Now You See It, Now You Don't: The Mysterious Case of the Vanishing Split Bond Rating in States

Bond ratings on state-issued debt provide a signal to credit markets that help them charge an appropriate interest rate, based on the risk of payment default. Though actual default may occur only in extreme circumstances, observed differences in ratings and interest costs across states and time demonstrate that a sound economy, strong financials, and stable policies matter. When data on the factors that presumably affect ratings is public and easily accessible, making sense of differences of opinion between bond rating agencies is difficult. We suggest that such differences—observed as so-called split bond ratings—are often ephemeral. Utilizing a simulation method to uncover the latent credit risk presented by each state, we show that split ratings on state bonds are often due to the fact that presumed category overlap between rating agencies is absent when evaluated on a common latent scale. Most observed state bond rating splits from 1997 through 2006 can be explained by this category mismatch. Our approach has broad implications for pricing state debt, as well as pricing rated debt in other capital market sectors.     

Economic Conditions and State and Local Education Revenue

This article uses information on state and local education spending from 1989–1990 through 2005–2006 to examine the impact of economic conditions on the pattern of real revenue per student. We find that typical economic and other observable education demand determinants are significant in explaining the pattern of real revenue per student before and after the 2001 recession. We also find that there is no economically significant change in how governments responded to economic conditions after the 2001 recession. Finally, our results provide strong evidence that local governments attempted to offset state declines in revenues by increases in local revenues.     

Management Practices and State Bond Ratings

One of the central claims of public administration is that management matters for the performance of public entities. Quantifying the impact of organizational management is thus central to the empirical evaluation of this claim. Utilizing novel features of the Government Performance Project (GPP), we assess the impact of state‐level management practices on the credit quality of US states. The central challenge—that both the GPP data and bond ratings take the form of ordinal grades—suggests a common solution utilizing multiple indicators of a latent construct (management capacity and credit quality) with appropriate measurement models. After describing the characteristics of the measurement approach, we derive management capacity scores from the GPP data and credit quality scores using bond ratings from the three rating agencies. These derived scores then allow us to test linkages between credit quality of the US states and broad aspects of their relative management capacity. On the whole, we show that financial management capacity influences credit quality, while the evidence is less clear that other forms of management capacity matter.     

CHASING SHADOWS? PERFORMANCE MEASUREMENT OF POLICY ADVICE IN NEW ZEALAND GOVERNMENT DEPARTMENTS

Performance measurement is an integral part of the New Zealand model of public management, as it is for many other modern systems of governmental administration. This article examines data on performance indicators for the policy advice function in five government departments, for the years 1992 to 2005, to determine which types of indicators are used, and to gauge the extent to which they offer meaningful information about the quality of policy advice. As part of its managerialist drive in the early 1990s, the government developed conceptual material designed to improve policy advice and management in departments. In general, our findings indicate that these initiatives did not lead over time to the further development of genuinely meaningful measures of the quality of policy advice, and that the indicators that have been used meet narrow managerial rather than broader political needs.     

LONGITUDINAL PREDICTORS OF SERIOUS SUBSTANCE USE AND DELINQUENCY*

The present study tests the validity of a common-cause model in explaining both serious substance use and serious delinquent behavior among youths. Longitudinal data on 441 male and 441 female adolescents are analyzed. Youths originally tested at Time 1 when they were 12, 15, or 18 years old were retested three years later when they were 15, 18, or 21 years old. The results provide modest support for a common-cause model. While a number of predictor variables drawn from control theory and differential association theory are related to both behaviors, those drawn from the literature on psychological correlates of adolescent deviance tend to be more strongly related to subsequent serious substance use than to serious delinquency. The findings suggest that there is a degree of etiological independence in serious adolescent substance use and serious forms of delinquency. The implications of these results for theory development and policy implementation are discussed.     

TIME AGGREGATION AND TIME LAG IN MACRO-LEVEL DETERRENCE RESEARCH*

Recent arguments in research on individual-level deterrence suggest that the effect of perceived sanction risk on illegal behavior might occur over a shorter time period than the yearly lags typically incorporated in panel studies. This study raises the same issue for macro-level deterrence research by suggesting that panel studies using yearly data might have failed to capture the deterrent effect. The analysis uses ARIMA models with data aggregated monthly, quarterly, and semiannually to estimate the reciprocal effects between arrests and crimes for robbery, burglary, larceny, and auto theft in Oklahoma City from 1967 through 1989. No effect of crimes on arrests is found, but significant effects of arrests on crimes appear for three of the four offenses in the shorter temporal aggregations. The results suggest a need to reconsider conclusions based on panel studies that have used time aggregations and time lags that might be too long to uncover deterrent effects.     

A Moral Appeal for Taxpayer Compliance: The Case for a Mass Media Campaign*

This paper examines the ability of the mass media to enhance compliance with the law by the use of moral appeals. Drawing on the moral development literature and the literature of mass communication effects, we set forth a model for designing mass media campaigns directed at improving compliance with the law. Tax compliance is the issue we analyze. While we determine that no appeal, however well-crafted, is expected to reform all tax offenders, and that some approaches are likely to produce less rather than more compliance, we identify hallmarks of a potentially successful appeal.