Spending beyond Your Means during a Recession? Not So Much for Local Governments Constrained by Fiscal Rules

Lang (Kate) Yang
The Great Recession, which started nearly a decade ago, may feel like a distant memory for some, as the United States economy is expanding for a ninth consecutive year. However, local governments in the nation still experience turmoil in their finances. National League of Cities’ 2016 City Fiscal Conditions report shows that city revenue has recovered to about 96 percent of precession (2006) levels. While many cities have improved service provision efficiency or cut back services and workforce during the recession, another option to weather the shock is to run a deficit and spend beyond the means. While structural or persistent fiscal imbalances are undesirable for local officials and can even lead to credit rating downgrades, deficit financing during recessionary periods may be justified for maintaining the necessary level of public service provision when regular tax and other revenue collection does not suffice.

Local governments achieve deficit spending through either borrowing or dipping into their reserves, if they have built one going in to a recession. Neither option is free. Borrowing from banks or investors on the municipal bond market requires interest payments, while leaving that reserve alone usually means investment returns. To what extent local governments are willing to take on a deficit during the recession depends on factors including local governing structure, managerial preference and expertise, level of savings, access to the debt market, and the capacity of paying back debt or replenishing reserves after the recession ends.

It is the last factor and its relationship with tax and expenditure limits that I explore in the recent paper published in Local Government Studies. Tax and expenditure limits are fiscal rules imposed on local governments by state governments (through legislations) and statewide voters (through referendums) to limit how much revenue localities can raise in any given year. For example, the famous Proposition 13 in California limits annual real estate tax on a parcel of property to one percent of its assessed value and the assessed value can only increase by a maximum of two percent per year. For cities constrained by a tax and expenditure limit, their capacity of paying back debt or replenishing reserves is predictably limited. The paper explores whether these cities were less likely to deficit spend during and after the Great Recession than unconstrained cities.

Data collected from the largest 50 cities’ comprehensive annual financial report show that cities subject to a tax and expenditure limit indeed were less likely to spend beyond their means. Their expenditure levels grew at a slower pace. As a result, their net assets, which are assets net of any payback liabilities, decreased at a slower pace as well. The difference between cities subject to tax and expenditure limits and unconstrained cities was especially pronounced immediately after the crisis (years 2011 and 2012), possibly because cities first pursued other means of weathering the shock than cutbacks and because the hit on city finance is delayed compared to the hit on the general economy.

Many cities saw their streetlights shut off, community centers shuttered, and bus services cancelled during the recession. While some may rather prefer the cuts than spending, others may see the value of maintaining a stable level of service provision despite decreased revenue collection. Although the paper refrains from evaluating whether deficit spending in general is beneficial to city governments and residents, it is ultimately a decision up to the localities. The paper finds that fiscal rules imposed by a higher-level government have an impact on city financial decisions. This finding indicates that deficit financing following a recession is no longer a “pure” local decision. Financial management conservatism caused by tax and expenditure limits might have contributed to more painful cuts in some cities than others.

 

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Lang (Kate) Yang is an assistant professor at George Washington University. Her research interest includes state and local government taxation, budgeting, and financial management. Her recent publications in Public Budgeting & Finance and National Tax Journal examine how local governments respond to fiscal rules imposed by higher-level governments.

Local Government Studies – virtual special issue on budgeting

Peter Matthews

This February to April local councils across the UK will be setting their budgets for 2016/17 in unprecedented times. The Comprehensive Spending Review has set local government in England on a new course where it will be expected to raise far more of its own income through Council Tax and Non-Domestic Rates. Revenue Support Grant, which transfers money between local authorities, is essentially being abolished by 2020 – to be discussed in greater length in a paper to be published in Local Government Studies soon.

Local government in the UK has to continue providing a range of statutory services. The budgetary pressures upon them are leading to strategic choices to remodel services through outsourcing and co-producing services with local communities. The editorial team of Local Government Studies has put together a virtual special issue gathering together recent publications to inform this debate. The papers present academic research and commentary on the situation UK local government finds itself in now: with review articles by Peter John, Vivien Lowndes and Laurence Pratchett, and John Stewart, along with a review of the extent of the cuts and how local councils are coping from Bailey et al.

We then turn to specific contributions as to how local government is responding, or might respond, to the austerity it faces: through case studies of the devolution of risk to local communities and individuals in Bristol and Liverpool; a discussion of resilience; place-based leadership and innovation and finally strategic commissioning of outcome-focused services. We close the special issue by drawing on international evidence to ask how we might understand the financial risks local authorities face, but also the difficult link between public attitudes and fiscal challenges and choices.

The following articles are free to read through this link only until 31 December 2016.

 

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Peter Matthews is a Lecturer in Social Policy at the University of Stirling. He is a member of the editorial team of Local Government Studies published in association with INLOGOV.

Do ‘sticky’ institutions always survive? The demise of the Audit Commission

Katherine Tonkiss

The Audit Commission played a central role in the audit, inspection, performance improvement and regulation of local authorities (and other public service providers) in England for over thirty years. Operating at arm’s length from government, it thrived under the efficiency and performance improvement agendas of successive Conservative and Labour governments, growing into a large and powerful public body. Yet those familiar with the history of the Audit Commission may note that antipathy towards the institution among local authorities and other stakeholders grew at the same time its powers were being expanded, and when the Coalition Government came to power in 2010 the Commission had lost considerable popular support. Yet few – and least of all the Audit Commission itself – anticipated the announcement of its abolition in August 2010.

The academic literature on the reform of arm’s length bodies doesn’t account for the relative ease with which the decision to abolish the Audit Commission was accepted and progressed. This literature tends to highlight how abolitions of large and powerful bodies which are deeply embedded in the public institutional architecture of the state (as the Audit Commission was) are very contested and difficult to implement. The literature refers to the ‘institutional stickiness’ often displayed by such bodies, denoting their capacity to survive even where there is considerable will to abolish. The Audit Commission appears to buck this trend – why?

This is the question we sought to tackle in our recent article on the abolition of the Audit Commission, published in Local Government Studies. In our article we apply a form of ‘argumentative discourse analysis’ to a large qualitative dataset which we collated on the abolition. This approach enabled us to focus on the ways in which narratives and storylines expressed by different actors framed the Audit Commission and the decision to abolish. As a result, we are able to demonstrate how discourse is an important medium through which administrative reform is negotiated.

In our analysis we identified that there was a strong pro-abolition discourse which focused on the idea that the Audit Commission had become bureaucratic, inefficient and burdensome; that it was not delivering a regulatory function in the public interest; and that change was needed to rectify these problems to deliver full accountability for public audit. This discourse was underpinned by a range of storylines which focused on areas such as accountability, localism, inefficiency and the desirability of open market competition for audit contracts. These storylines were uttered by a wide range of considerably powerful actors such as the government, conservative MPs, the right-wing press and the Local Government Association, and in a range of public settings including parliamentary debates, evidence to select committees, press briefings and ministerial statements.

By contrast the anti-abolition discourse was far weaker. It focused on the Audit Commission as providing a high quality independent audit function and sought to challenge narratives about it being inefficient and wasteful. The key storylines were uttered by the left-leaning press, the Audit Commission itself, some third sector organisations, some Labour MPs and a trade union, making use of select committees, responses to the government consultation on the decision to abolish, and open letters. Yet this discourse was not overtly anti-reform. It focused more on preserving the key functions of the Audit Commission, such as the independence of public audit, more than it did on the preservation of the Commission itself.

What our analysis shows, therefore, is that a strong ‘discourse coalition’ formed around the pro-abolition position which provided a solid basis for the newly elected government – aided by a popular mandate, legislative capacity and executive authority – to move forward with abolition. The influential actors involved were able to access various institutional settings which ensured that these storylines would be reported in the media. Timing and time were also important factors – the proposal was developed in secret, and the Audit Commission was only notified a few hours ahead of the abolition statement in the House of Commons. Such timing prevented the Audit Commission from formulating and seeking to build a strong discourse coalition around its own anti-abolition storyline.

The Audit Commission’s ability to survive was also hindered by deep institutional norms which prevented it from seeking its own preservation. This can help to explain why it refrained from launching a full defence, focusing only on the preservation of its functions rather than of the organisation. The discursive resources open to the Audit Commission were constrained by the deep norms which come with accepting appointed office, including not criticising its own abolition or political decisions concerning administrative reform. Without this defence, and without substantial stakeholder opposition to the proposals, the abolition was relatively straightforward.

Our analysis, therefore, helps to explain why, contrary to the literature on institutional stickiness and to other parallel cases of public body abolition at the time, the Audit Commission’s abolition was relatively simple and unopposed. Isolated and bound by institutional norms not to criticise its own abolition, the Audit Commission and its few supporters were placed in a weak position by a powerful pro-abolition discourse coalition.

This post is based on the following article: Tonkiss, K. and Skelcher, C. (2015) Abolishing the Audit Commission: framing, discourse coalitions and administrative reform. Local Government Studies. DOI: 10.1080/03003930.2015.1050093.

Katherine Tonkiss is a Lecturer in Sociology and Policy at the School of Languages and Social Sciences, Aston University. Prior to this she was a Research Fellow at INLOGOV working on Shrinking the State, a project examining the abolition of public bodies under Coalition Government.

Katie Tonkiss

Can smart maps improve local government?

Walter T. de Vries

Local governments are increasingly making use of internet-based applications and social media to provide services and to interact with citizens. As these applications can operate on smart phones, it is possible for any citizen to upload their wishes and complaints directly. Some of these applications use digital maps, such as google maps, which makes it possible for citizens to upload a report on a specific location and to see if their contribution has been dealt with. In addition, the reports allow local governments to visualize and analyze spatial patterns of citizens’ contributions. This can be used by governments to verify where problems occur regularly, and by citizens to follow up on where a local government is actively addressing their problems.

Are these applications however really helping local governments? At first one would say: yes, they are. Ideally the uptake of mapping applications and the cheap acquisition of data would make local government more efficient in cost and time and more effective in acting on reported problems . Our recent article in Local Government studies, The Contradictory Effects in Efficiency and Citizens Participation when Employing Geo-ICT Apps within Local Government , evaluates to which extent this is true. Do citizens really voluntarily contribute to such systems, and is it really useful for local governments?

The study relies on the usage of the mobile application called the “verbeterdebuurt” (http://www.verbeterdebuurt.nl ) (a Dutch term and application which translates as “improve my neighborhood”), in Enschede (a city of nearly 160,000 inhabitants in the east of the Netherlands).   The application which relies on ‘voluntary’ contributions of citizens compliments a centralized internal system used at the municipality to handle reports on public space, such as complaints about maintenance of city roads, greenery, street and traffic lights, waste and sewerage, amongst others. By law, the Enschede local government has a responsibility to act on the reported problems within a defined deadline. In order to act appropriately, it is however crucial to obtain relevant information about the type and location of the problem.

Statistics of the past year reveal that in Enschede many people discovered the website and are increasingly uploading reports through the mobile app. One could conclude that this provides clear evidence that such mapping applications can help local governments in locating and addressing problems. However, the mapping facility is not decreasing the number of problems nor is it increasing the quality of the reports. On the contrary, numbers have increased rapidly and the quality varies considerably. The key question is why. When evaluating the reports more closely, there is a greater portion of trivial complaints, such as litter which could be easily picked up by the one who reported the problem. Furthermore, the facility also created opportunities for a kind of opportunistic behavior. A number of private construction companies started to frequently report problems that only they themselves could solve. The intentions of the technical design were thus overshadowed by unexpected consequences.

In sum, there is more work to do for developers of mapping applications, before local governments can increase their efficiency and effectiveness in the management of public space. Countering unintended behavior requires further attention before achieving more transparency and accountability of local governments.

de vriesWalter Timo de Vries (w.t.devries@utwente.nl) is Assistant Professor, land information governance and organization; and course coordinator, land administration, at the Faculty of Geo-Information Science  and Earth Observation of the University of Twente in Enschede, the Netherlands. Walter researches how, why and when agencies cooperate and coordinate to align (geo-)ICT and (geo-)information services within the public sector.

Buying local votes? Campaign spending effects in Belgian local elections

Gert-Jan Put, Bart Maddens and Jef Smulders

In democratic countries worldwide, elections are being organized on an increasingly larger scale. This makes it more challenging for political parties and candidates to communicate with voters and reach their target groups. Alternatively, they resort to mass media and costly electoral campaigns, for which parties and candidates are often prepared to spend exorbitant amounts of money.

Research on campaign spending in general elections has shown that these investments do matter, especially for political challengers: by raising personal expenses, challengers are able to close the gap with incumbent candidates. The latter group enjoys the obvious advantage of their office, which provides them with more (campaign) visibility and organizational capacity. As a result, spending is significantly less effective for them than for challengers, who need to compensate their lower visibility with more expensive campaigns. This incumbency effect is confirmed in majoritarian electoral systems such as the US, UK, Sweden and Canada, but also in some proportional systems such as Ireland and Belgium.

But local elections are of course a different story compared to general elections. In these smaller-scale electoral contests, voters are more familiar with candidates because of their closer geographical proximity. This changes the nature of the electoral competition and campaigning: voters will be more inclined to cast personal votes, candidates use different campaign techniques and the media plays a more limited role.

Does this imply that campaign spending effects will also be different in these elections? Is it worthwhile to invest a huge amount of personal resources in local campaigns? Does it increase the number of preference votes a candidate receives, and more importantly, does it raise one’s odds of getting elected? In our recent article in Local Government Studies, we address these questions and examine the effect of individual campaign spending on the results of local election candidates.

The article focuses on the case of the Belgian municipal elections of 2012, for which we collected data on 30 municipalities in the district of Leuven (in the Flemish region). We registered the declared campaign expenses for all the 172 lists and 3.632 candidates in these 30 municipalities. However, many of these candidates cannot be considered ‘serious contenders’: their candidature is merely symbolical to support the party, they are not interested in holding local office and will arguably invest little in their campaign. Therefore, we only included candidates who already held office in the municipality or at a higher political level, as well as candidates with some level of media attention during the campaign. This group of 1.006 serious contenders (28.4% of all candidates) were included in our analysis.

The results show that the personal investment in the campaign does have an effect on the electoral result. Candidates who spend more in absolute terms or outspend their rivals (at the list and the municipality level) obtain a better result, even though the effect is small. We even found some traces of an effect of personal spending on the odds of obtaining a seat in the municipal council. This finding points at an intriguing difference with national elections in Belgium, where such an effect was not found. Winning a seat is obviously what matters most to a candidate. If a candidate can increase the number of preferential votes, but not to such an extent that he or she can capture a seat, the investment is useless. In this way, investing in the campaign can be considered as more effective for local than for national elections. At the same time, this result should not be overstated. The chances of obtaining a seat in Belgian municipal elections are still overwhelmingly determined by other parameters, such as the position on the list and the incumbency status of the candidate.

Indeed, holding any type of local or higher office increases the number of preferential votes. There are also indications that spending is less effective for candidates holding an executive office in the municipality (as mayor or alderman). Interestingly, holding higher office (i.e. regional and national MP, MEP, minister) has a smaller effect than important local offices such as mayor or alderman. These findings confirm that the result of local elections (at least with regard to preferential votes) is still largely determined by local dynamics, as it should be.

This post is based on the authors’ full length article, ‘Buying local votes: the effect of individual campaign spending under a semi-open PR system in the Belgian local elections‘, published in Local Government Studies.

gert-jan

Gert-Jan Put is a researcher at the Research Foundation Flanders (FWO) affiliated to the KU Leuven Public Governance Institute, Belgium. His research interests include candidate selection, legislative turnover and campaign spending.

maddens

Bart Maddens is professor of political science at the KU Leuven Public Governance Institute, Belgium. His research focuses on political party finance and elections.

jef

Jef Smulders is a researcher at the Research Foundation Flanders (FWO) affiliated to the KU Leuven Public Governance Institute, Belgium. His research interests mainly include party and campaign finance and political party organization.

Examining citizen participation: theory and practice

Laurens de Graaf

As a researcher of citizen participation I often discuss the functioning of local democracy with, among others, councillors, officers and citizens. These discussions are showing that knowledge of democratic theory in the field is not often very present.

Partly, this is understandable –if the field consisted of political scientists only, would democracy function at all? But it seems as if limited knowledge about democracy creates some practical problems. To put it more precisely, the perspective on democracy appears to depend on the slogan: ‘where you sit is where you stand’. Councillors see themselves as guardians of democracy, because they are (the only ones) elected, and are the representatives of the people. Officers don’t often understand the (seemingly) irrational decisions councillors make and see democracy often as frustrating for their policy process. Citizens are distant observers and only a few committed citizens are actually participating in democratic processes.

Councillors and officers have been aiming for (more) citizen participation since the 1990s. But what effect does citizen participation have on local democracy?

Citizen participation is vital to democracy

Citizen participation is usually seen as a vital aspect of democracy. Many theorists claim that citizen participation has positive effects on the quality of democracy. Theories of participatory democracy, deliberative democracy and social capital assert that citizen involvement has positive effects on democracy. It contributes to the inclusion of individual citizens in the policy process, it encourages civic skills and civic virtues, it leads to rational decisions based on public reasoning, and it increases the legitimacy of the process and outcome. These aspects are summarized in the table below.

Aspects of democracy Clarification Theoretical Perspective
Inclusion Allow individual voices to be heard (openness; diversity of opinions) Social capital & Deliberative democracy
Civic skills and virtues Civic skills (debating public issues, running a meeting) and civic virtues (public engagement and responsibility, feeling a public citizen, active participation in public life, reciprocity) Participatory democracy & Social capital
Deliberation Rational decisions based on public reasoning (exchange of arguments and shifts of preferences) Deliberative democracy
Legitimacy Support for process and outcome Participatory democracy

Table: Aspects of citizen participation and democracy; a framework for analysis

What councillors and officers are telling me is that they are not fully aware of all these different aspects, but like the overview. It helps them to reflect on democracy from different angels.

Local participatory policymaking in the Netherlands

My article – co-authored by Ank Michels – examines the probability of these claims for local participatory policymaking projects in two municipalities in the Netherlands. However, I think that the claims can also be applied to local democracy in the UK and other countries. The article focuses on the relations between citizens and government from a citizens’ perspective.

The findings show that the role of citizens in participatory projects is limited, serving mainly to provide information on the basis of which the government can then make decisions. Nevertheless, the article argues that citizen involvement has a number of positive effects on local democracy: not only do people consequently feel more responsibility for public matters, it increases public engagement, encourages people to listen to a diversity of opinions, and contributes to a higher degree of legitimacy of decisions. One negative effect is that not all relevant groups and interests are represented. The article concludes that for a healthy democracy at the local level, aspects of democratic citizenship are more important than having a direct say in decision-making.

Reflecting on the functioning of (your local) democracy can be a fruitful exercise once in a while. The framework of analysis that was presented here may help, among others, councillors, officers and citizens to understand democracy more broadly and empathise with (each) other’s perspectives and roles.

A full account of this research is available in my recent article with Ank Michels: ‘Examining Citizen Participation: Local Participatory Policy-making and Democracy’. Local Government Studies 36 (4), 477-491.

Laurens de Graaf is a lecturer at Tilburg School of Politics and Public Administration, Tilburg University, The Netherlands. In the last ten years he conducted theoretical and empirical research with regard to citizens participation and in a broader sense: the functioning of local democracy. He is often in the field moderating workshops and trainings for councillors, mayors, active citizens and (neighbourhood) professionals about their role and their potential added value to local democracy.