From Performance Budgeting to Performance Budget Management: Theory and Practice

This article examines the decades‐long practices of performance budgeting in different countries and their associated challenges from a multilayered institutional framework. Based on theory and lessons learned, the article recommends an array of strategies to address institutional and organizational barriers. It also proposes to reconceptualize performance budgeting as a performance budget management system and suggests how multiyear budget planning, financial risk assessment, policy planning, the departmental budget cycle, the program budget cycle, stakeholder engagement, regular spending reviews, and performance audits should be integrated more closely to address the long‐term fiscal challenges faced by many governments and to respond to the public pressure on agencies to do more with less.     

Pay‐as‐You‐Go Financing and Capital Outlay Volatility: Evidence from the States over Two Recent Economic Cycles

Pay‐as‐you‐go (pay‐go or cash) and pay‐as‐you‐use (pay‐use or debt) are two mechanisms to finance capital projects. While pay‐go faces multiple constraints, pay‐use smoothes outlays, stabilizes tax rates, and improves inter‐generational equity. Thus, pay‐use has dominated infrastructure financing for decades. In recent years, there has been revived academic interest in pay‐go as an alternate financing mechanism; however, there is a large gap in the literature and inadequate evidence on the effects of pay‐go, especially its effects on capital outlay volatility. This paper fills in the niche. Examining state experience over the two recent economic cycles, this paper finds evidence that suggests that pay‐go is associated with lower volatility in capital spending in the long run, but may increase short‐run variability. We recommend that states couple pay‐go in boom years with pay‐use in lean years. In unison, the two mechanisms can reduce aggregate volatility and increase long‐run stability of capital expenditures.     

The Strategic Use of Information Technology by Nonprofit Organizations: Increasing Capacity and Untapped Potential

How are nonprofits using information technology to enhance mission‐related outcomes and boost organizational performance? The authors examine a large‐scale survey of nonprofits’ technology planning, acquisition, and implementation to assess the strategic use of IT in these organizations. They evaluate nonprofits’ strategic technology‐use potential by examining IT‐related competencies and practices that are critical for the successful strategic employment of technology resources. Several promising developments are found, alongside significant deficits in the strategic utilization of IT, especially in the areas of financial sustainability, strategic communications and relationship building, and collaborations and partnerships. To boost IT’s mission‐related impact, nonprofits must enhance their organizational capacities in long‐term IT planning, budgeting, staffing, and training; performance measurement; Internet and Web site capabilities; and the vision, support, and involvement of senior management.     

The Role of Slack in Local Government Finances

The research presented here adopts an organizational approach to develop three regression models that examine why local governments accumulate slack in the form of unreserved fund balances, and what is the impact of slack resources on local governments' short‐term fiscal conditions and decisions about spending and revenues. Using data on Chicago suburban municipalities and their governments, the first model estimates the effects of long‐term and short‐term conditions (fiscal and governing) on unreserved fund balances. The second and third models examine the impact of slack resources and other factors on year‐end deficits or surpluses and changes in spending and own‐source revenues. The results show that ending balances, expenditures (size), and long‐term fiscal conditions have the greatest effect on fund balances, and that slack and current fiscal conditions have the greatest effect on ending balances and changes in revenues and spending.     

Interjurisdictional Competition and Intracity Fiscal Disparity across Chinese Prefectural Cities

Fierce competition among county‐level governments has substantially increased disparities in public service provision and housing markets across urban China. The role of the changing intracity administrative structure deserves scholarly, attention in this process. Building on an interdisciplinary literature of public choice and cadre promotion theory, we propose that interjurisdictional competition enlarges the intracity fiscal disparity under China's transitional administrative and fiscal systems. Results from fixed‐effect panel data modeling confirm that cities with higher level of interjurisdictional competition are associated with higher intracity fiscal disparity. This study demonstrates how transition and decentralization of the centralized fiscal system have long‐term, intended and unintended, impacts on fiscal inequality and urban stratification. With continuous urban sprawl, jurisdictional annexation, and large‐scale urban‐to‐rural migration, our study suggests that policies attempting to equalize public service distribution within cities need to consider the administrative structure at the local and regional levels.     

BUDGETING IN A TIME OF AUSTERITY: THE CASE OF THE ESTONIAN CENTRAL GOVERNMENT

Resulting from the global economic crisis, high budget deficits and debt burden characterise many economies looking for an exit strategy from current fiscal unbalances. The government of Estonia, having pursued a conservative fiscal policy for over a decade, reacted to the economic recession with radical budget adjustments, the latter constituting approximately 9% of gross domestic product in 2009. Consequently, Estonia took its chance and qualified for the euro in 2011. This study examines the behaviour of the Estonian central government and the basis of its budget decisions when planning drastic cost reductions through the theoretical lens of cutback management. The foremost results reveal that the crisis pushed the government to establish a different institutional framework that facilitated fast and effective decision‐making during the budget process. The savings proposals came from the Ministry of Finance; however, running a cash‐basis line‐item budgeting system in practice, the centre possessed only limited performance data for developing the proposals. Consequently, the long‐term impacts of the budget adjustments had not been assessed and are as yet unknown. A further conclusion is that the current budgeting framework should be revised and replaced step by step with a more advanced approach. Copyright © 2012 John Wiley & Sons, Ltd.     

The influence of the gramm-rudman-hollings act on federal budgetary outcomes, 1986—1989

This article analyzes the impact of the Gramm-Rudman-Hollings (GRH) Act on federal budgetary and fiscal outcomes. Rather than portraying it as a two-on federal budgetary and fiscal outcomes. Rather than portraying it as a two-party game between Congress and the president, each with monolithic policy preferences, we view GRH as a multiparty negotiation game among advocates of different programs and agencies. In this game, agencies subject to sequestration and their congressional advocates have an incentive to reach a budget accord, while those exempt from sequestration do not. Consistent with this argument, we find that GRH has restrained outlays for nonexempt programs and that exempt programs have, if anything, experienced more rapid growth. Overall, GRH is estimated to have restrained outlays by $59 billion by fiscal 1989, and to have restrained outlays more effectively after the 1987 modifications in the Act. The Gramm-Rudman-Hollings Act signals another phase in the decade-long struggle between the White House and Congress over public spending priorities. Our final counterfactual analysis suggests that GRH partially returned federal fiscal and budgetary relationships and priorities to those that prevailed before Reagan.     

The Impacts of State Capital Management Programs on State Economic Performance

Although the normative literature advocates systematic capital management practices, empirical studies investigating the tangible benefits of these practices are rare. Based on previous findings that public investment affects economic growth, this study extends the model of government spending and economic growth to investigate the effect of systematic capital management programs on state economic performance. Using panel data from 1997 to 2004 and the Government Performance Project's data on state capital management practices, the empirical results indicate that highly systematic capital management programs positively alter the relationship between the state's capital spending levels and the state's economic growth rate.     

The preservation needs of public housing

Abstract

The paper examines the preservation needs of public housing from the perspective of its physical condition and its ongoing repair and replacement needs. It begins by examining the range of needs that exist today, including the level of expenditures that would be required to put the stock in working order to meet existing codes, and to ensure the long‐term viability of the development. It then explores the level of expenditures that would be required on an ongoing basis to keep the stock in good repair and to meet future capital and preventive maintenance needs. The final section addresses several important policy issues, including overall funding requirements, the cost‐effectiveness of preservation efforts compared with vouchers and new construction, the special problems of troubled public housing authorities, and the need to establish stronger incentives for capital planning.     

Public Capital Investment and Economic Growth in Forth Worth: The Implications for Public Budgeting and Infrastructure Management

There is a common assumption that local government investment in infrastructure stimulates private development. This article examines relationships in one southwestern city between public capital spending and city infrastructure assets and private economic activity as measured by building permit activity, permit values, and assessed property valuations. Two research questions are examined: (1) Is public investment in new capital associated with private capital formation? and (2) Is public investment associated with improvements in the property tax base? The findings hold implications for infrastructure planning, budgeting, and management. First, public and private capital spending patterns varied in tandem across several cycles, and tracking such cycles may help public managers predict short- and mid-term infrastructure needs. Second, utility capital spending is critically related to private capital formation, and may offer higher fiscal returns than other public infrastructure. Third, infrastructure capital had a strong significant effect on the assessed value of urban property, and will therefore influence the property tax base.     

The relevance,practicality and viability of spatial development initiatives: a South African case study

Policymakers have for long had an ambivalent attitude towards space and have been hesitant in dealing with intra‐national models of uneven development. Issues surrounding regional development have always been tainted with ideological and political influences rather than being a purely economic consideration. This article addresses the thinking behind regional development policies and questions the role of spatial policy. It confronts this question in the South African case where local government capacity is particularly constrained and the boundaries between government tiers unclear. The first section outlines a selected critical history of the regional policy literature as it applies to South Africa. This is followed by an examination of South Africa's post‐apartheid policy of spatial development initiatives (SDIs) focusing on the most contentious of these, namely the Fish River SDI, which has been plagued by controversy. It focuses on the tensions involved in development planning between government agencies and between politicians and technocrats. It also highlights the growing schism between government and civil society with the former emphasising mega‐projects which reinforce its global competitive strategy but with limited apparent benefit to the local community. Lastly, it concludes that little effort was made to integrate the SDI into a provincial poverty strategy and argues that instead of utilising industrial decentralisation to redress inequality and poverty, a ‘first‐best’ option may be for the government to target poverty directly by investing in various forms of human capital. Such an approach would lead to long‐term economic growth and also improve South Africa's international competitiveness. Copyright © 2003 John Wiley & Sons, Ltd.     

Institutional competitiveness,social investment,and welfare regimes

Are the rather generous welfare regimes found in most European countries sustainable; that is, are they competitive in a globalizing economy? Or will they, on the contrary, be crowded out by the more austere and less expensive regimes generally found in liberal Anglo‐Saxon countries? We first discuss this issue conceptually, focusing on the notions of institutional competitiveness, social investment, and short‐term and long‐term productivity. We then briefly present the results of an empirical study of 50 social indicators of policies and outcomes in 20 Organization for Economic Co‐operation and Development (OECD) countries during the early 2000s. We conclude that welfare regimes have not been forced to converge through a “race to the bottom.” There remain three distinct ways to face the “trilemma” of job growth, income inequality, and fiscal restraint: Nordic countries achieve high labor market participation through high social investment; Anglo‐Saxon countries attain the same objective through minimal public intervention; while Continental European countries experience fiscal pressures because their social protection schemes are not promoting participation to the same extent.     

Are Green Vehicles Worth the Extra Cost? The Case of Diesel‐Electric Hybrid Technology for Urban Delivery Vehicles

A central question for environmental policy is whether the long‐term benefits of energy‐saving technologies are sufficient to justify their short‐term costs, and if so, whether financial incentives are needed to stimulate adoption. The fiscal effects of incentivizing new technologies, and the revenue effects of using the technology, are also policy relevant, given current fiscal constraints. This study evaluates the economic and fiscal effects of promoting diesel‐electric hybrid technology in urban delivery vehicles, an application supported by U.S. policymakers. An economic model is used to simulate the conditional probability density functions of the net present values (NPVs) of diesel electric hybrids annually from 2012 to 2030. The NPV time paths, which reflect fuel price, environmental, and technology trends, show the expected dates that hybrids become economically viable, and allow an evaluation of the net benefits of hybrid technology as an investment over the entire simulation horizon. The NPV distributions are computed for five stakeholder classes, including transportation firms, parties benefiting from reduced externality damages, state and local governments, and the larger society. The analysis shows that hybrid technology investment does not appear to be justified from a societal perspective at a 7 percent discount rate, but the probability for positive net returns increases substantially at a 3 percent rate.     

Using Common‐Pool Resource Principles to Design Local Government Fiscal Sustainability

This article analyzes local government fiscal sustainability as a common‐pool resource (CPR) problem. Comparing the experiences of Los Angeles County, San Bernardino City, and San Bernardino County, California, the analysis applies a framework developed from three decades of CPR research to show the importance of six micro‐situational variables—communications with the full set of participants, known reputations of participants, high marginal per capita return, entry or exit capabilities, longer time horizon, and agreed‐upon sanctioning capabilities—in shaping collective action dynamics and building the trust and reciprocity among stakeholders needed to achieve fiscal sustainability. The underlying contextual conditions for these micro‐situational variables vary based on specific socioeconomic and political settings, but the findings suggest that institutions and processes can be designed based on several well‐tested principles in CPR governance to encourage stakeholders to look beyond their immediate self‐interests and make decisions that account for the community's long‐term fiscal sustainability.     

State and Local Fiscal Sustainability: The Challenges

At the state and local level, fiscal sustainability is the long‐run capability of a government to consistently meet its financial responsibilities. It reflects the adequacy of available revenues to ensure the continued provision of the service and capital levels that the public demands. After examining separate revenue and expenditure trends for state and local governments, this article identifies three specific sets of pressures that affect subnational fiscal sustainability—cyclical, structural, and intergovernmental. It then presents three specific examples of these pressures: Medicaid, pensions and retiree health benefits, and infrastructure. The author asserts that without changes in the fiscal system—in both revenues and expenditures—state and local fiscal sustainability will disappear. It concludes with some potential solutions but argues that the most difficult reform is to ensure that the public understands that there is no such thing as a free lunch.     

The practice of regional development in Indonesia: Resolving central-local coordination issues in planning and finance

Renewed interest by the Indonesian government in decentralization and cost-recovery practices has led to both real and illusory reforms, though the distinction between the two is often not clear. This is particularly true with respect to infrastructure planning and finance. Recently, the allocation criteria for capital grants to local governments have been substantially revised, nearly every year, to reflect long lasting concerns regarding differences in interregional development needs and resources. In addition, the level of funding for local government investment has risen dramatically to support increased local responsibility in planning. Most development spending does not pass through local budgets, however. In either case, the project planning process has remained firmly under the direction of the central government's technical ministries. Infrastructure investment thus tends to be segmented, not only by sector, but also by funding source. The rate at which these two factors balance off in current practice does not indicate a strong commitment to effective decentralization. The article suggests that greater regional government participation in the national planning process would be beneficial. To deal with the fragmented nature of sectoral planning is more problematic, as a more integrated approach would in the long term require either a new layer of bureaucracy or a substantial reorganization of the technical ministries. In the shorter term, a gradual shift toward general purpose grants would also generate regional development plans more consistent with the goals of decentralization while maintaining substantial central control and oversight.     

The Politics of Local Government Stabilization Funds

The adoption, maintenance, and prudent use of budgetary stabilization funds are fundamental financial management precepts, yet the variables that influence the size of these funds are poorly understood. This article contributes to the stabilization fund literature by examining the extent to which variation in stabilization fund balances across municipalities and over time can be explained by a community's political culture and financial management capacity. The balanced panel research design includes archival data for 239 Massachusetts municipalities for each of 18 fiscal years. Stabilization fund balances are lower in communities with either an anti‐tax or a pro‐spending political culture. Stabilization fund balances are higher in communities that have the financial management capacity to accumulate budget surpluses that can be made available for appropriation to stabilization funds. Communities with the open town meeting form of government also have higher stabilization fund balances.     

Fiscal Federalism, European Stability Pact, and Municipal Investment Finance: A Microdata Analysis of Spanish Municipalities

In countries where subnational governments control a large partof the public finances, the central government's ability tokeep its commitment to the European Union's Stability and GrowthPact can be a difficult matter. European rules demand that theoverall budget be balanced over the medium term; applying thisrule at subcentral level may unduly reduce capital outlays andlocal budgetary autonomy. This article examines the possibleimpact of budgetary stability legislation on the capital expenditureof Spanish municipalities. The empirical findings suggest thatthe new budgetary stability framework will oblige municipalitiesto (i) limit their investments, (ii) raise the tax burden, or(iii) reduce the funds allocated to other budget items. We believethe Spanish municipal experience is generalizable to other federalcountries in Europe that are facing hard budget constraintsand high earmarked grants.     

Decentralization,local governance and ‘recentralization’ in Africa

Although Many African states have pursued substantial decentralization reforms in the previous twenty years, many of these reforms are still experiencing problems in bringing about effective local governance. Often these problems grow from the difficulty in translating general reform initiatives into specific working arrangements at the local level that are effective in several key processes and operations. Specifically these include planning and capital investment, budgeting and fiscal management, personnel systems and management, and finance and revenue. A combination of central reluctance to relinquish authority in these key areas and the complexity of organizational redesign to support decentralization seem to explain these problems. Copyright © 2001 John Wiley & Sons, Ltd.