A Framework to Measure the Financial Performance of Local Governments

Abstract

A framework to assess the financial performance of local governments is presented in this paper. The framework adapts and extends an earlier methodology and includes new financial performance measures reflecting considerations in the literature of appropriate financial performance measures for local government units. Using 14 indicators, five broad financial performance measures are employed, assessing liquidity, autonomy, operating performance, collection efficiency and solvency. We apply this numerical and narrative analysis of key financial performance indicators to Ireland’s primary local authorities during the recent boom and bust period. Through application of this financial performance measurement framework using a benchmarking methodology, we identify relatively strong and weak local authority financial performance. We recommend the adoption of this framework as an extension to the annual financial statements of local authorities to help users more easily assess financial performance and to distinguish between relatively well-performing councils and those showing signs of financial trouble, with a view to early identification of councils in financial difficulty.