FISCAL FEDERALISM, PROFESSIONALISM AND THE TRANSFORMATION OF AMERICAN STATE GOVERNMENT

A combination of political and economic forces have helped to return the states to the centre of the political stage. Whether measured by objective indicators (employment, share of government expenditure, elasticity of state revenues) or political institutional changes (the rise of career governors, the increasing influence of the intergovernmental lobby and the spread of state responsibilities), the states have become increasingly important in the formulation and implementation of American domestic policies. However, these changes have by no means reduced the level of intergovernmental conflict. On the contrary, cuts in federal expenditure, the introduction of block grants and public opposition to increases in state and local taxation are likely to intensify debate on distributional questions at the state level.     

Restraining mandated service costs: Innovative diffusion of transplant technologies in arizona's medicaid program

Medical technological innovations while usually beneficial are inevitably costly to the medical profession, to government, to the economy, and to society in general. Organ transplantations are prime examples of this dilemma. Such services are mandated by the federal government to state Medicaid programs. A cost-saving effort in Arizona's Medicaid program involving negotiation and competitive bidding with providers of transplantation services could have broad positive implications for states willing to copy Arizona's approach. The approach may even have implications for general health care reform.     

Meeting the challenge: state revenue raising

Recent trends in state tax revenue reveal that overall reliance of states on taxes have been declining for the last 43 years. Faced with reduction in tax revenues, states have restructured their tax systems to meet public demand for more services. State income taxes are the one type of tax that has risen consistently. What causes state policy makers to rely on this type of tax? This research addresses this question.     

The challenge of design of intergovernmental relations in economies in transition

The governments of Eastern Europe and the former Soviet Union are at a crucial juncture in their movement from highly centralized command economies to more decentralized market economies. While there is a belief in these countries that decentralization brings greater economic efficiency, the reality is that such a transition is a difficult process. This paper examines what types of administrative reforms are needed for the decentralization process, how far along the countries are with respect to these reforms, and what reforms are missing. As we discuss, many of the necessary administration reforms are missing and we argue that more attention must be paid to these elements for successful decentralization of these governments.

This paper examines the recent experience and reform needs of the key administrative aspects of the design of intergovernmental relations in countries in transition in Eastern Europe and in the former Soviet Union. There is a widespread realization in all of these countries that decentralizing government will help increase efficiency in the public sector just as privatization will improve efficiency in their economies. Decentralization of government operations is also attractive as a way to cement a democratic form of government. Despite the appearances of the existence of an already decentralized system, such as in the case of the Soviet Union, this experiment started in practically all cases with a lack of institutions and experience on how decentralized government operations should be organized.

As different as these countries are, there are many similarities in the reform process they are following in order to decentralize government structure. While the basic components of a decentralized system of government are emerging in many of these countries the structure of government has not fully evolved in a manner that can support such a decentralized system. Often, governments remain structured along a vertical hierarchy: information, budgetary authority, and revenue pass from the central government down to subnational levels of government while little communication or interaction exists at a horizontal level. In general, the assignment of revenue and expenditure has not been clearly defined among the two or three levels of government, central government transfers continue to occur in a relatively ad hoc manner, and the entire budgeting system still rests in many cases on more or less formal system of negotiations and bargaining among the different levels of government. There has been some change in this structure in certain countries. Over the last three years, both Poland and Hungary have legally increased the automony of subnational governments. In 1994 in Russia a new and more transparent system of intergovernmental grants has been established between the federal government and the regions. In 1994 also, Latvia introduced a more transparent formula-driven, transfer formula for the regional and municipal governments.

The focus of this paper is to develop a “blue print” for necessary changes in organization and administration of intergovernmental relations in countries in transition. While many experts have recently been discussing the public finance policy components of this new, evolving relationship among levels of government, less attention has been paid to the structural and administrative challenges and the information design issues that must be met in order to develop and support a system of intergovernmental relations.

The paper is organized as follows: First we review the major responsibilities and their allocation among levels of government, the assignment of revenue sources, and the system of transfers. We then turn to a discussion of the current experience of Eastern European and NIS countries in the context of the structural components of an intergovernmental fiscal system. Next, we analyze the organizational reforms that are necessary for the efficient functioning of a decentralized system of government in the economies in transition. Finally we “rate” the transition economies in relation to their current design of the system of intergovernmental relations and support mechanisms.     

THE DIFFUSION OF PRIVATIZATION IN EUROPE: POLITICAL AFFINITY OR ECONOMIC COMPETITION?

Privatization has spread around the globe. While a number of studies find empirical evidence for the diffusion of privatization, it remains unclear what the relevant linkages between states are. This article analyses whether it is economic competition or political affinity that influences the diffusion of privatizing public utilities. The sample includes telecommunications, postal, and railway providers as the main network‐based utilities operating at the national level in 15 European countries from 1980 until 2007. The results of the spatial regressions clearly show that governments follow each other for economic reasons. Trading partners strategically interact when privatizing their national public‐utility providers to form strategic cross‐border company alliances and to avoid competitive disadvantages in the global market. This applies particularly to economies that are highly integrated in the international market. Surprisingly, political and ideological similarities do not seem to matter for the diffusion of privatization.     

Multiple perspectives on the meaning of revenue

The full range of the meaning of revenue emerges from seriously considering how people understand revenues from various perspectives. Explicit discussion of revenue meanings may contribute to improving our understanding of revenue-related phenomena. Insights can be gained from considering revenues from various perspectives. Revenue conceptualizations examined here range from the most immediate one, the notion of resources, to policy devices, mediation of relationships, measurements of political situations, and values. These discussions show that a variety of meanings are associate with revenues and that revenues are at least as fundamental to public budgeting as expenditures.     

The relationship between competition and efficiency of waste-collection services in the Czech Republic

This paper examines the role of the competition on the waste-collection market. Based on the case study of the Czech Republic, we evaluate the influence of competition intensity on supply side of the market on efficiency of waste-collection services. The rate of competition was approximated by the number of submitted bids to public tenders and efficiency was measured by per capita expenditures for municipal waste-collection services. We developed two regression models – the first model verified a competitive effect on the public procurement market for the provision of waste-collection services; the second model identified factors that affected municipal expenditures for waste-collection services per capita. We concluded that the competition in the waste-collection market increases by organising open tenders for suppliers at regular intervals, by adapting the duration of contracts to economic life of fixed assets, by sustaining pressure on service providers through a change in suppliers or the distribution of contracts among jurisdictions.     

Managing Local Intergovernmental Revenues: The Imperative of Diversification

Abstract

Municipal governments have employed a variety of strategies to address their ongoing revenue crises throughout the past several decades. One such strategy that has been employed with great consistency is the use of intergovernmental revenues (IGR). Given this trend, coupled with the fact that we know little about the dynamics of IGR, this paper presents one of the first multi‐year examinations of its use at the local level. Using data from 76 villages and cities in Cook County, IL (greater Chicago) for 1996–2000, we examine IGR use from the perspective of revenue diversification. The analysis indicates that during this period, local governments in Cook County (1) diversified their own‐source revenues and decreased dependence on the property tax; (2) maintained a consistent dependence on IGR; and (3) diversified and significantly altered their IGR structures. We also examine the demographic and organizational correlates of IGR diversification, and find it to be unrelated to characteristics such as population, property tax base, professional administration, and organizational capacity. As a result, we conclude that IGR diversification is a strategy that ought to be considered by all municipalities regardless of size or structure.     

Swedish politicians’ preferences regarding the privatisation of elderly care

Since the 1990s, Sweden has embarked on a series of market reforms in public services, aiming for greater efficiency and better service quality. Nevertheless, the political debates do not seem to fade away and local politicians still have to decide on privatisation issues. We argue that attitude studies of local politicians are of importance and present a 2014 survey in this regard, using Swedish elderly care as one example. Our findings show that altitudinal difference between left- and right-wing politicians on private for-profit providers remains distinctive. Moreover, political orientations of individuals, political majority in the municipality, as well as privatisation level already achieved locally are identified as important factors in explaining local politicians’ willingness to privatise further. This case study serves as a good example to examine the market development of public welfare in advanced welfare states and also contributes to the contentious discussion of political roles in welfare reform.     

Intergovernmental Grants and Public Expenditures: Evidence from a Survey Experiment

The relationship between intergovernmental grants and public expenditures is one of the most studied phenomena in the local public finance literature. However, little is known about whether the impact of unconditional grants is fundamentally different from that of other sources of municipal revenue. We study this question by means of a large-scale randomised survey experiment among Danish local politicians, which allows for a comparison of the impact of changes in various sources of municipal revenue. Our findings challenge the conventional conception in the public finance literature that money works differently depending on which sector they are generated in. Instead, ideology plays an important role in explaining how local politicians want to allocate resources when faced with changes in local government revenue.     

Tax increment financing as a municipal revenue: helping the legislature get it right

Tax increment financing raises revenue for public infrastructure in a redevelopment district by capturing increased property tax revenue stimulated by the redevelopment. TIF has left a long trail of intergovernmental controversy. Cities in Washington State, which approved TIF in 1982, have yet to complete a project. After two failed constitutional amendment campaigns, a test case was initiated to validate TIF before the state supreme court. The cities lost. This article examines the technique, this case, and lessons for making tax increment financing available as a revenue source in Washington.     

The impact of functional responsibility and state legal constraints on the “revenue-debt” packages of U.S. Central cities

State governments have the power to restrict the revenue and debt sources available to their municipalities. States also have the power to assign functional responsibilities to their municipalities - - some of which can be extremely burdensome financially (educatin; welfare; hospitals). This research examines the effect of these state constraints on: (1) the revenue-debt use patterns; and (2) the fiscal condition of 243 U.S. central cities (FY 1974, FY 1975, 1976).

The results show that the revenue/debt use patterns of cities vary signigficantly according to the restrictions imposed by the state on their taxing, borrowing, and functional responsibility powers. In addition, revenue/debt use patterns differ among ciites experiencing varying levels of distriess. Severely distressed cities are more dependent on external revenue sources (federal, state). They are less capable of generating revenue at the local level and are less flexible in their use of local revenue soruces, depending more hevily on the property tax and less heavily on nonproperty tax and nontax revenue sources than healthier cities. They are also found to be more reliant on full faith and credit (property tax-backed) long-term debt and on short-term debt than the more prosperous cities.

Cities in states imposing heavy restrictions on use of property tax and full faith and credit long-term debt sources but imposing few restrictions on municipa; nonproperty taxing powers are generally the healthiest fiscally. Such state policies have effectively enhanced municipal diversification of both traditional revenue sources and debt sources.

The major significance of this research is the demonstration that state governments have within their policy-making power the ability to affect the fiscal dependency level of their respective municipalities. An activist role is necessary on the part of state governments if they wish to increase their role in municipal fiscal affairs relative to that of the federal government.     

Intergovernmental redirection

Intergovernmental reformers have long attempted to remedy the system's more apparent defects, especially the recent buildup in federal-state-local relations as Washington's involvement became broader and deeper. These remedies have included incremental and procedural changes, rationalization of federal aid and program delivery instruments, and total overhaul of the system through functional realignment. Efforts in the past have proved only marginally successful, essentially due to the fact that Congress had become the dominant architect and defender of the system. The world of intergovernmental relations changed dramatically from 1978 on, due to the poor performance of the economy, antitax and antispending sentiment, public-sector retrenchment, and fiscal deterioration at the federal level. Decentralization, competition, and fragmentation characterize the contemporary do-it-yourself federalism. President Reagan's proposed swap, turnback, and trust-fund package of New Federalism seeks to capture these changes in a system realignment. I examine these changes in light of whither intergovernmental relations go in the 1980s.     

The Flypaper Effect: Do Political Institutions Affect Danish Local Governments’ Response to Intergovernmental Grants?

Abstract

Despite a large number of empirical studies on the flypaper effect, it remains disputed whether the effect exists and to what extent it is asymmetrical. The flypaper effect suggests that intergovernmental grants tend to result in higher increases in public expenditures than a similar increase in citizens’ private income would have led to. An asymmetrical effect exists when the fiscal response differs depending on whether grants are increased or decreased. By considering political institutions that moderate the effect of intergovernmental grants, this article offers a theoretical explanation that accounts for the mixed empirical evidence. The local response to intergovernmental grants is tested using a reform of the Danish intergovernmental grant scheme in 2007. In line with the expectation, the article finds a strong asymmetrical effect, but more surprisingly, this effect is found both when subnational budget institutions are centralised and when they are fragmented.     

A decade of decline: a longitudinal look at big city and big county strategies to cope with declining revenues

Many local governments have now endured a decade of fiscal decline due to periodic reductions in external funding (federal and state and slowdowns in the rate of growth of the state and local government sector. This research examines the extent to which six large jurisdictions (three cities, three counties) under fiscal duress avoided political conflict and prevented further fragmentation of their authority between 1978 and 1987. The results showed that local officials generally chose retrenchment strategies (revenue, expenditure, and borrowing) with the least anticipated political opposition; but where hard choices had to be made (personnel reductions), they were made without hesitation. The timing of politically unpopular choices to coincide with downward trends in the private sector reduced the level of political fallout, even in heavily unionized, socioeconomically diverse communities. The results also showed that local officials strongly endorsed, rather than opposed, strategies that further fragmented their authority (privatization, intergovernmental cooperative agreements), because these approaches produce significant personnel and capital savings in the short term. Finally, the results indicated that the long-term cumulative effects of short-term decremental decisionmaking on the quality of life (as measured by drops in bond ratings) were negative in only one-third of the jurisdictions.     

Private administration of a public function: The news election service

The United States government has no elections office and does not attempt to administer congressional and presidential elections. The responsibility for the administration of elections and certification of winners in the United States national elections rests with the states. The states divide election administration responsibilities between state and local election officials, whose objective is an efficiently administered honest election, with the ballots correctly tabulated. The formal structure of election administration in the United States is not capable of providing tirely results of the presidential and congressional election. Similar structural difficulties in other policy areas often result in ad hoc operating agreements or informal cooperation among agencies at different levels of the federal system. In the case of election administration, however, the public officials have abdicated responsibility for election night aqgregation of the national Vote totals to a private organization, News Election Service, which is owned by five major news organizations. This private organization performs without a contract, without public compensation, and without supervision by public officials. It makes decisions concerning its duties according to its own criteria. The questions of responsibility and accountability have not arisen in part because of the private organization's performance record and in part because the responsibility was assumed gradually over a lengthy period without ever being evaluated as an item on the public agenda.     

Case-mix nursing home reimbursement: a technical “fix” for a policy inadequacy?

Most state Medicaid programs, in many cases the largest fundors of long term care, reimburse nursing homes or home health agencies on negotiated flat rates. However, several states have implemented or are planning to use reimbursement methods using case-mix indices to adjust for the different variable costs (e.g., resource utilization groups, RUGs) incurred in caring for different types of patients. Advocates contend that such methods can simultaneously help contain costs and enhance access by motivating the nursing home to keep costs below predetermined rates and mitigating providers’ reluctance to admit “heavy care” residents. The numbers of such residents putatively have increased as a result of incentives in the Prospective Payment System for hospitals to more quickly discharge sicker patients. However, the potentially negative effects of case-mix reimbursement (CMR) on quality of care have not gone unnoticed, and the costs (as yet undetermined) of mechanisms to avert these effects likely are nontrivial.

This paper examines the effects of CMR on cost (to states and nursing homes), access and quality. A preliminary review of the available evidence seems to indicate mixed results; yet, CMR obviously appeals to some Medicaid programs and representatives of the nursing home industry. We suggest that the allure of CMR may be due to a mistaken belief that, to borrow from Brandon (1990), such “tech fixes” obviate irksome negotiation on the part of policy elites.

An alternate reimbursement policy is proposed: a negotiated prepayment, based on a facility's global budget, with periodic allocations and an end of period adjustment to compensate the provider for unanticipated costs.     

REVENUE SCARCITY AND GOVERNMENT OUTSOURCING: EMPIRICAL EVIDENCE FROM NORWEGIAN LOCAL GOVERNMENTS

It is often said that ‘necessity is the mother of invention’. In this article, we assess whether this also applies to the design of public authorities' service provision. In particular, we evaluate whether revenue scarcity – as an indicator of fiscal stress – induces government outsourcing. In contrast to previous studies, we exploit arguably exogenous variation in local government revenue across time and space to derive stronger inferences on the role of revenue scarcity for outsourcing. Using data from Norwegian local governments covering the period 1995–2012, our main results indicate that a decrease in local government revenues is linked to more outsourcing of both infrastructure and support services.     

Financing the health care of the aged.

The Medicare and Medicaid programs, which were enacted through the 1965 amendments to the Social Security Act, placed the federal government in the central role of assuring access of the aged and the poor to needed medical care. In this article the trends in the sources of financing medical care services for the aged are examined. The distinction in terms of insurance coverage between acute care services and long-term care services is highlighted. The effect of the programs in terms of reducing the aged's direct financial cost of medical care, increasing their access to medical services, and improving their health status is explored. The unanticipated increase in the cost of these programs has led to a change in emphasis in public policy, from assuring access to mainstream medical care to containing the cost of providing care. The direction of new federal policies is analyzed, and it is concluded that no longer will it follow the private sector's specifications of the conditions and arrangements under which health services are provided to program beneficiaries.