Financial Sustainability Of Local Government Research Articles

Effects of Facilitating Internal Control Mechanisms on Financial Sustainability:The Case of Local Governments in Spain

This paper provides evidence about the effects of facilitating internal control mechanisms on the financial sustainability of local governments. Specifically, it explores the effect of Spanish regulation mandating that municipalities prepare the Annual Financial Control Plan (PACF for its acronym in Spanish). The study is based on the PACFs of 77 Spanish municipalities and relates the quality of risk analysis and the scope of planned public audit activities to the financial sustainability of the municipalities. Our results show that higher quality risk-based planning and increased use of operational audits contribute to financial sustainability. We also find that municipalities with less complex structures and women in positions of responsibility, such as mayor or controller, have greater financial sustainability. In contrast, a lack of resources for the development of the control function is a limiting factor.

Drivers and risk factors of German local financial sustainability focusing on adjusted income

Analysing the financial sustainability of local governments is of great interest, as they offer a wide range of services and are close to citizens. Various organizations have pointed out the need to analyse the determinants of financial sustainability, and recent research has focused on several European countries, using adjusted income as a dependent variable. To fill the research gap in the context of German local governments, we conduct an empirical analysis with 5 years of data from 363 local governments from North Rhine–Westphalia to analyse the impact of socio-demographic and financial-economic factors on financial sustainability, focusing on the adjusted income. Our results indicate that financial sustainability is influenced by factors on which the local governments have no impact or at least only a limited impact. Specifically, the debt level and the level of population are identified as risk factors, whereas own taxes, rate support grants and the net cash surplus serve as drivers of financial sustainability. Points for practitioners Understanding the determinants of financial sustainability is important for politicians and public managers in order to improve their risk management and decision-making processes and to prevent future sustainability problems. This paper identifies several socio-demographic and financial-economic determinants of FS, on which the local governments have only a limited impact. Considering that the financial sustainability of German local governments in North Rhine–Westphalia largely depends on external factors might be of great interest for policymakers with regard to future financial crises.

Financial Sustainability of Local Governments in Indonesia

This study aims to examine the factors that impact the financial sustainability of local governments in Indonesia. This study used a quantitative method and employed the secondary data processing of the Regional Government Financial Reports (LKPD) for 2018–2020 retrieved from The Audit Board of the Republic of Indonesia (BPK). This study used a saturated sample that included every member of the population, precisely 34 Indonesian provinces. The author used multiple regression analysis of panel data by using Eviews 10. This study employed financial sustainability as the dependent variable, whereas total population, gross regional domestic product (GRDP), and financial independence acted as independent variables. This study concludes that total population and gross regional domestic product have a substantial negative impact on financial sustainability, while financial independence positively affects financial sustainability. This study adds new information about the financial sustainability of Indonesian provincial governments, providing theoretical support that future research can later expand upon. By taking into account variables that may impede or promote financial sustainability in each location, local governments can utilise this research to inform the policies they adopt to manage the finances of their respective regions.

Do Amalgamations Make a Difference? What We can Learn from Evaluating the Policy Success of a Large Scale Forced Amalgamation of Local Government

Deteriorating financial sustainability of local governments internationally has resulted in increased implementation of structural reform programs as a potential solution. However, the lack of a coherent framework to evaluate policy success has resulted in a myriad of approaches being applied by scholars, sometimes with conflicting results. This inconsistency is problematic given the importance of ex post analyses to the learning process, needed to ensure better decision-making and more efficacious interventions in the future. To address this gap in the literature, we employed the policy success framework along with a number of difference-in-difference analyses to assess the impact of amalgamation following a recent large-scale program. Moreover, in cognisance of the policy success literature, we also introduced a new innovation whereby we conducted empirical estimations on the disaggregated elements of total expenditure. We conclude with an enumeration of important lessons for policymaking and scholarly analysis.

How to Manage the Components of Financial Sustainability in Local Governments

This study aims to evaluate three dimensions proposed by the IFAC (International Federation of Accountants) in relation to impact financial sustainability. These dimensions are service, revenue, and debt. In 2017 and 2018, a regression analysis was conducted for Italian local governments on the different components of financial sustainability. Based on goal-setting theory, and in combination with the ambition to pursue adequate good financial sustainability, significant results were demonstrated. It was seen that these local governments would have to maintain a good level of autonomy with current revenue. They would also need to control the quantity and quality of service in order to pursue financial sustainability. This study suggests practical implications for policymakers and the managerial class, and it seeks to identify methods to drive and keep financial sustainability under control. It also seeks to define current and future management strategies that focus on pursuing intergenerational equity in local governments.

Financial Sustainability of Local Governments in the Eyes of Finnish Local Politicians

Local government aims for financial sustainability in ensuring the wellbeing of citizens at the expense of their tax incomes. As members of local councils, local politicians are the highest decision-makers who are responsible for setting the aims and evaluating the outcome of municipal operations. Hence, local politicians’ notions on financial sustainability play an important role in sustainable decision-making. Although financial sustainability is seen important, previous research is limited in providing studies on the multidimensional nature of financial sustainability. Prior research has focused on the measurement of financial sustainability, often in the contexts of financial difficulties. This paper aims to answer this research gap by studying local politicians’ interpretations on financial sustainability and contributing to a deeper understanding of the phenomenon. This qualitative study employs interview data collected from 24 Finnish local politicians from five municipalities. Based on the content analysis of the interview data, financial sustainability is, in the eyes of local politicians, a political issue with multiple factors in and out of the reach of decision-makers. These notions could be utilized in future research in developing methods for measuring and managing financial sustainability in local governments.

The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study

Purpose This study aims to assess the sustainability of local governments in a highly centrally regulated fiscal model. Design/methodology/approach This paper uses a novel approach, a broad data set of almost 3,200 local governments and network methods. This paper analyses financial data from annual reports and other socio-economic sources using cluster analysis. Findings Even in this model, local governments show significant differences in terms of long-term sustainability. Investments do not compensate for the depreciation of tangible assets at a significant part of local governments. A specific type of soft budget constraint can be noticed. Heads of local governments do not “play” for subsequent ad hoc bailouts by the central government, but rather engage themselves in political competition for development subsidies. A further finding of this study is that shrinking populations itself does not explain the differences in local governments’ financial management. Research limitations/implications Further directions of research include the application of an extended approach to sustainability that gives an account of the availability and quality of local services, as well as aims to identify the qualitative social characteristics (success criteria) of the local government financial management. Practical implications The findings can be useful for policymakers, state audit offices, auditors, voters, users of public services and other stakeholders. Social implications The paper argues in favour of moving away from the financial balance in its narrow sense to a long-term and broader term of financial sustainability. Originality/value The findings provide new empirical evidence about the accounting-based measurement of financial sustainability in local governments.

The Influence of Socio-Demographic Factors on Financial Sustainability of Public Services: A Comparative Analysis in Regional Governments and Local Governments

In recent years, financial sustainability (FS) of public policies has become a key concept in all governmental levels due to the need for ensuring public services delivery for future generations. Prior research has been focused on the financial sustainability in local governments (LGs) although its findings suggested the need to analyze this magnitude in other levels of government because political decisions could be different in each type of public entity. So, FS has also become very relevant in the Regional Government (RGs) context because their public policies affect not only at the regional level but also the local one. Therefore, from a comparative approach, this paper seeks to identify socio-demographic factors which could influence on the financial sustainability, in the Spanish context for both LGs vs. RGS in order to establish public policies to make sustainable public goods and services. Findings demonstrate that differences in influential factors between these two levels of public administration exist: factors such as population size and foreign population could have an effect on the financial sustainability of both governmental levels while the unemployment rate, dependent population, and population density affect differently on LGs and RGs.

Improving Local Governments’ Financial Sustainability by Using Open Government Data: An Application of High-Granularity Estimates of Personal Income Levels in Romania

The availability of open government data has expanded considerably in recent years. This expansion is expected to generate significant benefits not just for increasing government transparency, but also for the economy. The aim of this study is to illustrate the use of open government data in estimating personal income levels for all 3181 municipalities, towns, and communes in Romania. The novelty of our work comes from the high granularity of the estimates obtained. We use tax revenues collected by local governments in Romania on vehicles and buildings owned by natural persons, as well as data on energy subsidies. The classification is conducted using the k-means clustering algorithm. We find three distinct clusters of communities, which we map. The results can benefit both businesses and policymakers. The former can use the income level estimates for market intelligence purposes, while for the latter, these may aid in determining the financial sustainability of local governments and a better allocation of central government resources at the subnational level.

Operating within the boundaries of legislation, accountability and personal agendas

PurposeThe purpose of this paper is to examine and compare the views of mayors and comptrollers of Catalan municipalities on aspects related to the Spanish legislation on financial sustainability – its usefulness and necessity of maintaining, its impact on citizens’ welfare and alternative proposals. The setting is rather interesting as strict rules are imposed by a legislation criticized of mimicking European Commission policies, on well-performing municipalities, in light of the recent “independency” conflict.Design/methodology/approachThe study uses insights from the public choice theory and the concept of accountability to draw a framework that could explain the perceptions of mayors and comptrollers. The views of the two groups are captured with the use of an online questionnaire.FindingsThe results indicate that while the application of strict rules has borne fruit, this trend is not sustainable in the long run and a careful reconsideration is required. Accordingly, both groups express concerns on citizens’ future welfare. It moreover appears that in this particular setting, mayors’ and comptrollers’ sense of accountability toward citizens exceed their personal interests.Originality/valueThis study provides empirical evidence on the impact of strict budget stability and sustainability rules on the long-term financial sustainability of local governments from the point of view of mayors and municipality comptrollers who are called to implement them.

Collaborative leadership and financial sustainability in local government

ABSTRACTThis research examines whether collaborative leadership significantly influences the financial sustainability of local government. Unlike other studies on financial sustainability, ours examined collaborative leadership’s effect on both subjective and objective financial sustainability by controlling for socio-demographic and economic factors (i.e., population size, population density, population aged over 65 years, unemployment rate, and gross domestic regional product) that influence the financial sustainability of local government. Ordinary least squares (OLS) regression analysis of data collected from local revenue officers as well as secondary data from local governments in South Korea revealed that collaborative leadership has a positive effect on the subjective perception of financial sustainability and a negative effect on the objective financial sustainability (net debt) of local government. These findings underscore the necessity of collaborative leadership for financial sustainability as well as the strategies needed for its development in local government.

What about Financial Sustainability of Local Government!—A Critical Review of Accountability, Transparency, and Public Assurance Arrangements in England during Austerity

ABSTRACTAusterity strained the financial sustainability of governments and ability of policy-makers to address policy challenges, and so having appropriate accountability and transparency arrangements to assure the public they were getting value for money took on renewed urgency. Comparing and contrasting findings from a critical review of policy developments in English Local Government during the Conservative led coalition central government 2010–2015 with those from related studies on accountability and transparency more generally, the article offers key themes for practitioners and policy-makers seeking to build stronger democratic systems of governance that go well beyond the UK jurisdiction.

Analyzing Forces to the Financial Contribution of Local Governments to Sustainable Development

In many countries, the economic crisis brought high volumes of deficit and debt in public entities, which jeopardized the ability of governments to continue providing public services and caused considerable imbalances of economic growth in different regions. In this context, from the recognition of the linkage between economic development and efficiency in public management, previous research indicates that local governments are called to play a key role in promoting sustainable development through environment, economic and social policies based on financial sustainability of the public services. This paper aims to identify influencing factors on the financial sustainability of local governments, as an indicator of their capacity to maintain the delivery of public services over time. Based on a sample of 139 Spanish municipalities with large population for the period 2006–2014, our findings reveal the influence of variables such as the unemployment rate by sector, the dependent population, the immigrant population and the level of education of the population, on the financial sustainability in local governments, providing new useful knowledge to managers, policymakers, researchers and others stakeholders interested in the sustainability of public services.

Risk Factors and Drivers of Financial Sustainability in Local Government: An Empirical Study

The current international crisis in public finances has made financial sustainability a key issue for governments. Although the European Union (EU) and other international organisations have recommended governments to monitor demographic and economic variables, few studies have considered the influence of these variables on financial sustainability. This paper seeks to identify and analyse the drivers and risk factors that influence the financial sustainability of local government. The findings identify both risk factors (unemployment and population aged under 16 years) and drivers (budgetary outcome) of financial sustainability, which may constitute a useful basis for decision-taking by managers and policy-makers.

Bridging the gap: A Collaborative Approach to Rural Sustainability

In August 2013, the Eastern Ontario Warden’s Caucus (EOWC) produced a series of whitepapers that address municipal affordability in Eastern Ontario and the financial sustainability of local governments. With costs drastically outpacing population growth, rural municipalities have few means to bridge the gap. The white papers report that municipal operating budgets have increased by 65% over a ten year period, while population growth rose 13%. The factors driving costs are the same for each municipality, which supports the need to increase efficiencies through a regional approach on cost sharing. This same approach needs to be considered in economic development as communities continue to compete for investment from the same market place. This paper proposes that regional collaboration will result in economic sustainability. Economic and municipal strategies need to reinforce collaborative strategies through the development of a regional approach that shares costs and secures partnerships to deliver services and contain these costs. Short term actions should include developing an economic development strategy for Eastern Ontario, securing funding for infrastructure maintenance, and forming a task force that will investigate ways to contain infrastructure costs. Keywords: Collaboration, economy, regional, sustainability, growth

Factors influencing local government financial sustainability: an empirical study

In the present context of international public finance crisis, the analysis of government sustainability is considered of vital importance, and a significant element in this is the accounting measurement of intergenerational equity. The aim of this paper is to identify factors that may influence the financial sustainability of local government, doing so through the analysis of 116 local administrations in Spain. Based on Pearson correlation analysis, our main findings show that the annual budget result is a key determinant of local government financial sustainability, and highlight the value of controlling the balance of budget expenditures in preventing future problems of viability for these local authority services.

Symposium on Amalgamation and Financial Sustainability in Local Government: Part 2

Despite the longstanding nature of local government as a topic of academic inquiry, the question of financial sustainability and in particular council amalgamation as a means of improving the operation of municipalities continues to be a salient feature of local government studies writ large. Grounded in the claim that municipal population size bears a strong relationship to financial sustainability, programs of structural reform and in particular council amalgamation continue to be pursued, despite the absence of empirical support for this claim. This Symposium focuses on the effects of amalgamation on the financial sustainability of local government.

Symposium on Amalgamation and Financial Sustainability in Local Government: Part 1

Local government amalgamation, frequently also referred to as council consolidation and municipal mergers, whereby small local authorities are subsumed into larger entities, has often been used as a means of improving the operation of municipalities and enhancing their financial viability. However, empirical evidence on the impact of mergers is mixed. This Symposium focuses on the effects of amalgamation on the financial sustainability of local government.

Harnessing Private Funds to Alleviate the Australian Local Government Infrastructure Backlog

A series of national and state public inquiries into the financial sustainability of local government have demonstrated that all Australian local government jurisdictions face a daunting local infrastructure maintenance and renewal backlog. Various solutions to the problem have been advanced in the literature, including the establishment of an Australian municipal bond market to facilitate the use of private sector finance to fund the remediation of the infrastructure shortfall (Byrnes et al., 2008). However, despite the conceptual attraction of this particular policy proposal, as a majority of Australian local authorities are small, with limited administrative and technical capacity, they would have great difficulty in securing access to a municipal bond market. In this paper, we consider municipal banks and bond banks as alternative institutional solutions to the Australian local government infrastructure backlog.

The Local Capacity, Local Community and Local Governance Dimensions of Sustainability in Australian Local Government

The problem of the ‘financial sustainability’ of individual local councils represents the most significant policy question at issue in contemporary debate on Australian local government. This concern with financial sustainability has not only dominated almost all recent local government conferences across Australia, but it has also formed the capstone of several public inquiries into state local government systems. For instance, at the state level, both the South Australian Financial Sustainability Review Board’s (FSRB) (2005) Rising to the Challenge and the Independent Inquiry into the Financial Sustainability of NSW Local Government’ s (LGI) (2006) Are Councils Sustainable were centrally occupied with determining the meaning of financial sustainability in Australian local government and developing measures of financial sustainability. Moreover, the Queensland Local Government Association (LGAQ) (2006) Size, Shape and Sustainability (SSS) program, the Western Australian Local Government Association (WALGA) (2006) Systemic Sustainability Study and the Local Government Association of Tasmania (LGAT) (2007) Review of the Financial Sustainability of Local Government in Tasmania had at their core the problem of assessing financial sustainability in their respective local government systems.