Politics Can Limit Policy Opportunism in Fiscal Institutions: Evidence from Official General Fund Revenue Forecasts in the American States

Governments make policy decisions in the same areas in quite different institutions. Some assign policymaking responsibility to institutions designed to be insulated from myopic partisan and electoral pressures and others do not. In this study, we claim that differences in political context and institutional design constrain the policy choices governments make. Testable propositions based on an analysis of varying electoral incentives and time horizons created by these different contexts are empirically tested using panel data on official general fund revenue forecasts in the American states, 1987 to 2008. The empirical evidence reveals that executive branch agencies and independent commissions produce more conservative forecasts than legislatures with one important exception. Executive branch revenue forecasts in states with gubernatorial term limits are indistinguishable from legislative branch forecasts. Further, we find that legislative branch forecasts are more conservative in the presence of divided partisan legislatures than unified party government. In turn, this implies that entrusting policymaking authority to either the executive branch or an independent commission may only be consequential when the political system itself fails to check legislative excesses or executive myopia.     

State Revenue Forecasts and Political Acceptance: The Value of Consensus Forecasting in the Budget Process

Concerns about political biases in state revenue forecasts, as well as insufficient evidence that complex forecasts outperform naive algorithms, have resulted in a nearly universal call for depoliticization of forecasting. This article discusses revenue forecasting in the broader context of the political budget process and highlights the importance of a forecast that is politically accepted—forecast accuracy is irrelevant if the budget process does not respect the forecast as a resource constraint. The authors provide a case illustration in Indiana by showing how the politicized process contributed to forecast acceptance in the state budget over several decades. They also present a counterfactual history of forecast errors that would have been produced by naive algorithms. In addition to showing that the Indiana process would have outperformed the naive approaches, the authors demonstrate that the path of naive forecast errors during recessions would be easily ignored by political actors.     

Board Diversity,Stakeholder Representation,and Collaborative Performance in Community Mediation Centers

Does board diversity or representativeness influence organizational performance? Though it is understudied in both the public and the nonprofit sectors, learning more about this critical subject can enhance organizational performance within highly collaborative settings. Community mediation centers, which rely on multiple public and private resources to meet their programmatic objectives, provide excellent case studies for analyzing the impact of different kinds of interorganizational linkages on organizational performance. A multitheoretic view incorporating agency, resource dependence, and stakeholder perspectives is employed through a national sample and a two‐stage analysis using a logic model to test the cumulative impact of board characteristics and interorganizational relationships on organizational outcomes. Organizations’ collaborative capacity depends on several kinds of boundary‐spanning activities, including network ties, revenue sources, and the number of stakeholder groups represented on the board.     

The Politics of Forecast Bias: Forecaster Effect and Other Effects in New York City Revenue Forecasting

This paper examines the impact of forecasters, horizons, revenue categories, and forecast timing in relation to decision making on forecast bias or accuracy. The significant findings are: for the most part forecasters tend to report forecasts that are similar rather than competitive. Forecast bias (underforecasting) increases over longer horizons; consequently claims of structural budget deficit are suspect, as an assertion of structural deficit requires that a reliable forecast of revenue shows continuous shortfall compared with a reliable forecast of expenditures. There is an overforecasting bias in property tax, possibly reflecting demand for services. There is an underforecasting forecast bias in two revenue categories, all other taxes and federal categorical grants, resulting in a net total underforecasting bias for the city's revenue. There appears to be a period effect (forecasts in June are substantially biased), but this effect requires further study. The study suggests further examination of the bias associated with revenue categories, time within the budget cycle, and forecast horizon.     

Political Appointments, Civil Service Systems, and Bureaucratic Competence: Organizational Balancing and Executive Branch Revenue Forecasts in the American States

Scholarship on executive politics provides conflicting views about whether staffing administrative agencies through politicized or (politically) autonomous means is the best method for maximizing bureaucratic competence. We offer a theoretical account which maintains that obtaining a proper balance between both types of personnel systems across the supervisory and subordinate levels of an organization will best foster bureaucratic competence. We evaluate our organizational balancing thesis using data on executive branch general revenue fund forecasts in the American states from 1987 to 2002. States with a combination of politically appointed agency executives and merit-selected subordinates generally provide more accurate revenue forecasts than states that possess uniformly politicized personnel selection systems. Conversely, states with a combination of department head–appointed executives and subordinates chosen from an at-will system (i.e., nonmerit) produce more accurate forecasts than states with uniformly autonomous personnel selection systems. Our statistical findings underscore the positive consequences associated with balancing politicized and autonomous means of selecting personnel within hierarchies of political organizations.     

Piling On: Multilevel Government and the Fiscal Common‐Pool

This article discusses the common‐pool problems that arise when multiple territorially overlapping governments share the authority to provide services and levy taxes in a common geographic area. Contrary to the traditional Tiebout model in which increasing the number of competing governments improves efficiency, I argue that increasing the number of overlapping governments results in “overfishing” from the shared tax base. I test the model empirically using data from U.S. counties and find a strong positive relationship between the number of overlapping jurisdictions and the size of the local public sector. Substantively, the “overlap effect” amounts to roughly 10% of local revenue.     

Toward Interest Inarticulation: A Major Consequence of Corporatism for Interest Organizations

The main issue discussed is the difficulties in collective action. Three logics of collective action are identified and discussed in terms of their implications for solidarity within interest organizations and for organizational action. Both solidarity and organizational action are important for successful policymaking. Policies can be decided without the support of the members, but their implementation may thus prove difficult. The theoretical issue of interest articulation by interest organizations is the important one here. The article concludes that encompassing organizations will most likely have difficulty in articulating a definite organizational policy. It is maintained that corporatism and public responsibility-taking can severely hamper the articulation of organized special interests. They lead to interest inarticulation. This may lead to legitimacy problems for the organization and be one explanation for the recent decline in certain established interest organizations in Sweden and recent discussions on the future of corporatism.     

Forecasting General Fund Revenue: An Analysis of Idaho FY 1998 to FY 2011

Forecasting state general fund revenue (GFR) though business cycles means possibly confusing a cycle with an underlying long‐run trend. Relative to the actual revenue, the mean squared error of the academic, legislative, governor's, the growth path (GP), and Holt‐Winters (HW) forecasts for Idaho GFR was not significantly different than the naïve forecast's; the Combined GP‐HW forecast has significantly smaller mean square error. The GP model (ARIMA 1, 2, 1) produced a short‐run elasticity of revenue with respect to income of 1.05 (±0.05). The best GFR forecasts combined a HW two‐step‐ahead level with a GP one‐step‐ahead trend that provided a forecast of GFR with the smallest root mean square error between FY 1998 and FY 2009. A budget stabilization fund needs to be 34–40 percent of GFR for GFR to sustain growth at the state's long‐run expansion rate during a contraction.     

Budget Slack,Institutions, and Transparency

Economic theory suggests that it is optimal for governments to use precautionary saving as a countercyclical tool. However, the availability of surplus funds often triggers political pressure for tax cuts and spending increases. Mechanisms for alleviating that pressure include limiting the transparency of slack resources and limiting politicians’ discretion to use slack resources for purposes other than stabilization. This article investigates the extent to which these two mechanisms are substitutes. In particular, the authors examine whether the widespread adoption of budget stabilization funds (BSFs) in the U.S. states over the past several decades has been accompanied by a decline in conservative revenue forecast bias. Using panel data from 47 states over a 22‐year period, they find that the adoption of a BSF reduces revenue underestimation by approximately two‐thirds; however, the size of the effect depends in part on how much a state saves in the BSF and the rules governing BSF deposits and withdrawals. The results suggest that BSFs have the unintended effect of increasing fiscal transparency.     

The Right Mix? Gender Diversity in Top Management Teams and Financial Performance

Recent research has illustrated that demographic diversity influences the outcomes of public sector organizations. Most studies have focused on workforce diversity; by comparison, little is known about how managerial diversity affects organizational outcomes. This article focuses on gender diversity in the top management teams of public organizations and its relationship to financial performance. Theory suggests that management diversity can be a positive asset for organizations, allowing for the use of more diverse knowledge and human skill sets. Results of this study, however, suggest that organizations may only be able to leverage these advantages if they have a supporting management structure. In a longitudinal study of top management teams in Danish municipalities, the authors find that gender diversity in top management teams is associated with higher financial performance, but only in municipalities with a management structure that supports cross‐functional team work. These results are interpreted in light of existing theory, and implications are suggested.     

Managing Diversity in U.S. Federal Agencies: Effects of Diversity and Diversity Management on Employee Perceptions of Organizational Performance

Diversity in the workplace is a central issue for contemporary organizational management. Concomitantly, managing increased diversity deserves greater concern in public, private, and nonprofit organizations. The authors address the effects of diversity and diversity management on employee perceptions of organizational performance in U.S. federal agencies by developing measures of three variables: diversity, diversity management, and perceived organizational performance. Drawing from the Central Personnel Data File and the 2004 Federal Human Capital Survey, their findings suggest that racial diversity relates negatively to organizational performance. When moderated by diversity management policies and practices and team processes, however, racial diversity correlates positively with organizational performance. Gender and age diversity and their interactions with contextual variables produce mixed results, suggesting that gender and age diversity reflect more complicated relationships. This article provides evidence for several benefits derived from effectively managing diversity.     

Strategic Human Resource Practices: Introducing Alternatives for Organizational Performance Improvement in the Public Sector

Can public sector organizations increase productivity through competition in spite of inherent limitations, such as budget constraints? This study addresses that question by examining the impact of four factors that contribute to employees’ expectations regarding competitive work environments on organizational performance in terms of overall quality of work and client satisfaction. The four factors measured include rewards for merit such as salary and benefits, opportunities, organizational rules, and the capacity to deal with risks as perceived by employees. Using data on public and nonprofit sector employees, expectations for merit rewards were positively related to employees’ perception of organizational performance when the conditions of performance‐based organizational rules and risk‐taking behaviors were also satisfied. Moreover, employees’ perceptions of organizational performance tended to increase when they felt that organizational rules were oriented toward performance plus organizational members and top leaders exhibited greater risk‐taking behaviors. However, no correlation was evident between employees’ expectations of opportunities and perceived organizational performance.     

Reemployment Services in the Netherlands: A Comparative Study of Bureaucratic, Market, and Network Forms of Organization

Progress in New Public Management research requires careful comparison of different organizational approaches to public tasks, preferably within a single political and institutional setting. This paper presents a study of three approaches to reemployment services, a recent development in the Netherlands. How do bureaucratic, networked, and market‐based forms of organization function with regard to the new public aim of second‐tier reemployment in the Netherlands? It appears that there is no simple dependence between performance and instrumental or organizational features. Even in the setting of a single welfare state, intricate interactions exist between performance, stakeholder interests, and institutional conditions. Given the importance of these interactions, New Public Management research would benefit by shifting focus away from organizational performance toward a “politics of institutional structuring.”     

Leadership and the Transformation of a Major Institution: Charles Rossotti and the Internal Revenue Service

Charles Rossotti took the helm at the Internal Revenue Service in 1997 amid complaints of abuse of both IRS workers and taxpayers. Did he succeed at improving the agency’s image without sacrificing its principal mission to enforce the tax code fairly and effectively? This retrospective on Rossotti’s five‐year tenure suggests that he, his leadership team, and teams of IRS employees managed effective changes that substantially improved services to taxpayers and the administration of a beleaguered revenue‐collection system. His leadership offers valuable lessons and insights for administrators in all settings. Are there invaluable lessons that public administrators might learn from Rossotti’s management strategy?     

On the uses of econometric models: A guide for policy makers

This paper reviews the evidence on ex ante and ex post forecasting with econometric models, considering in particular the role of human judgment in improving forecast accuracy. The importance of human judgment in econometric forecasting and the general superiority of ex ante over ex post forecasts provide evidence of model misspecification, which casts doubt on the validity of econometric policy simulations. An inadequate basis for selection among alternative models with differing policy implications undermines further the utility of these models in policy analysis and in testing hypotheses. Despite this record of performance macroeconometric models thrive and are widely used in policy analysis. Some reasons for their survival and importance in policy are suggested, and guidelines for the use of econometric models in the policy process are given.     

Accounting for Time: Comparing Temporal and Atemporal Analyses of the Business Case for Diversity Management

Public management strategies have an inherent temporal component: managers take action at one time, and employees or organizations respond at a later time. However, it is common to study such strategies using atemporal research. Concerns about the inadequacy of this approach have led scholars to advocate for public management research that incorporates time. Because following this advice is difficult, it is important to evaluate how the omission of time affects the understanding of public management strategies. This article compares temporal and atemporal analyses of the business case for diversity management—the expectation that organizations that manage diversity well will also improve their performance. Using survey and personnel data drawn from U.S. federal government subagencies, the article shows that both analyses support this general expectation. However, the cross‐sectional analysis, by failing to account for organizational inertia, portrays diversity management as more potent than the analyses taking time into account.     

Eleven theses on markets and civil society1

Abstract

Civic engagement, through voluntary associational membership, is touted as the keystone of community. It is within these groups where people get a chance to come together to form the necessary social network connections needed to accomplish collective endeavors. Civic engagement can have a bridging effect, bringing disparate people and communities together. Civic engagement can also have a bonding effect on members, which builds strong in-group ties, putting the membership at odds with outsiders. This article examines the relationship between voluntary associations and social network diversity. Since civic engagement is considered a resource, vis-à-vis social capital (where more is always better), the relationship between social network diversity and multiple group membership is isolated. The type of group is also taken into consideration, because the nature of some organizations, e.g., religious and neighborhood associations, can prove an impediment to diversity. Using the national sample of the ‘Social Capital Community Benchmark Survey, 2000,’ I find that membership in voluntary civic organizations has a positive relationship with social network diversity in the United States. Multiple group membership, as well as participation in neighbourhood associations and arts and book clubs, shared a positive relationship with social network diversity.     

Managerial Experience and Organizational Performance: A 15‐Year Panel Study of Local Assessors

The proposition that managerial experience improves performance is an empirical claim, yet panel studies with long time dimensions exploring the relationship are uncommon. This article investigates the impact of managerial experience on organizational performance using a 15‐year panel of local property assessors in Washington State from 1999 to 2013. Each additional year of experience improves assessment quality as measured by the coefficient of dispersion by three‐tenths of a percent. However, although the relationship is statistically significant, the size of the effect is quite small, with administrative practices and the environment surrounding the assessment task being stronger predictors of assessment performance.     

Language, myths and rhetoric

Political language can evoke a set of mythic beliefs in subtle and powerful ways. Murray Edelman is professor of political science at the University of Wisconsin-Madison. He has been a consultant to various national and state commissions concerned with economics planning and collective bargaining. He has published widely in the fields of political psychology, labor management relations and public policy. His recent workds include The Symbolic Uses of Politics, Politics as Symbolic Action: Mass Arousal and Quiescenceand American Polities: Public Policy, Conflict and Change.     

Uber Über regulation? Regulatory change following the emergence of new technologies in the taxi market

Can emerging technologies transform not only markets, but also foster new regulatory change mechanisms? In the context of prevailing theories of regulatory change, this article explores the extent to which an interest‐based explanation can account for the regulatory responses toward emerging Transportation Network Companies (TNCs). Based on a primary cross‐city analysis of the 40 largest cities in the United States, the study found that although the existence of ex ante interest groups indeed somewhat limited the extent of ex post regulatory acceptance of TNCs, regulators seemed to prefer the newcomers over existing incumbents and approved TNCs in 77.5 percent of the examined cities, rarely pursuing harsh enforcement even when TNCs operated illegally. The research attempts to explain this intriguing phenomenon by extending the interest‐based approach to account for the key role played by “technological regulatory entrepreneurs.” The entrepreneurs bridged collective action barriers by becoming the central agent that managed, and reaped the benefits of, the collective action, by lowering the organizational costs and by disseminating information effectively and turning consumers into political campaigners, thus successfully promoting regulatory change.