Local Fiscal Stress in Sub‐Saharan Africa: The Kenyan Example

Abstract

This article identifies the fiscal weaknesses of local government in Africa, with concentration of the fiscal stress that is endemic to their condition. It then examines Kenya, as a case study in sub‐Saharan Africa. It continues to focus down on three Kenyan cities—Nairobi, Mombasa, and Kisumu, and identifies their six major revenue sources: land based revenues, regulatory revenues, income‐based taxes, service revenues, user charges, and government grants. Although some of the data is problematic, it is possible to determine several reasons for local fiscal stress. These reasons include limited access to stable financial resources, unstable national economic performance, centralized governmental control, mixed results of decentralization, and institutional and managerial weaknesses, including corruption in the collection and use of resources. Four recommendations are advanced to help these local governments: the development of local credit systems, the use of non‐governmental organizations, the clarification of the use of foreign aid, and the development of a greater capacity for governance. This articles main theoretical contribution is the development of an analytic framework for examining the reasons for fiscal stress in sub‐Saharan Africa. By examining revenue and expenditure patterns of the three localities, the article develops a data set that highlights some of the reasons for local government financial problems—the governments do not know how much revenue can be collected from a particular revenue source, they do not have records of existing sources of revenue, and they only collect about 40–60% of their estimated collections.     

Revenue Portfolio and Expenditures: An Examination of the Volatility of Tax Revenue and Expenditure Patterns during the Great Recession

ABSTRACT

Local governments in the United States are diversifying their revenue streams and becoming less reliant on the inelastic revenue from property taxes. This article examines both how this affects local governments’ revenue stability in economic downturns as well as their levels of expenditures in key functions: capital and social services. Using data from North Carolina counties from both before the Great Recession and after, this article examines reliance on local sales taxes and stability of revenue. The findings suggest that dependence on local sales taxes do increase volatility and reduce expenditures on social services, all else being equal.     

Motivations Behind Using Performance Measurement: City-wide vs. Selective Users

Abstract

This article identifies and describes the utilisation of performance measurement in Florida local governments. Two research questions are considered here: which factors influence Florida city governments to use performance measurement? And how do the factors associated with cities that are city-wide users differ from cities that are selective users? The paper develops a framework constructed from literatures in performance measurement and management innovation to develop hypotheses that are tested with 2005 Florida local government data. This study finds strong support for the role of community attributes, form of government and internal capacity as contributors to the use of performance measurement. The study also finds the factors that influence city-wide users are different from factors that influence selective users, especially with regard to revenue size and the reward/incentive system.     

Local Governments’ Responses to Revenue Changes: The Effects of Unreserved General Fund Balances

ABSTRACT

Volatile revenues affect the quality and consistency of municipal service provision. This article investigates how cities use unreserved general fund balances to mitigate annual expenditure fluctuations when confronted with volatile revenues. Based on the analysis of a panel dataset of over two thousand American cities from 2003 to 2011, the fixed-effects regression results suggest that unreserved general fund balances reduce municipal expenditure fluctuations on a year-to-year basis. The expenditure-smoothing effects were more pronounced when municipal governments experienced large revenue changes. Results are robust when excluding large cities, using different cutting-points to define ‘moderate’ or ‘large’ revenue changes, and in recession and non-recession years. This article contributes to the local expenditure stabilization literature by recognizing the unreserved general fund balances’ expenditure-smoothing effects during ‘non-rainy days.’ It adds empirical evidence to the organizational theory that financial slack works as a crucial buffer against external changes and provides managerial discretion to local administrators.     

Identifying and Coping with Fiscal Emergencies in Ohio Local Governments

Abstract

This study examines the reasons fiscal emergencies occur in Ohio local governments and the strategies that local governments use to recover. In Ohio, fiscal emergencies have regularly occurred predominantly at the local level. This study aims to reveal the internal process that both bring on and ameliorates fiscal emergencies. Previous studies failed to differentiate between fiscal stress and fiscal emergencies and did not include the role of the Ohio Fiscal Emergency Law in assisting local governments in restoring long term fiscal health. This study finds fiscal emergencies in Ohio were caused by: (1) the increased costs associated with unfunded state-mandated programs and, (2) major economical downturns brought on by local plant closings. Local governments were found to have responded in the short run by strategies such as targeted expenditure cuts and in the long run by increased the use of economic development.     

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.     

The Effects of Corruption on Satisfaction with Local and National Governments. Does Corruption ‘Grease the Wheels’?

Abstract

A causal association was found between higher levels of corruption and lower levels of satisfaction with local and national governments. However, interaction term analysis provides suggestive evidence that: first, as public service satisfaction increases, the effects of corruption change from negative values to positive values for both local and national governments; second, as political situations improve, the negative effects of corruption diminish for both local and national governments; and, third, as the economic situation improves, the negative effects of corruption diminish for local, but not for national governments.     

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.     

Can alternative service delivery save cities after the Great Recession? Barriers to privatisation and cooperation

ABSTRACT

Cities continue to face fiscal challenges after the Great Recession and alternative service delivery is being emphasised as a solution. How promising is alternative service delivery as a solution and what are its barriers? Regression analyses using 2012 survey data of US local governments show that local governments manage procedural barriers, but structural barriers of economy and demography hinder privatisation and cooperation. Places with a housing bust (measured as decline in home values) can use privatisation, but not places with more or increased poverty. Cooperation is more promising for places with increased poverty, but lack of a willing partner hinders this spatially constrained tool. Neither cooperation nor privatisation is promising for places with low home values. State governments must level the playing field for localities with weak economies if market approaches to service delivery are the main tools for local governments to survive fiscal stress.     

Technological Innovation and Its Impact on Public Sector Efficiency and Performance: Aerial Imagery in Property Tax Assessment Administration

ABSTRACT

Technological innovations can help public organizations deliver higher quality public goods and services at lower average costs. While a considerable literature exploring the determinants of technology adoption and diffusion exists, much less is known on whether technology innovations improve public sector outputs. This study investigates the impact of high-resolution, oblique aerial imagery, an increasingly common technology used by local governments in the US, on the inspection efficiency and quality of property assessment administration. Aerial imagery is often argued to be a low-cost substitute to in-person inspections of property. Drawing on data from 2013 through 2017 for property assessing districts in Texas, aerial imagery use is found to improve the rate at which properties are inspected as well as improve the quality of assessments. The results further provide evidence that investments in aerial imagery are best justified on budgetary grounds rather than as a means to improve organizational performance.     

Local Fiscal Stress in California: Out of Local Control and Driving Toward Growth

Abstract

Many regions of the United States have experienced rapid growth in recent decades with California being the best example of this growth. The dangers of such growth have been evident since the 1970s and yet, neither the state nor local governments have been very successful in implementing growth control policies. Why it is that government has been unable to rein in the growth has been the focus of much research in recent decades. There are essentially two schools of thought with regard to this question. One is that pro‐growth forces—essentially landowners, business elites, and elected officials—actively promote growth because it provides them personally with benefits. The other view, advocated most by Paul Peterson back in the early 1980s, is that elected officials do support and adopt pro‐growth policies, but not by choice. Cities, Peterson argued, are constrained by the economic situation around them and they must do what they can to raise revenues and reduce, or hold steady, expenditures. This research examines a region of southern California that has experienced tremendous growth despite the fact that surveys of resident attitudes within the region indicates that in general, residents favor growth control. This research contributes to an understanding of the driving forces behind the pro‐growth policies of local governments by considering how fiscal constraints placed on local governments by the state may limit the policy options of local elected officials, as Peterson predicted. This study finds that there is evidence to indicate that the revenue‐raising options available to cities may be contributing to pro‐growth policies. And this could help explain why elected officials continue to support growth within their cities despite the fact that residents express negative views toward growth.     

Feature review Corruption eruption: Development and the international community

Abstract

‘Tied’ or ‘in-kind’ international food aid has been criticised as an implicit form of export subsidy that governments use to circumvent export subsidy restrictions. In addition to displacing agricultural exports, food aid is less efficient than untied aid and depresses local agricultural production in recipient countries. I argue that tied food aid is not protected by the Uruguay Round Agreement on Agriculture and could consequently be challenged under the World Trade Organization's dispute settlement mechanism as a prohibited or actionable subsidy contrary to the Subsidies and Countervailing Measures (scm) Agreement. As the USA is both the largest donor of international food aid and most consistently ties its food aid to domestic agricultural producers, this paper focuses on US policy to describe the challenge that might be advanced under the scm Agreement.     

An econometric model of the monetary sector in Indonesia

The purpose of this article is to develop an econometric model of the Indonesian monetary sector over the period 1969–80. Before we constructed such a model, we tested the hypothesis that there is a causal relationship between money supply and the aggregate price index using quarterly data. The hypothesis of a causal relationship from prices to money was supported while the hypothesis of contemporaneous causality could not be easily dismissed.

In the model, both money supply and the aggregate price index were used as endogenous variables and they were decomposed into several disaggregates. The possibility of a structural break after the oil price shock (post‐1973) was examined using forecasting criteria. The predictive performance for 1969–73 is better than for 1974–80.     

Economic resilience after the Great Recession: an examination of unreserved fund balance in Michigan counties

ABSTRACT

This paper examines fiscal slack, in the form of unreserved fund balance, as a tool used by local governments to enhance economic resilience. It adapts ecological, engineering, and organisational definitions of economic resilience and investigate their relevance to local financial management in the United States after the Great Recession in 2008. Using group-based trajectory modelling, we identify different strategies of fund balances used by Michigan counties. The change of fund balance does not delineate any pattern theorised by the resilience concepts. We also find different factors that motivate local officials to manage their fund balances differently. The study suggests a nuanced understanding of fiscal slack used by local governments for economic resilience that goes beyond unreserved fund balance.     

An empirical assessment of local autonomy and special district finance in the US

In this article, we interpret local autonomy as a dimensional concept that includes local government importance, local government discretion, and local government capacity. Using longitudinal data from 1962 to 2012 covering all 50 states in the US, we examine how different dimensions of local autonomy affect the expenditure levels and debt levels of special districts. We find that the levels of debt and spending in special districts are lower when local governments have greater revenue diversification. However, fiscal decentralisation in the dimension of local government importance promotes the growth of special district finance. Moreover, our findings on local government discretion suggest that imposing too many fiscal constraints can affect the fiscal independence and capacities of local general-purpose governments. These constraints may also lead to the more extensive use of the fiscal power of special districts that are not subject to fiscal limits.     

Local Government Public Servants Performance and Citizens Participation in Governance in Nigeria

Abstract

This paper examines the performance of public administrators at the local government level in Nigeria. It traces the development of local governments in Nigeria from 1945 to present times. It argues that the shift in the critical decision‐making powers and functions of local government requires its public administrators to be better‐trained professionals. However, without citizens' participation in governance, public servants' accountability will be low. The study addresses the following questions: How do public sector performance and development of actions by citizens affect accountability in the local governments? How much training do public administrators in Nigeria's local governments have in public management? What is the relationship between performance and citizenship participation in local governments' development process? The question of interests in this study is how public administration at the local government level can better serve Nigeria's communities and in so doing develop authentic relationship with citizen groups, and equitably enhance public trust, legitimacy, and performance of the public sector in the nation.     

Local government fiscal reform: principles and options for the future

U.S. local governments in the 1980s were under increasing fiscal stress. The fiscal outlook is not particularly bright because of projected rapid growth of certain expenditures and the slow growth of most local revenue sources. Potentially major changes in fiscal responsibilities at the federal and state levels may call for local government fiscal reform in the future. This article uses a case study of Broome County, New York, to illustrate the difficulties local governments face and then suggests a series of revenue reforms that can enhance equity, efficiency, revenue productivity, and administrative simplicity.     

Financing the decentralization of urban services in developing countries: Administrative requirements for fiscal improvements

Rapid urbanization in developing countries is placing increasing strains on the financial capacity of governments to provide the urban services and infrastructure that will be needed to promote sustainable economic growth. The growing complexity of urban systems in developing countries and the financial constraints on central government agencies are pressuring governments to decentralize a wider range of responsibilities for financing and providing public services in urban areas. Experiments with five approaches to local finance in many developing countries have focused more on revenue generation than on strengthening the administrative capacity of local governments to manage new responsibilities. The success of decentralization and of local revenue generation in the future, however, will depend on strengthening the ability of local governments to manage revenues and expenditures more efficiently and to maintain urban services more effectively. Dennis A. Rondinelli is senior policy analyst and principal scientist in the Office for International Programs at the Research Triangle Institute, PO Box 12194, Research Triangle Park NC 27709. Dr. Rondinelli has served as an advisor to governments in developing countries and international assistance organizations on public administration, municipal management and urban development policy, subjects on which he has published ten books and more than one-hundred articles. His most recent books includePlanning Education Reforms in Developing Countries (Duke University Press),Urban Services in Developing Countries, (Macmillan), andDevelopment Administration and U.S. Foreign Aid Policy (Lynn Rienner).     

Incumbents and Innovations under Decentralization: An Empirical Exploration of Selected Local Governments in the Philippines

Abstract

Like in other developing countries, many local governments in the Philippines have become innovative under decentralization. We investigate here the drivers of local innovations, with focus on quality of incumbent leaders, their political incentives and fiscal resources. We applied Poisson regressions on a survey data comprising 209 innovations introduced in 48 cities and municipalities during the period June 2004–June 2008. The statistically significant factors are the mayor's competence (age, educational attainment), re-election status and term in office. Innovations appear to increase with local fiscal resources but at decreasing rate. Access to information appears not to matter much. However, these factors, including poverty rates, vary in relative importance in explaining innovations in expenditure services, and in revenue and public administration services. Some policy inputs are suggested.     

Managing revenue collection outsourcing in Tanzania’s local government authorities: a case study of Iringa Municipal Council

Due to their critical role in development and governance, local governments need adequate financial resources to deliver the many developmental functions. However, such financial resources are either not available or inadequate. One way of rising to this challenge has been scaling up revenue collection from local revenue sources. This is done through either in-house collection or outsourcing revenue collection. Extant research has focused on the benefits and challenges of outsourcing. This paper expands this body of knowledge by studying how local governments manage private collectors to maximise benefits of outsourcing. From interviews conducted with Iringa Municipality officials and staff, the paper shows that revenue collection outsourcing can be an effective tax administration strategy if properly managed.