-term changes to accounting standards by the Financial Accounting Standards Board including how bad debts are reported, the presentation of cash flow statements, and the presentation of net assets on the balance sheet.

New York City’s municipal leaders have run up a tab of more than $95 billion and continue to charge about $5 billion more annually to this bill. The current debt equals about $30,000 for each household in New York City, and the burden will continue to grow without changes to current policies.

The credit card used by municipal leaders is known as OPEB: other postemployment benefits. These benefits represent a part of the compensation for people who work for the City of New York, just like salaries and other fringe benefits. OPEB are benefits promised to police officers, firefighters, teachers, and other civil servants who provide public services each day. The City promises them benefits in the future–and charges the promise on the credit card. Specifically, a variety of health insurance benefits promised to these workers when they retire are not paid for as they work, but are to be paid for in the future when they reach retirement age. The taxpayers having to foot those bills, at prices likely to be notably higher than their current cost, will be the next generation of New York City taxpayers.

This current OPEB financing arrangement violates a principle termed “intergenerational equity” which requires those who receive and consume services to pay for them rather than pass the cost on to future generations. This report examines the magnitude and nature of this fiscal problem that has been left unaddressed for decades. It also suggests strategies for reducing this financial burden on current and future generations by better aligning New York City’s OPEB with other municipalities’ benefits and establishing more appropriate arrangements for funding those benefits.

In this paper, we articulate that rent-seeking behavior by nonprofit charities and budgetary discretionary behavior by public agents should lead to a positive correlation between nonprofit charity and government spending. Using a large national database of government spending that we merged with charitable spending, we empirically test our research question. Overall, we find a positive correlation between spending by both sectors that is unequivocal and nontrivial, thus supporting the rent-seeking theory of nonprofit charities’ behavior. When we examine spending by the sectors by specific areas of service provision to determine public budgetary reallocation, our results indicate positive associations in legal and judicial services, libraries, and public welfare spending – supporting the rent-seeking explanation. However, we found no correlations between spending by the two sectors in several important areas of service provision, including education, health, hospitals, and housing. The lack of correlation in these areas might be indicative of government failure theory rather than rent-seeking. Importantly, the positive association between charitable and government spending suggests that public spending may increase beyond optimal levels – leading potentially to tax burdens that are greater than necessary, crowding out of private enterprise, and spending patterns that are difficult to alter in light of fiscal shocks.

This note delineates different motivations for holding endowment by nonprofits, analyzes the definitions and measurement of endowment in the literature, and details newly available data on endowment contained in the Form 990 since 2008. More than 43% of organizations report owning an endowment, and the overwhelming majority of endowment funds are held by higher education nonprofits. One third of endowment funds are unrestricted and 41% are permanently restricted, with heterogeneity across subsectors. Endowed nonprofits exceed average payout rates each year of 5%. Annual endowment payouts average 4.1% of total organizational expenses, which measures the sector’s dependence on endowment revenue for operations. We evaluate past endowment measurement approaches using actual endowment data and find wide variation in validity. Although still imperfect, the new endowment data allow researchers to better understand a key distinguishing financial feature of the nonprofit sector.

This article examines the breadth of the current forecast literature as it relates to public budget making. It serves to provide summary information to decision-makers who otherwise do not have the resources to learn more than a small amount focused on much more narrowly defined areas of forecasting (such as the politics of forecast bias). Next, it serves those who perform forecasting related to budgeting by reviewing the current methods and practices commonly used in this domain. It also provides a ground level for future public budget forecasting research. Finally, this article identifies several areas in which the public forecasting literature needs additional development. Several of these areas, such as the effectiveness of nonregression-based forecasting techniques, are quite important to the majority of governments in the United States and other subnational jurisdictions, where budget offices are limited and resource investments in technology are scarce.

As part of the Tax Reform Act of 1986, non-hospital nonprofit organizations were subject to a $150 million cap on tax-exempt debt outstanding. This federally-imposed constraint was lifted by the Taxpayer Relief Act of 1997. This paper examines how this credibly exogenous policy change – which was little noticed outside of the municipal bond industry – reduced the cost of capital, and, as a result, led to a significant increase in the use of tax-exempt debt overall and relative to other financing sources by nonprofit colleges and universities. Using two different comparison groups and a difference-in-differences estimation strategy, we find that nonprofit colleges and universities significantly increased the use of tax-exempt borrowing and altered capital structures following the policy change in 1997 with some variation by degree of constraint.

The importance of tax-exempt borrowing as a capital source to the nonprofit sector has significantly grown over time. Tax-exempt bonds issued by nonprofits has risen from an inflation-adjusted $106.3 billion in 1993 to $388.5 billion in 2010 representing an 8% compound annual growth rate over the period. The increased importance of tax-exempt borrowing relative to other borrowing for nonprofits has gone unnoticed. Here we ask what factors are associated with this trend. We find wide variation in the increasing use of tax-exempt bond usage between nonprofit sectors. While nonprofit borrowers other than hospitals have increasingly entered the tax-exempt capital market over the past decade, they still tend to be large organizations with lower risk of bankruptcy or default. Our empirical findings continue to raise the questions that others have raised: how do we make smaller, capital-starved nonprofits better able to take advantage of the tax-exempt market in a responsible manner?

Now in its Fifth Edition, Financial Management for Public, Health, and Not-for-Profit Organizationsis the leading textbook on financial management in the government, health, and not-for-profit sectors providing a comprehensive yet practical introduction to the financial decision-making and management skills required of students and practitioners in the field.  Assuming readers have no prior training in financial management, the authors artfully combine the principles and theory and analytics of accounting and finance.  Coverage includes cost analysis, budget preparation, budget and variance analysis, management control, and recording and reporting financial information, with an emphasis on preparing and analyzing financial statements. The authors detail the foundational principles of each of the methods introduced in the book, and through step-by-step equations, figures, and exhibits, they illustrate how to execute financial management in practice.

Much existing scholarship on nonprofit organizations’ receipt of government funds appears to assume that there is something highly problematic about this relationship. Although rarely articulated in these studies, the concern about the negative effects of government funding turns on a view of nonprofits that privileges their private character. In this paper, rather than examining how public funds constrain private action, we inquire about how government deploys private organizations, via the mechanism of government funding, to secure a public good.  Using a case study of the nonprofit child welfare sector in New York State, we theorize a deficit model of collaborative governance in which nonprofits have been deputized by the state to secure children’s social rights but do not receive sufficient resources to cover the costs of securing those rights. Then, we connect this theory to organization-level financial management practices that pose challenges to the nonprofits of both survival and service quality. This nonprofit organizational instability concerns the state insofar as it threatens the securing of individuals’ social rights.

Public managers and elected officials are generally restricted from supporting election campaigns with public resources. In the case of legislative referenda, the public stakeholders responsible for putting a policy question on the ballot must play a neutral role when acting in their official capacity. A system where private money supports public goals has emerged as regulatory provisions simultaneously restrict direct private giving to elected officials and public support for election campaigns. Using campaign finance disclosures, election results, and municipal bond issuance data, we find that post-election fees paid to firms making political contributions are significantly higher than for non-contributors. The finding improves the understanding of how private dollars support public policy outcomes, raises questions about the circumvention of laws restricting the use of public resources in election campaigns, and informs ongoing consideration of the need for additional regulatory action and disclosure requirements to address issue committee campaign contributions. 

We examine the use of pension obligation bonds (POBs) as a financing strategy to address the effects of unfunded pension liabilities on government operating budgets. POBs are publicly marketed as money-saving mechanisms that reduce pension system payments while allowing for increased spending on other government priorities. We review general POB usage and examine whether POBs altered school district spending patterns in Oregon and Indiana. Our results indicate that districts issuing POBs have not increased educational spending relative to other districts. Because POBs cost money to issue and manage, decision makers are encouraged to consider annual budgetary effects prior to issuance.

Operating reserves allow nonprofit organizations to smooth out imbalances between revenues and expenses, helping to maintain program output in the presence of fiscal shocks. We know surprisingly little about why nonprofits might save operating reserves and what factors explain variation between organizations' savings behavior. Findings suggest that operating reserves are reduced in the presence of concentrated public funds, access to debt, fixed assets, and endowment. However, size is not an important predictor, indicating that the lack of reserves is not limited to small nonprofit organizations but is instead a sectorwide issue. Significant numbers of nonprofits maintain no operating reserves at all. One potential explanation is that organizations discount the benefits of reserves because they are evaluated on spending, focusing instead on the “benefits of costs.” This preference for spending over reserving may also help explain the general lack of liquidity in the sector beyond operating reserves alone.

Five municipalities with populations over 100,000 have declared bankruptcy since 2008, as have some smaller ones, including Central Falls, RI, in 2011. The bankruptcies have unsettled citizens, current and retired employees, and creditors of the governments involved; further, the apparent increasing willingness of municipal officials to file for bankruptcy has raised concerns nationwide. Municipal bankruptcy is exceedingly rare. Only 650 US Bankruptcy Code Chapter 9 municipal bankruptcy cases were filed between 1937 and 2012; by contrast, 2009 alone saw more than 11,000 Chapter 11 corporate reorganization filings. The bankruptcy of Central Falls shows what can happen when systematic underfunding of employee benefit promises runs into a weak, declining economy. Central Falls is a relatively poor municipality. The consequences of bankruptcy can be severe for citizens, employees and creditors. As the current bankruptcy filings unfold in the courts, there is growing alarm among those concerned with government finances regarding the impact of bankruptcy on future borrowing costs and on the safety of employee benefit promises.

There has been a significant amount of work done on the private funding of nonprofits. Yet, despite the enormous size of the nonprofit sector as a whole, the importance of private donations to the sector, and the significance of the sector to public finances, there has been very little empirical research done on the capital structure of nonprofit organizations, and none has examined the potential effects of borrowing on individual contributions. Debt might affect donations because programmatic expansion might “crowd-in” additional donors, the use of debt might “crowd-out” current donors since expansion is undertaken at the behest of the organization (and not due to donor demand for increased output), donors might have a preference for funding current output rather than past output, or because of concerns that the nonprofit will be unable to maintain future programmatic output. These potential effects of debt on giving by individuals have not been the focus of research to date. The primary data for this paper come from the “The National Center on Charitable Statistics (NCCS)-GuideStar National Nonprofit Research Database” that covers fiscal years 1998 through 2003. The digitized data cover all public charities required to file the Form 990. The final sample contains 460,577 observations for 105,273 nonprofit entities. The results for the full sample support a “crowding-out” effect. The analysis is repeated on a subsample of nonprofits more dependent upon donations, following Tinkelman and Mankaney (2007). The restricted sample contains 121,507 observations for 36,595 nonprofit organizations. The results for the subsample are more ambiguous: secured debt has little or no effect, while unsecured debt has a positive effect. The empirical analysis is then expanded to test whether nonprofits with higher than average debt levels have different results than nonprofits with below average debt levels. The results suggest that donors do remove future donations when a nonprofit is more highly leveraged compared to similar organizations.
Nonprofits may fear that the use of debt signals mismanagement or bad governance, worrying that donors will punish the organization by removing future donations. The results presented here suggest a more complicated relationship between nonprofit leverage and donations from individuals than this simple calculus. On the one hand, increases in secured debt ratios (from mortgages and bonds) seems to reduce future contributions, possibly because donors are wary of government or lender intervention in the nonprofit’s management, or possibly because of the lack of flexibility inherent in repaying such rigid debt. On the other hand, unsecured debt, while more expensive, seems to crowd-in donations, even at increasingly higher levels when compared to similar organizations. There are at least two important conclusions from this analysis. First, during times of fiscal stress, nonprofits are often tempted to use restricted funds in ways inconsistent with donor intent simply to ensure organizational survival. Rather than violate the trust of certain donors, the results here suggest that nonprofits would be better off utilizing unsecured (possibly short-term) borrowing to smooth out cash flow needs. This option, however, assumes that nonprofits have access to some type of borrowing which is not true for many organizations. A second conclusion one might draw, therefore, is that policy considerations should be made to expand access to debt for nonprofits. The results here suggest that certain types of unsecured debt might in fact draw in additional resources, allowing nonprofits to leverage these borrowings for additional resources. By encouraging this type of policy option, nonprofits would not only gain access to increased revenue sources, but might be able to maintain programmatic output during times of fiscal stress.

Notwithstanding its importance as an internal source of financing, no analysis has examined why nonprofits choose to retain unrestricted net assets. As restricted net assets might not be used as desired by the nonprofit manager, unrestricted net assets are a more accurate definition of available internal resources than total net assets. This article tests several theories that might motivate nonprofit accumulation of unrestricted net assets. Furthermore, the empirical strategy employed allows an analysis of unrestricted net asset accumulation over time and overcomes several significant statistical estimation issues. The results suggest that nonprofits target profits and seek their accumulation over time, although targets may be set at very low levels. Furthermore, the results suggest that the low levels of profits accumulated annually are for the purpose of reducing organizational financial vulnerability. The results also suggest that many nonprofits behave as if leverage and unrestricted net assets are substitutes.

We analyze panel data of U.S. states to determine whether nonprofit contribution and program service revenues are correlated with state tax burden. State tax burden is modeled as a function of (a) state tax policy, (b) nontax policy factors that affect state income, and (c) other exogenous factors that are independent of state tax policy and do not directly induce income; regression results reveal correlations with variables in all three categories. Intergovernmental revenue (IGR) paid to local governments, debt burden, tax exporting, a tax revenue limitation, and nonprofit revenue are most consistently correlated with state tax burden. Financial support for nonprofits in the form of contributions helps to reduce state tax burden and does so at a meaningful level. This finding implies nonprofits provide goods and services that are supplementary to government provision. However, the supplementary nature of nonprofit service provision is not universal. Further analysis of contribution and program service revenues for nonprofits in particular service categories finds either no correlation with state tax burden, a reduction in state tax burden, or an increase in tax burden imposed on state residents over time. By controlling for factors influencing demand for service provision and state tax policy changes, the regression results also provide evidence that government acts as a free rider.

This paper examines the question of whether there is any correlation between the prevalence of nonprofit organizations with property, plant, and equipment exempt from property taxation and the property tax burden for homeowners. Data from the Tax Foundation and Internal Revenue Service was used to analyze general-purpose local governments within larger counties (populations greater than 65,000) in the United States for years 2005 and 2006. Several econometric specifications were used to estimate homeowner property tax burden as a function of the value of nonprofit fixed assets, government tax structure characteristics, and a series of control variables. Our estimates suggest that county geographies with greater presence of nonprofits tend to have higher homeowner tax burdens on average. Specifically, the value of nonprofit tax-exempt fixed assets within a county geography that is 10% above the mean of $15.4 million is generally associated with a median property tax paid by homeowners as a % of household income that is between 0.0009% and 0.0154% above the mean or between $2 and $24 higher on average. The median property tax paid as a % of homeowner’s home value would be between 0.0006% and 0.0069% above the mean or between $3 and $12 higher on average. Overall, we find a strong, positive correlation between nonprofit fixed assets and property tax burden for homeowners at the local level.

At A Time When Health Care Organizations Face Unprecedented Financial Challenges, Understanding Financial Accounting Is Important For All Health Care Professionals, Especially Those Who Manage A Department And A Budget. Designed For Both Students And Professionals, Accounting Fundamentals For Health Care Management, Second Edition Clearly Explains Accounting Principles And Applies Them To The Health Care Environment.Critical Topics Such As Recording And Reporting Financial Information, Depreciation, And Financial Statement Analysis Are All Thoroughly Covered The Second Edition Offers: New Co-Author, Thad Calabrese New Chapter (Chapter 2) Provides An Excel Tutorial. New Discussion Of The Impact Of Health Care Reform In Chapter 3 Updated Throughout With Information On IFRS Coverage Of Cash Basis Vs. Accrual Basis New Discussion Of Fair Value Simplified Discussion Of MACRS New Discussion Of Sarbanes-Oxley Act Many General Updates

The static trade-off and pecking order capital structure theories are analyzed and applied to nonprofit organizations. In addition, this paper also considers how nonprofits adjust their leverage over time. The analyses consider the unique role of donor-restricted endowments in the decision to borrow, as well as different types of borrowing by nonprofits. The results indicate that nonprofit capital structure choices are best explained using the pecking order theory, in which internal funds are preferred over external borrowing. Further, nonprofit endowment is not found to increase leverage. Despite the unambiguous findings across varying definitions of leverage, the results also suggest that a “modified pecking order” is a more apt descriptor of nonprofit behavior.

Public officials have recently sought increased regulation of financial disclosures from not-for-profit organizations as a means of improving accountability with the public. One objective of this study is to examine whether not-for-profit entities already subject to audit requirements submit financial reports in compliance with GAAP. Further, since the majority of not-for-profit organizations are not subject to public audit mandates, this study also ascertains whether other market actors such as donors monitor and demand accrual-based financial information. The empirical analyses indicate that not-for-profit organizations subject to public audit mandates are largely in compliance with GAAP, although a significant minority of organizations subject to state requirements is not; further analyses suggest that external oversight significantly influence the use of accrual reporting. Models are also tested on a subsample of not-for-profits that switched from cash to accrual reporting, with the results suggesting that increasing public and market oversight have a significant effect on the decision to switch methods. The overall results suggest that public and market actors demand accrual-based financial reporting from not-for-profit organizations.

The brief’s key findings are:

• Some state and local governments issue Pension Obligation Bonds (POBs) to raise cash to cover their required pension contributions.

• POBs allow governments to avoid increasing taxes in bad times and could reduce pension costs, but they pose considerable risks.

• Those who issue POBs are often fiscally stressed and not well-positioned to handle the investment risk.

Budgeting is the core financial task in subnational governments. Although limited research has outlined the relationship between the annual operating budget and public pension funds, the existing literature has not considered the manner in which financial resources are measured within government budgets, how this measurement of resources might affect public budget decisions, and how the interaction of the budget with the actuarial model can lead public budget managers to engage in financially damaging transactions such as pension obligation bonds. This paper fills this void, and argues that the short-term nature of public budgeting coupled with the actuarial model's use of expected investment returns rather than a market discount rate for pension liability measurement causes governments to shift risk to future generations. This paper also recommends that a blended discount rate for pension liabilities be considered more appropriate when governments fund their annual pension expenditures using debt rather than equity (such as tax revenues).